Economics: Definition, Scope, and Importance

No doubt, we humans have unlimited wants in this limited world, so we humans make a choice, a choice where we analyze, and allocate scarce resources according to the priority of our needs. This allocation of scarce resources is then used in production, distribution, and consumption.

Economics studies this interaction between human wants and their choice of alternatives thus confirming the natural work of the economy.

We can understand Economics, in two distinct terms - Microeconomics and Macroeconomics.

The study of Microeconomics generally concentrates on the choices made by individuals and business organizations. While Macroeconomics focuses on the behavior of the economy as a whole which is defined on an aggregate level.

Now, we will have a lucid explanation of the terms - Microeconomics and Macroeconomics.

What is Microeconomics? 

Microeconomics is the study of how individual customers and firms make decisions in order to allocate scarce resources.

Microeconomics consists of a single person, household, or business. Economists analyze the behavior of these different entities in response to the price fluctuation in the economy. How exactly these entities react and respond to a minor price change is studied in Microeconomics.

In the study of Microeconomics, we also study the value of goods and services, how individuals make their demands, how they perform their trade, coordinate and cooperate with the change in demand and supply, the dynamics of the demand and supply, distribution of labor, allocation of resources, all these are studied in Microeconomics vastly.

What is Macroeconomics?

Macroeconomics is another branch of economics that studies the behavior and performance of the economy as a whole. This branch of economics primarily focuses on the economic cycles, economic growth, and development of the nation at large.

Macroeconomics studies the foreign trade, fiscal and monetary policy of the government, unemployment rates, inflation level, interest rates, the total output of the product, and cycles of the economy which results in economic growth and depression, all will be studied under Macroeconomics.

Accordingly, economists use aggregate indicators to help the authorities to formulate economic policies and strategies. This brings us to another topic, ‘What is the role of an economist?’ we will study the same in our next section.

The Role of an Economist in an Economy

An economist in an economy studies the relationship between the society’s resources and the production or the output of goods and services. The economists through their funding help to shape the economic policies which are connected to interest, taxes, employment programs, agreements of trade, and corporate strategies.

There are various economic indicators that help economists to analyze potential trends and make economic forecasts.

Now, let us study what are economic indicators.

Economic Indicators 

Economic indicators are a range of indicators that talks about the economic performance of the economy. These economic indicators are published by government authorities on a periodic basis. These indicators basically have a visible effect on the stocks, employment, and international market conditions. These indicators also help in predicting teh future market conditions which will help in moving the markets and making informed decisions.

Some of the economic indicators are as follows:

Gross Domestic Product (GDP)

This is considered as one of the broadest and most popular economic indicator. This indicates the country’s economic performance. The calculation of GDP is done by the total market value of all the finished goods and services which is being produced in one year.

Retail Sales

Retail sales is the report which minutely watches the total receipt or the dollar value of all the goods or services sold in the stores at a given period of time.

Industrial Production 

Industrial production is the report which is basically released by the Federal Reserve and indicates the changes in the production unit of the factories, mines, etc. Shortage or abundant supply in the economy is known via this economic indicator.

Employment Data 

Employment data is another economic indicator that indicates the growth or fall of an economy. An increase in employment indicates prosperous economic growth of the country, on the other hand, a decrease in the employment rate will indicate distress in the economy.

Consumer Price Index (CPI)

Consumer Price Index measures the level of the retail price changes and the costs which the customers are willing to pay. CPI is the benchmark that measures inflation. 

Economics is thus a study of how people allocate scarce resources according to their choice and alternatives available to them. The production, distribution, and consumption of these resources are too affected in the study of Economics. We also studied the two branches of economics - Macro and Micro. Further, we also discussed a few economic indicators. The study was basically an introduction to Economics for the students. Hope the explanation was clear enough for them to reflect on the same.

Conclusion

The fundamental building blocks of both the theories and the research methods or models which they use are extremely different and conflicting. Many economists having managerial economics as an area of research are trying to interlink these two sectors of economics and analyze their dependencies.