Introduction of Economics

Economics Defined

Economics is the proper allocation and efficient use of limited resources for the satisfaction of human needs and wants. It is a branch of social science that deals with the production, distribution, and consumption of goods and services. The aforesaid word is derived from the Greek word "okionomia," which means household management.

Bible of Economics

Sometime in 1776, Adam Smith, also known as the "Father of Economics," published The Wealth of the Nation. The book became the bible of economics for a century (Fajardo, 1990). He argued in the book that the human natural tendency toward self-interest (or, in modern terms, looking out for yourself) results in prosperity (Blenman, 2020). For instance, people will act in an economically rational way when faced with behavioral decisions affecting their own personal income and well-being (Kenton, 2020).

The Invisible hand

The invisible hand is the automatic pricing and distribution mechanisms in the economy. This theory was the primary justification for free market ideologies. Smith stated that the means of production and distribution should be privately owned, and if they are not subject to the regulation of society, they will naturally prosper.

 

The elements of prosperity concerning the invisible hand are the following: Firstly, the practice promoted enlightened self-interest, thrift, and hard work. Example: The butcher does not sell meat with good-hearted intentions; it is evident that his attention is to acquire profit. The butcher sells at a reasonable price, so both parties can benefit. Secondly, the responsibilities of the government are limited to the defense of the nation, universal education, public works (infrastructure such as roads and bridges), the enforcement of legal rights (property rights and contracts), and the punishment of crime. Smith argued that large bureaucratic governments exist and stated, "There is no art which one government sooner learns from another, than that of draining money from the pockets of the people." Finally, stable currency is linked to free-market principles. Smith wishes to limit the government's ability to depreciate currency while adhering to free-market principles by keeping taxes low and allowing free cross-border trade by eliminating tariffs (Blenman, 2020). 

Microeconomics

Microeconomics deals with the economic interactions of a particular unit, such as a person, a single entity, or a company. The interactions refer to the buying and selling of goods by consumers and producers, which take place in markets. Hence, it can be deduced that microeconomics is the study of markets. It is well established in economic theory that there are interactions between supply and demand and scarcity of goods.

Macroeconomics

Macroeconomics is the aggregate unit. It is the study of the performance, structure, behavior, and decision-making of an economy as a whole. It is broader than microeconomics; it refers to national, regional, and global scales. The primary purpose of the discipline is to maximize national income and provide national economic growth, which can translate to increased utility or satisfaction for the people.

Economics as related to other social sciences

Sociology. It is the science of the origin and evolution of society, or of the forms, institutions, and functions of human groups (Webster’s New Collegiate Dictionary, 1970). It attempts to discover the social patterns or human behavior in a social institution, like a family, church, or government. However, economics is more definite; it attempts to understand the behavior of the consumer and producer.

Political Science. A discipline of social science that deals with systems of governance, and the analysis of political activities, political thoughts, associated constitutions, and political behavior (Oxford English Dictionary). It is related to the planning and creation of a sound policy for the people, like the appropriation and disbursement of the national budget and the production and distribution of income.

History. Is the study of the records of past events. Historia, meaning "inquiry; knowledge acquired by investigation. This would provide us with a better understanding of historical events and a solution to our present problem.

Ethics. It is also called "moral philosophy," the discipline concerned with what is morally good and bad and morally right and wrong. It is a science of morals. The aims of ethics and economics may be different; the former may promote material welfare while the latter promotes moral welfare. However, economics cannot be separated from ethics; people should consider the welfare of others in all economic or business dealings. If an individual commits some acts contrary to the interests of his fellowmen, he is directly harming himself because he is a member of society (Javier, Costales, & Rivas, 2002).

Evolution of Economic Society

Direct Appropriation Economy. This society is also known as Hunter-gatherer society, which means that humans relied on their environment; they hunted animals, went fishing on rivers, and scavenged plants for food. The society was very primitive; "man lived from hand to mouth."

Pastoral Economy. It existed 7,500 years ago, when humans learned how to domesticate animals and grow their own plants for greater food security. They recognize their ability to tame and breed animals and cultivate their own plants. It is said that the society was nomadic, moving from one location to another to bless their flocks.

Agricultural Economy. Humans settled down and cultivated soil in addition to the domestication of animals. Technology for farming was developed, such as fertilizer and tools for digging. A manorial system existed in which a lord presided over the manor or a self-sufficient landed estate.

Industrial Economy. The radical changes were based on technological invention, changes in the method of production, and the substitution of factory for household manufacturing. Examples of inventions include the spinning jenny invented by James Hargreaves in 1764, the power loon invented by Edmund Cartwright in 1785, and the steam engine created by James Watt in 1769.

Economic System

It is a set of economic institutions that dominate a given economy and are intended to solve the three (3) basic economic problems. It regulates the factors of production: land, labor, capital, and entrepreneurship.

Types of Economic System

Traditional Economic System. Production and distribution of resources under this system rely on customs, history, and time-honored beliefs, that were handed down from generation to generation. This system relies on farming, fishing, hunting, gathering, or a combination of these activities.In trade, people often use bartering instead of money. They only produce what they require, so there is no surplus.

Command Economic System.  A centralized authority or government exists to make all economic decisions. The government determines what goods should be produced, how much should be produced, and the price at which the goods are offered for sale (Chappelow, 2020).

Market Economic System. It is based on the concept of the free market. The price of goods and services is grounded on the interactions of consumers and producers. Most goods and services are privately-owned. The enactment of fair trade laws, such as those prohibiting monopolies, limits the government's power.

Mixed Economic System. It combines the characteristics of market, command, and traditional economies. It protects private property, and there is a freedom to use capital. However, it allows for governments to interfere in economic activities in order to achieve social aims.

What are the basic economic problems

According to Samuelson, the economic problems of societies are the following: First, determine what to produce- It is important to determine the wants and needs of the people in order to satisfy them. In economics, this is known as demand; if a manufacturer produces something that is not necessary or for which there is no demand, it will not increase people's utility. If a country allocates its resources for a service that is not needed by the people, it is not efficient. Second, how to produce- is a question of manufacturing methods. People have to decide the best combination of factors of production to create the desired output of goods and services. Lastly, for whom to produce- this is known as problem of distribution in economics. Societies need to decide who will benefit from their economic activity and what quantities they will acquire.

 

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