Basic Concepts of Economics

Economics is not only a subject but also a regular practice in every individual's life. It is a way of balancing the financial inputs and outputs. Whether it is a small family or large family, small business firm or a big organization, and individuals pocket money, etc. whatever it is one should plan before the month or count at the end of the month or year. This is what economics is trying to balance the unlimited requirements with limited resources.


Definition

Economics is defined as a technique or a tool of balancing most of the needs which can be termed as a credit and the limited resources, which can be termed as a debit. Keeping a proper and healthy balance between these two terms is nothing but economics. It is one of the Economics basic definitions. Apart from this, we have different basic definitions of Economics there, based on the scenario. Before going to the fundamentals of economics, it has two streams. Namely- macroeconomics and microeconomics. 


Macroeconomics:- 

Macro means large. Macroeconomics deals with large economic related issues like a whole entity or a big organization or the entire nation or the whole city or a complete project etc. Inflation, annual budgets, scarcity, poverty, etc. can come under macroeconomics.


Microeconomics:- 

on the other hand micro means small. The microeconomics deals with small units, single apartments, individual plants, household activities, part of your project, a single event, etc. come under the microeconomics.

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List and Explain The Basic Concepts of Economics

Along with the meaning and the definition of economics, it is important to understand the basic economic terms and concepts in detail to get the awareness of maintaining a proper budget for the house or task or any organization. We have five fundamental economic concepts in general. They are as follows- 

  • Supply and demand

  • Scarcity

  • Opportunity cost

  • Time value of money

  • Purchasing power

Supply and Demand:- 

It is one of the basic economic concepts and theories. Supply and demand can be seen everywhere in our daily life. To understand this concept more clearly, let's take a common example like food products. If we take food and drinks, they need to travel from the farmer to the consumer with multiple mediators. So the price may vary. The exact point of the price at which the buyer and consumer will get to a compromising position, that point is nothing but the state of supply and demand, it means where the demand meets the supply.


Scarcity:- 

This is also the basic concept of economics, which also acts as a factor of demand and supply. Because the supply doesn't meet the demand, then the condition is termed as a scarcity of that particular utility, whether it is food or product or money or any other.


Opportunity Cost:- 

It is one of the 5 basic concepts of economics. It is like a trade-off market. It is also termed as exchange policy like if we want something we need to give others in the form of cash or product or whatever it is. We are creating an opportunity to sell our goods in return for getting our requirements.


Value for Money:- 

It is one of the important concepts in economics because the value of money may vary from time to time based on different factors. The best example of this is the stock market. If the value of a particular stock is about 100 rupees today and it goes on the increase to $200 or $500 within hours or days because of inflation. At the same time, the price made decreases because of deflation.


Purchasing Power:- 

Another fundamental economic concept is the purchasing power of consumers because if we take gold as an example, even though the price of gold is reduced, the buyer may not have the ability to purchase food at that particular time. If he can purchase some amount of gold, the price may increase. That ability of the consumer is called the purchasing power.


These are some basic concepts of economics. As it is a white concept, its scope spreads broadly and can derive several definitions in different scenarios. Among the five basic concepts, 3 fundamentals of economics were most important. Supply and demand, the value of money, scarcity. So it is always important to have a good knowledge of economics to maintain equality in our balanced budgets.

FAQs (Frequently Asked Questions)

1. What are the Basic Central Problems of an Economy?

A. The economy is facing three major problems nationwide. They are- 

  • What to produce?

This is the major problem facing the central government. Because most of the time, we have scarcity in resources and the desires are unlimited, which is infinity. So to produce one good, they need to sacrifice other goods. Choosing or selecting that particular well is the major issue. 

  • How to produce?

After selecting the goats, the government needs to think about how to produce them. For producing goods, generally, they use two techniques. Namely- labor-intensive technique. It involves more labor and less capital. The second technique is the capital intensive technique. It requires more capital and less labor.

  • To whom we need to produce?

This is also another important issue that the government should take care of all the people in the country to whom the product needs to satisfy mostly.

2. What is the Nature of Economics?

A. The nature of Economics can be described with multiple factors. These are also termed as characteristics or attributes of economics. They are as follows- 

  • Product pricing

  • Consumer behavior

  • Factor pricing

  • The economic conditions of a segment of people

  • The behavior of organizations and

  • Location or place of the industry.

3. What is an Economic System? What are its Types?

A. The economic system is a system which involves the mechanism of various activities of Economics like planning, organizing, executing, etc with the help of consumption of goods and to produce the required output by forecasting before itself. It has multiple types based on the methodology used and the ownership. They are- 

  • Market economy

  • Socialistic economy

  • Capitalistic economy

  • Planned economy

  • Central economy