Economics can be one of the most interesting and useful things you’ll ever learn. It is filled with
excitement: the pleasure of understanding a model, the thrill of the hunt for explanations, the
electrifying debates about the big question of society.
At the same time, it is tremendously useful. Families, corporations, and governments use economics
when they make decisions about their income and their expenses, the products they make, their
reactions to events, and their world-changing policies.
Some of the most influential people in the world are economists by training and by profession. The
world is in great need of economists who are leaders, both professionally and morally.
There is one overriding reason or learning the basic lessons of economics. All our life from cradle to
grave and beyond, we will run up against the brutal truths of economics.
1. What is Economics?
Economics is the study of choices people make in a world of limits. It is the study of how societies use
scarce resources to produce valuable commodities and distribute them among different people. The
early economists called economics as the science of wealth.
Also, Economics is the study of the production and consumption of goods and the transfer of wealth to
produce and obtain those goods. Economics explains how people interact within markets to get what
they want or accomplish certain goals. Since economics is a driving force of human interaction, studying
it often reveals why people and governments behave in particular ways.
Economics: is the study of how society decides- What, How and for whom to produce.
Different scholars defined economics in different ways:
i) According to Adam Smith:“Economics is an enquiry into the nature and causes of the wealth of
Nations.”
ii) Prof. Marshall: “Economics is on the one side a study of wealth and on the other and more important
side, a part of study of man.”
There are two main types of economics: Microeconomics and Macroeconomics
Microeconomics: In economics, microeconomics is the branch that deals with the functionality and
behavior of individual entities, such as business firms and households, dynamics between buyers and
sellers, borrowers and lenders.
Macroeconomics: In economics, macroeconomics is the branch that deals with the functionality and
behavior of the entire economy of the nation or the world. This includes concepts like national income,
price level, employment, interest rates, etc.
Other broad distinctions include those between positive economics and normative economics.
Positive Economics: The study of economics based on objective analysis. Most economists
today focus on positive economic analysis, which uses what is and what has been occurring in an
economy as the basis for any statements about the future. Positive economics stands in contrast
to normative economics, which uses value judgments.
Normative Economics: A perspective on economics that incorporates subjectivity within its
analyses. It is the study or presentation of "what ought to be" rather than what actually is.
Normative economics deals heavily in value judgments and theoretical scenarios. It is the
opposite of positive economics.
Economics system:
1. Market economy: individual and private firm make decision about production.
2. Command economy: government makes decisions about production and distribution.
3. Mixed economy: Market and communist economy mixed.
2. What are the factors?
Definition of Factors of Production: An economic term to describe the inputs that are used in
the production of goods or services in the attempt to make an economic profit. The factors of
production include land, labor, capital and entrepreneurship.
Factors of production:
Land: Land represents all natural resources, such as timber and gold, used in the production of a
good.
Labor: Labor is all of the work that laborers and workers perform at all levels of an
organization, except for the entrepreneur.
Capital: The capital is all of the tools and machinery used to produce a good or service.
Entrepreneur: The entrepreneur is the individual who takes an idea and attempts to make an
economic profit from it by combining all other factors of production. The entrepreneur also takes
on all of the risks and rewards of the business.