Classification of Economics Homework Given

Following is the classification of economics:

1.    Microeconomics

Microeconomics refers to the decisions made by individual entities such as a person, Household, firms, business organization, and government agencies with regards to the allocation of resources. It explains how such entities respond to the changes in the prices of goods and services. It deals with factors like supply, demand, and price that determine the economy’s prices and services. It explains how the demand changes with change in price. It explains why goods are valued differently. It covers aspects of production, such as efficiency, costs, labour organization, and function of businesses. It also shows how these entities coexist in the economy.

2.    Macroeconomics

It deals with the economy as a whole both on national and international levels. It focuses on a distinct geographical region or a nation or a continent, or even the world at large. It deals with the performance, structure, behaviour, and decision-making of an economy as a whole. The study includes a wide range of topics such as Gross Domestic Product, National Income, unemployment rates, Inflation, investment, Output, consumption. Fiscal and monetary policy and foreign trade.

Basic Concepts in Economics

There are certain important concepts that we need to understand in order to have a better understanding of economics. They are as follows:

1.    Supply and demand

All human beings have needs. These needs create demand for goods and services, and this demand leads to the supply of such goods and services. Supply and demand determine the price at which both, the supplier and the consumer, are willing to exchange the goods and services. Supply and demand are affected by factors such as speculations of changes in the market, upgradation in Technology, shortages, Surpluses, etc.

2.    Scarcity

Resources are limited but not human needs. This leads to a scarcity of resources. The scarcity of a particular resource affects its demand and further affects its price. If a resource is scarce, its demand increases, and hence it becomes expensive. Even during the allocation of resources, scarcity of resources needs to be taken into consideration.

3.    Opportunity Cost

When we are asked to choose from many options with each option having its own benefits, we have to give up on the benefits of the options that we did not choose in order to get the benefits of the options that we chose. The benefits we gave up on to receive the benefits that we choose are a cost we paid for them. This is Opportunity Cost. Although opportunity cost is not reflected in the financial reports of business owners, you can use opportunity costs in order to make better decisions when they are supposed to make choices.

4.    Time Value of Money

The sum of money you have right now is more in value than the identical sum of money you may receive on a future date due to its potential earning capacity. Investors prefer to receive money today rather than on a future date. This is because money has the potential to grow in value over a period of time.

5.    Purchasing Power

The amount of goods and services that can be purchased by a unit of money is its Purchasing Power. What could be bought for 100 USD 10 years ago cannot be bought now because of the increase in the prices of goods and services. Therefore it can be easily understood that as prices of goods and services increase, the purchasing power of money decreases.

6.    Interest

Interest is a sum paid by the borrower to the lender, which is above the sum of money borrowed. The amount that is borrowed is known as the Principal. The rate at which the interest is paid is called the Rate of Interest and is expressed in terms of percentage.

7.    Specialization

When a particular activity can be divided into small tasks in such a manner that each such task can be performed using specific skills by a particular person, that specialization avoids wastage of the limited resources and is hence leads to optimum utilization of the resources as the resources are scarce and limited optimum utilization of the resources is an important consideration in economics. When a specialist performs a particular task, he does it more efficiently and quickly than the one who is an amateur. This saves time and cost.

8.    Market

Market constitutes a place where goods or services are bought and sold. It must be noted here that a marketplace is not restricted to a physical manifestation of such a place. Goods or services are bought and sold at local, national, and also at international levels. Hence it can be said that wherever there is a supply and demand for goods or services, there exists a market.

9.    Capital

Usually, Capital is believed to be the money invested in the business. But, in economics, the term Capital has a broader meaning. In economics, Capital means anything which is of value and which, when used in business, bring revenue to the business. For example, the trucks used by transport companies to transport their goods are considered as Capital in economics.

10.         Externality

Externality is a cost or benefit that occurs when the production or consumption of goods have an impact on a party that is not directly related to the transaction. It is not financially incurred or received by the producer or consumer. Externality may be positive or negative.

11.         Gross Domestic Product (G.D.P.)

G.D.P. is the total monetary value of all the goods and services produced within a country during a specific period of time. It is used to estimate the size of an economy and growth rate. It is a key tool that helps policymakers, investors, and business owners in order to make strategic decisions.

12.         Equilibrium Price

It is a state of the market where the supply of goods and services matches the demand for these goods and services. This results in instability of prices in the market—the balancing effect of demand and supply results in a state of equilibrium.

13.         Resources

In economics, resource means anything that is used in order to produce goods or provide services. Labor, land, Capital, money, Technology, etc. are the few examples of resources.

14. Cost of Revenue

This is the total cost incurred by a producer of goods. It includes all the expenses incurred by a producer right from the procurement of raw materials, converting them into finished goods, and distributing the goods in the market.