By studying economics, we can understand how an economy solves these central problems. We can thus say that economics is the study of the mechanisms used by an economy or society in making choices related to scarce resources and in allocating these resources in such a way as to obtain maximum possible and optimum returns.
Components of Economics
We need to study economics as the study of economics has the following four broad aspects.
Study of consumption: This aspect deals with the study of the behavior of consumers in different types of markets. The basic concern here is to understand how a rational consumer makes his preferences to get the maximum possible satisfaction, keeping in mind his fixed level of income, the prices of various goods and services, etc.
Study of production: This aspect deals with the production decisions of producers in different types of markets. It explores how a producer takes various production decisions. It highlights how a producer combines different inputs (given their prices) in order to minimize the cost of production and maximize profits.
Study of distribution: This aspect explores how national income is distributed in a country. In other words, we analyze how the income arising from the total production of an economy is distributed in the form of wage, profit, rent, and interest among the different factor owners (labor, entrepreneur, land, and capital).
Study of basic macroeconomic problems: Economics is the most powerful tool to understand and analyze the root causes of the basic macroeconomic problems (such as poverty, unemployment, and income disparity) faced by an economy. Not only does economics help us understand the interrelationship between these problems, but it also helps us take various corrective measures to counter these problems.
Statistical tools and methods have wide applicability across various fields. The following are the Scope of Statistics. Business firms use statistics to study market fluctuations