Economics is defined as the social science that deals with the production, distribution, and consumption of goods and services. Evolved in the 19th century, the economic studies have become one of the most significant studies of modern days. From a small shop to a country, Economics plays a crucial role in the efficient running of both. No business can flourish without applying the principles of economics. The study of economics is extensive and varied. The nature and scope of economics depend upon the interaction of economic agents and how economies work. Let’s analyze the nature and scope of economics deeply.
1. Nature of Economics
The nature of economics deals with the question that whether economics falls into the category of science or arts. Various economists have given their arguments in favour of science while others have their reservations for arts.
Economics as a Science
To consider anything as a science, first, we should know what science is all about? Science deals with systematic studies that signify the cause and effect relationship. In science, facts and figures are collected and are analyzed systematically to arrive at any certain conclusion. For these attributes, economics can be considered as a science. However, economics is treated as a social science because of the following features:
- It involves a systematic collection of facts and figures.
- Like in science, it is based on the formulation of theories and laws.
- It deals with the cause and effect relationship.
These points validate that the nature of economics is correlated with science. Just as in science, various economic theories are also based on logical reasoning.
Economics as an Art
It is said that “knowledge is science, action is art.” Economic theories are used to solve various economic problems in society. Thus, it can be inferred that besides being a social science, economics is also an art.
2. Scope of Economics
Economists use different economic theories to solve various economic problems in society. Its applicability is very vast. From a small organization to a multinational firm, economic laws come into play. The scope of economics can be understood under two subheads: Microeconomics and Macroeconomics. Let’s discuss these in detail:
Microeconomics examines individual economic activity, industries, and their interaction. It has the following characteristics:
- Elasticity: It determines the ratio of change in the proportion of one variable to another variable. For example- the income elasticity of demand, the price elasticity of demand, the price elasticity of supply, etc.
- Theory of Production: It involves an efficient conversion of input into output. For example- packaging, shipping, storing, and manufacturing.
- Cost of Production: With the help of this theory, the object price is evaluated by the price of resources.
- Monopoly: Under this theory, the dominance of a single entity is studied in a particular field.
- Oligopoly: It corresponds to the dominance of small entities in a market.
It is the study of an economy as a whole. It explains broad aggregates and their interactions “top down.” Macroeconomics has the following characteristics:
- Growth: It studies the factors which explain economic growth such as the increase in output per capita of a country over a long period of time.
- Business Cycle: This theory emerged after the Great Depression of the 1930s. It advocates the involvement of the central bank and the government to formulate monetary and fiscal policies to monitor the output over the business cycle.
- Unemployment: It is measured by the unemployment rate. It is caused by various factors like rising in wages, a shortfall in vacancies, and more.
- Inflation and Deflation: Inflation corresponds to an increase in the price of a commodity, while deflation corresponds to a decrease in the price of a commodity. These indicators are valuable to evaluate the status of the economy of a country.