Basic Economics with LRT

1.Economics

Economics is a social science concerned with the production, distribution and consumption of
goods and services. It studies how individuals, businesses, governments and nations make
choices on allocating resources to satisfy their wants and needs, and tries to determine how these
groups should organize and coordinate efforts to achieve maximum output.
Economic analysis often progresses through deductive processes, much like mathematical logic,
where the implications of specific human activities are considered in a "means-ends" framework.
Economics can generally be broken down into macroeconomics, which concentrates on the
behavior of the aggregate economy, and microeconomics, which focuses on individual
consumers.

2. Scarcity

Scarcity refers to the basic economic problem, the gap between limited – that is, scarce
– resources and theoretically limitless wants. This situation requires people to make decisions
about how to allocate resources efficiently, in order to satisfy basic needs and as many additional
wants at possible. Any resource that has a non-zero cost to consume is scarce to some degree, but
what matters in practice is relative scarcity.

3. Production and Distribution

Distribution means to spread the product throughout the marketplace such that a large number
of people can buy it.
Distribution involves doing the following things:
1. A good transport system to take the goods into different geographical areas.
2. A good tracking system so that the right goods reach at the right time in the right quantity.
3. A good packaging, which takes the wear and tear of transport.
4. Tracking the places where the product can be placed such that there is a maximum opportunity
to buy it.
5. It also involves a system to take back goods from the trade.
Distribution can make or break a company. A good distribution system quite simply means the
company has greater chance of selling its products more than its competitors. The company that
spreads its products wider and faster into the market place at lower costs than its competitors will
make greater margins absorb raw material price rise better and last longer in tough market
conditions. Distribution is critical for any type of industry or service. The best price product,
promotion and people come to nothing if the product is not available for sale at the points at
which consumers can buy.
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Production- Since the primary purpose of economic activity is to produce utility for
individuals, we count as production during a time period all activity which either creates utility
during the period or which increases ability of the society to create utility in the future.
Business firms are important components (units) of the economic system. They are artificial
entities created by individuals for the purpose of organising and facilitating production. The
essential characteristics of the business firm is that it purchases factors of production such as
land, labour, capital, intermediate goods, and raw material from households and other business
firms and transforms those resources into different goods or services which it sells to its
customers, other business firms and various units of the government as also to foreign countries.
According to Bates and Parkinson:
“Production is the organised activity of transforming resources into finished products in the form
of goods and services; the objective of production is to satisfy the demand for such transformed
resources”.
According to J. R. Hicks:
“Production is any activity directed to the satisfaction of other peoples’ wants through
exchange”. This definition makes it clear that, in economics, we do not treat the mere making of
things as production. What is made must be designed to satisfy wants.

4. Why Study Economics?

Economics is the study of how societies, governments, businesses, households, and individuals
allocate their scarce resources. Our discipline has two important features. First, we develop
conceptual models of behavior to predict responses to changes in policy and market conditions.
Second, we use rigorous statistical analysis to investigate these changes.
Economists are well known for advising the president and congress on economic issues,
formulating policies at the Federal Reserve Bank, and analyzing economic conditions for
investment banks, brokerage houses, real estate companies, and other private sector businesses.
They also contribute to the development of many other public policies including health care,
welfare, and school reform and efforts to reduce inequality, pollution and crime.
The study of economics can also provide valuable knowledge for making decisions in everyday
life. It offers a tool with which to approach questions about the desirability of a particular
financial investment opportunity, whether or not to attend college or graduate school, the
benefits and costs of alternative careers, and the likely impacts of public policies including
universal health care and a higher minimum wage.
The complementary study of econometrics, the primary quantitative method used in the
discipline, enables students to become critical consumers of statistically based arguments about
numerous public and private issues rather than passive recipients unable to sift through the
statistics. Such knowledge enables us to ask whether the evidence on the desirability of a
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particular policy, medical procedure, claims about the likely future path of the economy, or many
other issues is really compelling or whether it simply sounds good but falls apart upon closer
inspection.
Because I want to understand how the world works. Economics, sometimes referred to as the
queen of social sciences, is all about choice and is at the heart of all decision-making. Broad in
scope, it explains how people, businesses, governments, and even families, schools, and
charitable organizations make decisions with limited resources.
Because I want to make the world a better place to live. Economics is at the heart of many
social problems facing the world, including unemployment, inflation, poverty, pollution, health
care, human rights, and gender and racial inequality. Effective solutions to these problems
require a rigorous training in economics.

5. Differentiate Microeconomics and Macroeconomics

Microeconomics is generally the study of individuals and business decisions. Macroeconomics
looks at higher up country and government decisions.
Macroeconomics and microeconomics, and their wide array of underlying concepts, have been
the subject of a great deal of writings. The field of study is vast; here is a brief summary of what
each covers:
Microeconomics
Microeconomics is the study of decisions that people and businesses make regarding the
allocation of resources and prices of goods and services. This means also taking into account
taxes and regulations created by governments. Microeconomics focuses on supply and demand
and other forces that determine the price levels seen in the economy. For example,
microeconomics would look at how a specific company could maximize its production and
capacity so it could lower prices and better compete in its industry. (Find out more about
microeconomics in How does government policy impact microeconomics?

Microeconomics' rules flow from a set of compatible laws and theorems, rather than beginning
with empirical study.

Macroeconomics
Macroeconomics, on the other hand, is the field of economics that studies the behavior of the
economy as a whole and not just on specific companies, but entire industries and economies.
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This looks at economy-wide phenomena, such as Gross Domestic Product (GDP) and how it is
affected by changes in unemployment, national income, rate of growth, and price levels. For
example, macroeconomics would look at how an increase/decrease in net exports would affect a
nation's capital account or how GDP would be affected by unemployment rate. (To keep reading
on this subject, see Macroeconomic Analysis.)
John Maynard Keynes is often credited with founding macroeconomics when he started the use
of monetary aggregates to study broad phenomena. Some economists reject his theory and many
of those who use it disagree on how to interpret it.
Micro and Macro
While these two studies of economics appear to be different, they are actually interdependent and
complement one another since there are many overlapping issues between the two fields. For
example, increased inflation (macro effect) would cause the price of raw materials to increase for
companies and in turn affect the end product's price charged to the public.
The bottom line is that microeconomics takes a bottoms-up approach to analyzing the economy
while macroeconomics takes a top-down approach. Microeconomics tries to understand human
choices and resource allocation, and macroeconomics tries to answer such questions as "What
should the rate of inflation be?" or "What stimulates economic growth?"
Regardless, both micro- and macroeconomics provide fundamental tools for any finance
professional and should be studied together in order to fully understand how companies operate
and earn revenues and thus, how an entire economy is managed and sustained.