Much of our everyday experience is related to economics. Studying economics is directly connected with very important things that involve everyone, such as employment, unemployment, inflation, wages, poverty, taxes, banks, foreign currencies.
Economics is the social science that studies how economies (economic systems)operate. It originated as a discipline during the 18th century, when in 1776, the Scottish philosopher Adam Smith published his classic ‘Inquiry into the Nature and Causes of the Wealth of Nations'.
The word “economy” originally referred to “household management” – from the Greek oikos, meaning “household,” and nomos, meaning “rule” (control, law).
The 19th-century British writer Thomas Carlyle called economics the “pig philosophy.” He held this unfavorable view because he regarded the businessman's quest for profits as mere greed.
More recent writers have taken a much more realistic view of economics. The management consultant Earl Bunting stated that: “The goals of business are inseparable from the goals of the whole community.” And the noted economist John Kenneth Galbraith made much the same point: “Economics deals with matters which men consider very close to their lives.”
An economy is the wealth-producing segment of society. Wealth is the total produce of agriculture and manufacturing. Without products there can be no wealth. Money is not wealth. Money is a means of exchange and may be called “the economic equivalent of wealth”. Economies exist because all human beings have needs and desires. All human physical needs are the same: food, clothing, and shelter. Desires, on the other hand, are practically infinite. No one actually needs a television set, automobile, mobile phone, DVD player, or microwave oven. But such commodities have become so common in modern industrialized societies that few people would like to do without them.
Economics is the science that deals with the production, distributionand consumption of wealth and with the various related problems of labour, finance, taxation etc. Economics is concerned with the economy or economic system. The economic system determines how the nation’s resources of land, labour, machinery and raw materials are allocated and used. As most resources are scarce, the allocation of scarce resources and the distribution of the product of those resources are a major part of the subject-matter of economics. In Western economies many resources are allocated to whoever is willing and able to pay the most for them. The distribution is determined by the amounts of money paid as wages and other forms of income. Economists use assumptions to build economic models, both for explanation and for prediction of economic events.
Wealth-producing labour is called productive labour. However, much of society's labour does not create wealth. It is thus called nonproductive labour. To say that it is nonproductive is not to say something negative about it. Most forms of nonproductive labour are necessary in civilized societies. The labour of those who work in government, education, religion, health care, some of the arts, and the military does not produce products. Therefore, it does not create wealth to add to the prosperity of a nation. But these services are needed because no society is entirely economic in its nature. Economic systems can be divided into three types of management:
a) Market or unplanned economic systems in which economic decisions are taken by individuals. Fee-market economists use the most fundamental concept of economics – supply and demand analysis. They believe that all economic questions can be analysed by examining the decisions of individuals and by examining the final result of those decisions made by people as consumersor as managers of firms. In other words, these decisions are left largely to the private sector. The United States is the foremost example of an unplanned economy. The unplanned and partially planned economies are called capitalism. Against unplanned economies it may be said that wealth is unevenly distributed. A significant minority is very rich, a more significant minority lives in relative poverty, and the great bulk of the population—the middle class— lives in fair abundance. This economic inequality often affects the relationship between social groups and classes. Another negative aspect of free-market economies is recession, when decline in economic activity results in higher unemployment and less investment in a country’s industry or business.
b) Planned or centralized economic systems, (as it was in the Soviet Union) in which economic decisions are taken by government planners. The planned economy is generally called socialist or communist. In a planned economy the government decides what goods are to be produced and how they are to be marketed. Central planning often results in long-term inefficiency and economic stagnation.
c) Mixed economic systems (as is the case in Japan, South Korea, and Singapore), in which many economic activities are organized in a decentralized way, but in which the government takes some of the most important economic decisions. In practice, every economic system is mixed to some extent.
Economics is connected with such sciences as psychology, history, law, political science, engineering, mathematics and statistics.
COMPREHENSION CHECK
Exercise 1. Are the following statements true or false?
1. Economics is concerned with everyday problems such
as unemployment, prices, wages etc.
2. Inflation has nothing to do with economics as a science, but it
has a lot to do with my personal income.
3. In industrialized countries a lot of money is wealth.
4. Needs are limited, but desires are without limits.
5. The allocation of scarce resources is not the only subject-matter of
economics.
6. Non-productive labour is unnecessary for a society.
7. Economists can explain economic events, but they are unable
to predict them.
8. A market is composed of two factors: supply and demand.
9. If some economic decisions are taken by the government,
we have a centralized economy.
