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Basic Concepts of Economics

Last updated date: 17th Apr 2024
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Introduction to 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.

With this being said, we will begin our discussion on the subject ‘Economics’. This content is readable for especially those students who just started their journey of Commerce in class XI. In short, we can say that Economics is a scoring and intellectual subject which will be a worthy study for the quest for knowledge.

Definition of Economics 

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. Microeconomics deals with small units, single apartments, individual plants, household activities, part of your project, a single event, etc. that come under the microeconomics.

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- 

  1. Supply and demand

  2. Scarcity

  3. Opportunity cost

  4. Time value of money

  5. 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 price of a particular product depends upon the supply and demand of that product.

  • 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 an 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. It refers to utility that is derived from every money a consumer spends.

  • 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 wide 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 on Basic Concepts of Economics

1. What are the basic central problems of an Economy?

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

I. 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.

II. 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- labour-intensive technique. It involves more labour and less capital. The second technique is the capital-intensive technique. It requires more capital and less labour.

III. Whom Do We Need to Produce?

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

2. What is the nature of Economics?

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 behaviour

  • Factor pricing

  • The economic conditions of a segment of people

  • The behaviour of organizations and

  • Location or place of the industry.

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

The economic system is a system that 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