In this article you will learn basic concepts of Economics.
Human wants are countless and are of various kinds. A human is a bundle of desires, with wants infinite in variety and number. Some wants are natural such as food, air, clothing and shelter without which
existence is not possible. However, with the development of social, cultural and ethical values, these wants can be controlled by humans to a certain extent.
Characteristics of Human Wants
Classification of Wants
Basic Concepts of Economics
In Economics, goods are objects or things which can satisfy our wants. Goods can be classified on the basis of tangibility and price.
In Economics, utility is defined as the capacity of a commodity or service to satisfy human wants. In simple words, it can also be called the want-satisfying capacity of a commodity or service.
Value and Price
Value is the utility of a commodity. However, in Economics, it is explained in two senses—value-in-use and value-in-exchange. Value-in-use means the satisfaction obtained from a commodity.
Value-in-exchange means the amount of goods and services which can be obtained from the market in exchange of a particular thing.
Price is the amount of money required to buy a specific unit of a commodity. It does not depend on time and place.
The term wealth means money, properties and gold. In Economics, wealth is used to describe all things which have value and possess utility, scarcity and transferability.
Characteristics of wealth: Wealth possesses utility. It is scarce. Supply is less than its demand. It is transferable which means the change of ownership. Externality is another quality of wealth.
Kinds of wealth
- Personal wealth: It is possessed by individuals such as land and building.
- National wealth: It includes wealth of all individuals of the community and public property such as roads and parks.
- International wealth: Wealth which belongs to all nations is called international wealth such as IMF and UNO.
It is the well-being or satisfaction by a human for possessing wealth. Human welfare is classified as economic welfare and non-economic welfare. Economic welfare shows the part of human welfare which can be measured in terms of money. Non-economic welfare is the one which cannot be measured in terms of money such as environment, law and order, and social relations.
It is all those goods which are used for further production of wealth.
Money is anything which acts as a medium of exchange, a measure of value, a standard of deferred payments and a store of value. It consists of currency and demand deposits.
Income is the result of capital used in production. Production of goods and services generates income.
Production refers to the creation of wealth or utility. It is an activity which results in the creation of goods and services to satisfy human wants. It is a process in which some materials are transformed from one form to another. Examples: Wheat is used for producing bread; wood is used for making furniture.
Every productive activity involves the use of certain basic or primary resources. These resources are known as factors of production. In other words, ‘Anything which helps in the process of production of a commodity or service is called a factor of production’.
Consumption refers to the destruction or lessening of the utility of goods and services for satisfying human wants. Therefore, it is said that consumption is the beginning and end of all human activities.
Basic Economic Agents in an Economy
The three basic economic agents in an economy are households, firms and the government.
Micro and Macro Economics
The term ‘micro’ was derived from the Greek word ‘mikros’ which means ‘small’. Microeconomics studies the economic relationships or economic problems of an individual firm, household or consumer. It is concerned with the determination of output and price for an individual firm or industry.
The term ‘macro’ is derived from the Greek word ‘macro’ which means large. Macroeconomics studies economic relationships or economic problems of the economy as a whole. It is concerned with the determination of the aggregate output and general price level in the economy as a whole.
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Basic concepts of Economics