What is Economics: Definition and Importance

Definition of Economics
Economics can be defined as the science of wealth and material welfare of society.
To be straightforward, let us come directly to the point-

• Economics is a scientific study of the allocation of scarce resources to their best uses.
• To economise is to save or utilise for maximum possible satisfaction out of those scarce resources.
• Economics is the study of wealth, material welfare of society, and human behaviour related to these concepts of wealth and material welfare.
• Wealth is not simply money. Wealth refers to everything from natural resources to manufactured or produced products, and material welfare is the allocation and distribution of these resources (including wealth) among society.

Need for Economics

Our world is full of resources. But either they are scarce and insufficient to meet all our demands, or we are unable to extract or produce them in sufficient quantities to meet all our requirements. So our demands are always higher than the resources available to us at any point in time. 

Here is where the need for economy arises.

If we had been bestowed with an abundance of resources that can last forever, there would have been no need for economics. 

But the fact is that we are short of supply and so unable to satisfy all our demands. 

So, we are forced to cut back our needs to match the supply. 

We have to choose among our multiple needs and try to satisfy the most urgent needs first. 

Economics studies this behavioral pattern of people in choosing among needs and sets guidelines for the economic system as a whole.

Objective of Economics

The main objective of economics is to study this problem of scarce available resources and the always mounting needs of people to suggest some positive solution. 

The economists keep a watch on the behavioral patterns of consumers and the public and, after much analysis, arrive at some conclusions regarding projections of people's behavior under certain stimulated conditions. These conclusions are then submitted to the government and the financial/ banking institutions for framing their economic policies.

Example:

For example, suppose a person with a certain income of Rs.50,000 per month pays a monthly rent of Rs.10,000, electricity bill of Rs.2,000, internet/ phone bill Rs.1,500, maintenance Rs.1,500, housemaid payment Rs.2,000, medicines Rs.5,000, provisions Rs.5,000, gas refil Rs.1,000, milk Rs.2,000, vegetables/ fruits Rs.1,500, petrol Rs.10,000, and invests Rs.5,000 each month. 

In this manner, his total monthly expenses amounted to Rs.46,500.

Now, he will be left with Rs.3,500 for other expenses. 

He may have to choose between buying a set of clothes or watching a movie with friends, or partying on the weekend within that balance amount. 

He can not meet all three needs from the leftover balance simultaneously. He will have to choose which need to satisfy first.

He can buy clothes one month, watch the movie in another month, and party in yet another month. He will have to plan in this way and adjust his needs.

Economists study how people make decisions when choosing among options under different circumstances and environments. 

They formulate some general laws based on these behavioural changes and propose reform policies to the institutions. 

They study the effects of increases or decreases in supply and demand, changes in the availability of funds in consumers' pockets, and effects of price changes on demand and supply, etc. 

All these factors are studied by simulating some artificial conditions also for their research purposes.

So, Economics plays an important role in our daily lives, guiding our decisions based on the availability of resources and multiple needs.