Understanding economics

Economics to many appears like the study of complicated tables and statistical charts. However, this is more about what makes up rational human behaviour in their pursuit to satisfy needs and wants. Human beings face the challenge of having limited resources with which they are supposed to fulfil unlimited wants and needs. This means one should make wise choices with the available resources. This is called planning to ensure all allocations are meant to cater for a specific need or want.

So, what is economics?

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In order to get a better picture of what economics entails, it is vital to understand the concepts of scarcity and macro/micro economics.

Scarcity refers to the tension created by the limited resources and the need to use these limited resources to satisfy unlimited needs and wants. For an individual, limited resources could be time, skill and money. A country could have limited resources in form of capital, labour, technology and natural resources.

Macroeconomics and micro economics are two extremes from which the economy is viewed. Macroeconomics deals with the total output from of a nation and how limited resources are utilized to maximize productivity. On the other hand, microeconomics looks at individual level consumption of limited resources to maximize productivity. It helps individuals make wise decisions for resource allocations.

Supply and demand

To further understand what economics is all about, it is also necessary to delve further and look at the concepts of supply and demand.

The law of supply states that higher the price, the more the supply. Basically, producers will offer more when prices are attractive unlike when they are low. This shows an upward slope meaning the higher the price, the higher the quantity supplied.

The law of demand states that with all other factors held constant, the higher the prices go, the less the demand for the goods. People tend to refrain from buying when prices increase in the anticipation they will fall. They will also buy more when the prices fall to have surplus in case prices go up. Therefore, the relationship between quantity demanded and price is a downward slope.