An economy can be a small household economy, a business economy, a state economy or a national economy.
To understand economics, let’s take an example of a household economy.
In a house:
- One or two persons earn (Income of the household)
- Every member spends (Consumption)
- Income is divided according to one' needs (distribution)
Let us elaborate this example-
- Suppose the total income of a household is $1000. and this 1000 dollars needs to be divided in to so many parts.
- Our basic needs are to be fulfilled first, Food, Basic Clothing and shelter, Education, Utility bills.
- 200 - Food items
- 100- Milk
- 200- Electricity, Cable, phone and other bills
- 50- Petrol
- 200- Savings Deposit
- 200- Kids Education expenses
- 50- Family clothes
· And suppose some wedding comes in the family or his kids demand to go for a picnic or his wife wants a new dress, new jewellery or he, himself needs a new scooter, anything, one can demand anything, kids might want a new toy.
Now his expenses are more than his income, what he can do is
- Not to Save.- Buy less food.
- Do overtime and earn more.
- Withdraw from his savings.
- Borrow the money from someone
there is one important aspect which is also related to economics is Social welfare. As a parent, Mr. X cant fulfill just one member's demand. He has to take care that all members’ needs should be satisfied.
So, in the above example,
His income is limited, but his wants are unlimited.
And How he allocates his limited income into unlimited wants according to his priorities.
This is economics. so, economics is the science which describes human behavior as a relationship between (given) ends and scarce means which have alternative uses. In simple words, our means are limited but our wants are unlimited , so we have to make a choice that what wants need to be fulfilled.
This was an example of an individual economy,from the same example we can learn another definition of economics which defines economics as the science that deals with the production, distribution, and consumption of wealth here.
- Production - How One Generates Income.
- Distribution- How He Allocates Income To Different Needs And Wants Consumption- How To Consume
* * In economics production is related to productivity ( not only in terms of output of an industry, but also in terms of value of output and services i.e. income) E.g. a teacher's income is his production.
Now with the same example we can learn about a nation's economics.
For a country, its total income is the total income of all people of the country.
And For the Government, its total income is the total amount earned from sales, Property & income taxes,fees and other investments.
Government decides how to distribute its income according to country's needs.
Spend on infrastructure or development or defense.
The same way Government t also feels that its resources are limited.
Government also keeps in mind the social welfare concept; it just can’t spend for the development of one sector or one group only.
Government also finds out ways to increase its income so that its max needs can be fulfilled. And when it falls short of money, it borrows money or depends on one or the other way of income generation. So, This is economics.
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