Economics deals with how goods are produced, circulated, consumed, and disposed of in the economy.
Natural resources are extracted for producing and processing raw materials into utility-based goods. These are then circulated and distributed amongst the primary, secondary and tertiary sectors of the economy. Consumers (or producers) at each level consume it to either reprocess those goods further or self-consume it.
Last, the goods consumed are disposed of back in the economy after their use is complete.
Nature of economics also deals with
a) economic development in the country in terms of GDP, business, tourism, etc. and
b) standard of living in terms of recreation, healthcare, and education level in the country.
Therefore, Economics is regarded as a social science in nature as it tends to develop scientific relationships between social aspects of the economy.
The nature of economics is divided into two parts-
Economics as Science
Economics is correlated to science as data in economics are collected, organized, summarized, and presented in tabular form. The facts and figures are analyzed and evaluated. The information so presented also defines cause & effect relationships.
For example- The graph below shows the production values of U.S. Dry Natural Gas in trillion cubic feet. Based on previous data, the future data of production is estimated and thus, presented.
It is similar to scientific experiments where experiments are first observed, data is collected & organized, and then conclusions are drawn.
Positive Economics- Based on facts & numbers; Positive economics is the branch of economics that collects actual data and tests & verifies them from other sources. It shows actual economic problems prevalent in society and gives solutions to solve them. For example – inflation in the economy is 7% so the Central bank has increased the Repo rate to combat it.
Normative Economics- Subjective in nature, Normative economics is the branch of economics that is based on the opinions and consultations of people. It is subjective as it takes value judgment from people. It tells what can be the problems in the economy and how they can be solved. For example – Inflation can be 10% next year and it should be controlled by a reduction in government borrowing.
Economics as Art
J.M Keynes said, “An art is a system of rules for the attainment of a given end.”
Economics is interrelated to art as it defines how economic problems should be solved in real life. It gives guidance about confronting economic barriers. For example – people can calculate the amount of tax on real income (income calculated by considering the effect of inflation) by using a tool named ‘indexation’.
Therefore, Economics is both science and art.
Where the scientific aspect of economics helps to locate problems prevalent in society, the art of economics practices real-time solutions to overcome the cause of these problems.
The scope of economics is very far and wide. Economics is essentially categorized into two major segments:
Microeconomics deals with individual behavior, decision-making, and demand & supply. It develops a relationship between various variables like price, demand, etc.
It also states the central problems of the economy – what to produce, how to produce, and for whom to produce and seeks measures to solve them.
Macroeconomics deals with behavior and decision-making at the economic level. Its factors are unemployment, national income, business cycle, etc.
It develops the relationship between national economic factors. For example – the relationship between income, output, and employment states that when the production of goods & services at the economic level rises, the circulation of the same increases. This increases spending of people. Consequently, income in the hands of people also grows. With increased production, employment in the economy also rises.
Economics explains how much resource is available in the economy and how it is being put to alternative use to satisfy the wants of people.
Ultimately, the goal of any economy is to raise the quality of life of its population, accelerate the economic growth of the country and attain global recognition for heavy production and income generation.