Why we need to know about economics?
Having knowledge about Economics and Economy is important for people to understand what is happening around them. In an Economy a person acts as a consumer, worker, producer, investors and also as a citizen. So people should have knowledge to understand the world better, to talk about various economic issues which affects them directly or indirectly in one way or other and to gain self-confidence and become wise decision makers. Let’s see what is economics and types of economy in this post.
Economy and EconomicsAn Economy is the place where production and consumption of goods and services takes place. So the Economy encloses all the activities related to consumption, production and trade of goods and services. Economy of a country evolves over the time based on the factors such as culture, history, geographic conditions, laws enacted etc.
The study of different economies of the countries across the world and the factors affecting the economies as a whole called as Economics.
Types of Economy
Market Economy is an economic system in which individuals own and operate the factors of production. In this type the business owners determine the most efficient legal methods of production and produce whatever people are willing to buy and sell. This economic system is also called as Capitalist Economy. Eg: US, UK, Canada.
Command Economy:
Command Economy is an economic system in which the government owns and operates the factors of production. Decision of production will be based on whatever the government decides and distribution will also be based on the decision of the government. This economic system is also referred as Communism or Socialist Economy. Eg: China, Cuba.
Mixed Economy: Mixed Economy is an economic system that has features of both market and command economies. Eg: India.
Traditional Economy: Traditional Economy is an economic system based on customs and traditions and also bases on agriculture and hunting. In this type the goods are produced based on the need for survival i.e. food, shelter, tools etc. and it is produced by farming, hunting and gathering. Eg: Chad, Haiti, Rwanda.
Note: No country is following 100% market economy and 100% command economy and it is practically not possible. Even country like China which is based on command economy allows private companies to participate in the economy but with strong control measures.
Quiz: Do you know how many Indians have won Nobel prize for Economics and who are they?
To know the answer read till the end!
Classification of Economics:
- Microeconomics deals with the decisions of firms and individuals to allocate resources of production, exchange, and consumption.
- Microeconomics looks at the production and prices in single markets and the interaction between different markets but leaves the study of economy-wide aggregates to macroeconomics.
- Microeconomist’s formulate mathematical models based on samples of behaviour and test the models against real-world observations.
The study of Microeconomics involves several key concepts, including (but not limited to):
Incentives and behaviours: How people, as individuals or in firms, react to the situations with which they are confronted.
Utility theory: Consumers will choose to purchase and consume a combination of goods that will maximize their happiness or “utility,” subject to the constraint of how much income they have available to spend. Production theory: Process of converting inputs into outputs is studied in the Production Theory. Producers seek to choose the combination of inputs and methods of combining them that will minimize cost in order to maximize their profits.
Price theory: Utility and production theory interact to produce the theory of supply and demand, which determine prices in a competitive market. In economic equilibrium condition the price demanded by the consumer is the same supplied by the producer in the perfect competitive market condition.
Macroeconomics:
Macroeconomics is the classification of economics that deals with the performance, behaviour, structure, and decision-making of the whole, or aggregate, economy.
- Long-term economic growth and shorter-term business cycles are the two main areas of macroeconomics.
- When compared to Macroeconomics, Microeconomics is more focused on the influences on and choices made by individual actors in the economy (people, companies, industries, etc.).
- In Macroeconomics, the generally studied factors are unemployment, national income, consumption, production, inflation, savings, investments, energy, international trade, and international finance.
Hope the above mentioned information about the types of economy and classification of economics is useful, in the future we will discuss more about important topics under economics. Keep visiting our blog and add your valuable comments in the comments section which will help us improve.
For Quiz Answer Visit: List of Indians who won Nobel for Economics
