Study of Man in the Ordinary Business of Life

The word economics is derived from a Greek word, meaning home management. Here home management means the management of resources. On our planet the resources are limited but the human wants are unlimited. If one want is satisfied another want arises. The human beings are a bundle of desires. The resources are natural, financial, and human. These resources are used to satisfy human wants. In other words these resources are used to produce goods and services which satisfy human wants. Natural resources include land, mineral resources, water resources, forest resources, etc.

While managing the resources, the people make choices hence economics is also known as the science of choices. For example, a piece of land can be used for different purposes such as to build a house, for office use, etc. People take a decision based on several factors. Similarly, if a man has $ 500 U.S., he will satisfy his wants by making choices because his financial resources are limited. Thus economics is also defined the study of man in the ordinary business of life. Economics is all about making the best of things.

Opportunity cost is opportunity lost. Opportunity cost is also defined as the next best alternative sacrificed. For instance a man has $2 U.S. with him. His choices to satisfy his wants are as to spend this scarce $2 U.S. for 1.To drink a coke, 2.Buy a pizza, 3.Have a beer, etc. If he spends $2 U.S. for pizza the opportunity cost of pizza is the opportunity lost i.e., coke.

Wants, efforts, and satisfaction are in a cyclic nature and thus never ending. To satisfy human wants they make efforts and after one want is satisfied another want arises they make efforts again to satisfy the new want. These efforts are in the form of different economic activities such as 1.The primary economic activities like agriculture, forestry, dairying, etc 2. The secondary economic activities like manufacturing industries and 3. The services sector which includes banking, insurance, teaching, transportation, etc.

The subject matter of economics revolves around Production, Consumption, Distribution and Exchange.

The factors of production are land, labour, capital, organisation, science and technology. Different countries of the world have different amounts of these factors of production. For instance, Japan has neither satisfactory levels of natural resources nor the human resources hence it depends heavily on science and technology by importing most of the raw material required to produce goods and services. Japan imports iron ore from India. In India there are abundant natural as well as human resources. The quantity of population is too high hence some other countries like the U.S.A., and many developed countries engage the Indian human resources too in the production of goods and services. In India the quantity of human resources is very high but their quality has to be improved further.

To satisfy human wants people consume goods and services. There are various laws in economics which explain the consumer behaviour the indifference curve analysis is one of them.

After the wealth is created, it has to be distributed among the various factors of production as given below. The land has to be paid rent, the labor gets wages, capital has to be paid interest, and finally the organisation gets the profit as it takes risk in producing goods and services or in creating the wealth. Thus every organisation or a firm tries to maximise its profits by reducing its expenditure on the remaining factors of production.

As mentioned elsewhere earlier all the countries of the world cannot produce all the goods and services, hence exchange of goods and services takes place among the nations of the world. In other words some countries have comparative and or cost advantage in producing certain goods and services over other nations. When the currency was not invented there was a barter system of exchange where by goods were exchanged for goods or services.

In economics, there are several basic and important laws such as 1.The law of demand, 2.The law of supply, 3.The law of diminishing marginal utility, and 4.The law of diminishing marginal returns. According to the law of demand, other things remaining equal the demand is more when the price is less and vice-versa. The law of supply states that the supply increases with the increase in price other things remaining equal. According to the law of diminishing marginal utility, the additional satisfaction obtained by consuming an additional unit of say a fruit decreases. This law does not applicable to drunkards, book lovers, music lovers, etc. Finally the law of diminishing returns is applicable mostly to agriculture sector.

Fiscal policy and monetary policy are also known as the demand management policies. Fiscal policy is a policy which deals with public revenue, expenditure, and debt management. The fiscal policy's objectives are reflected in a country's budget every fiscal year. Similarly the monetary policy is a policy of the central bank of any nation. In India the reserve bank of India formulates the monetary policy to manage the credit in the nation. The management of supply of money is done through Interest rates, cash reserve ratio, etc. In other words the central bank manages the supply of money through various modes to increase or decrease the demand in an economic system.