Basic Concepts of Economics

Many people think that economics is very hard to understand. The complex terms, calculations, formulae’s and other things. Basically economics move around the concepts like good, service, utility, value, price and wealth .So in this blog we will learn about these concepts.

Highlights:

* Economics: Definitions of economics

* Basic concepts of economic 

Economics basically means household management. The economics has been defined by the different economist (scientists) in different approaches and concepts. Each definition will be revolving around the particular concepts .So let’s study them:

1. Wealth Definition of Economics:

Economics is an enquiry into the nature and causes of the wealth of nations (by Adam Smith) .It is the practical science of production and distribution of wealth (by J.S.Mill).

2. Welfare Definition of Economics:

Economics is the study of mankind in the ordinary business of life: it examines that part of individual and social action .Which was closely connected with the attainment and with the use of the material requisites of well-being (by Alfred Marshall).It say that wealth was not an end itself but a means of achieving the welfare (it’s a source of attaining human welfare).

3. Scarcity Definition of Economics:

Economics is the science which studies human behaviour as a relationship between ends and scare means which have alternative uses (by Robbins). Here ends means human wants and means are the resources with which wants were fulfilled

4.  Growth Definition of Economics:

Economics is the study of how men  and society  choose, with or without money ,to employ scare productive resources which could have alternative uses, to produce various commodities over time, and distribute them for consumption now and in future among various people and group of society (by Samuelson)

Basic Concepts of Economics:

GOODS : Goods that satisfies a human want. They are tangible and material outcome of production. Further goods were categorized based on four criteria viz., supply, transferability, consumption and durability.

A. Based on Supply:  Based on supply criteria we have

1. Free goods: Which were free gift of nature and for which supply will be greater than the demand .For these goods no price needs to be paid.

Example: Air, Sunshine, Rainfall etc.

2. Economic goods: These goods were produced through human efforts and were purchased at a given price .For these type of goods supply is less than demand.

Example: Machinery, Furniture etc.

B. Based on Transferability: We have the transferable and non-transferable  goods.

1. Transferable goods: These are the things or goods which can be transferred from one person to another person.

Example: Land, Building, Chair etc.

2. Non-transferable goods: These are the things or goods which cannot be transferred from person to person.

Example: Degree certificates, License, Friendship etc.

C. Based on Consumption: We have consumer goods and producer goods .

1. Consumer goods: These are the goods of first order which gives direct satisfactions after their usage.

Example: Food, Cosmetics etc.

2. Producer goods: The goods which helps to produce other goods. From consumer point of view they give satisfaction indirectly.

Example: Machines, Raw materials etc.

D. Based on Durability:  We have the mono period and poly period goods.

1. Mono-period goods: The goods which are used only once to satisfy a need.

Example: Food items, Seeds, Fertilizers etc.

2. Poly –period goods: The goods are used times and again and can be made use of several times.

Example: Machinery, Implements etc.

SERVICE: A service is any act or performance that one party can offer to another. Services are intangible, non-material, inseparable, variable and perishable.

Example : Services offered by the Doctors, Lawyers, Teachers etc.

UTILITY: After the goods it is the second important concept of economics. Utility is the capacity of the goods to satisfy the human wants. Utility is classified into different kinds.

1. Form Utility: By changing the form of a good greater utility can be created .They offers a high value to the goods.

Example: Processing of Paddy into rice, cotton in to cloth etc.

2. Place utility: By virtue of its position in an area commodity will have different utilities. Mostly the goods were transported from the production places to the consumption places.

Example: Apples from Himachal Pradesh were transported to the southern and western parts of the country thereby increasing the utility of the apples.

3. Time utility: Any time gap between production and consumption of commodities will create time utility. Through Storage over time, greater utility is created for the products.

4. Possession utility: Commodities in the hands of producers have some utility and by the time they reach the consumers through the traders their utility is increased. For example the vegetables, fruits etc. from farmers to the consumers.

VALUE:   It is the capacity of a good to command other things in exchange .For a good to have value it must possess utility, must be scare and it should be transferable or marketable .

PRICE: When the value of a good is expressed in terms of money we call it price.

WEALTH: It consists of all potentially exchangeable resource of satisfying human wants. Anything which has value is wealth. Wealth may e of different type viz.

1. Individual wealth: All the tangible and intangible possessions of the individuals, apart the loans due to them.

Example: Lands, Cars, Buildings etc.

2. Social wealth: Its wealth collectively used by all the people in a nation. These were also called as collective or communal wealth.

Example: Roads, Railways, Libraries etc.

3. National wealth: It is an aggregate of all the individuals’ wealth and collective wealth of the country.

Example: Rivers, Mountains etc.

4. Cosmopolitan wealth: The wealth belongs to the world but not to one country. It’s the sum total of wealth of all nations.

Example: Oceans.

5. Negative wealth: These were the Exclusive debts owed by the individual’s and the nation.

For understanding the economics, one should know about the basic concepts of economics like goods, services, utilities, values, prices and wealth .Knowledge about these will help the person in better understanding of the economics.