Difference Between Economics and Economy

Economics

The theory of economics is a method rather than a doctrine, an apparatus of mind, a technique of thinking, which helps its possessor to draw correct conclusions.

- John Maynard Keynes

Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.

- Lionel Robbins

At present India is the world's sixth-largest economy by nominal GDP with ($3.9) trillion to ($4.2) trillion and the third- largest by Purchasing Power Parity (PPP). It is estimated to become the third largest economy of the world in term of GDP with $7.3 trillion by By 2030. To achieve this goal some schemes and reforms such as Next-generation GST and PM Viksit Bharat Rozgar Yojana has been initiated. In this regard more than 17 crore jobs generated in the last ten years.

Economics is the study of scarcity and how it affects the use of resources, the production of goods and services, the growth of production and well-being over time, and many other important and complicated issues that affect society. It is the study of how things are made, moved around, and used. It looks at how people, businesses, governments and countries choose to use their resources.

Traditionally, the subject matter of economics has been studied under two broad branches:

• Microeconomics

• Macroeconomics

Microeconomics

• The study of how people, households and businesses make decisions and allocate resources is known as microeconomics.

• Microeconomics, in its examination of the behaviour of individual consumers and firms, is divided into consumer demand theory, production theory (also called the theory of the firm) and related topics such as the nature of market competition, economic welfare, the role of imperfect information in economic outcomes and at the most abstract, general equilibrium, which deals simultaneously with many markets

• It concerns such issues as the effects of minimum wages, taxes, price supports, or monopoly on individual markets and is filled with concepts that are recognizable in the real world.

• It has applications in trade, industrial organization and market structure, labour economics, public finance and welfare economics.

Microeconomic analysis offers insights into such disparate efforts as making business decisions or formulating public policies.

Macroeconomics

The area of economics known as macroeconomics focuses on the conduct and overall performance of an economy. It focuses on the overall shifts in the economy, including inflation, growth rate, unemployment and gross domestic product.

Macroeconomics analzses all aggregate indicators and the microeconomic factors that influence the economy. Governments and corporations use macroeconomic models to help in formulating economic policies and strategies.

In macroeconomics, the subject is typically a nation how all markets interact to generate big phenomena that economists call aggregate variables.

The government is a major object of analysis in macroeconomics for example, studying the role it plays in contributing to overall economic growth or fighting inflation.

Macroeconomics often extends to the international sphere because domestic markets are linked to foreign markets through trade, investment, and capital flows.

Macroeconomics describes relationships among aggregates so big as to be hard to apprehend such as national income, savings and the overall price level.

The field is conventionally divided into the study of national economic growth in the long run, the analysis of short-run departures from equilibrium and the formulation of policies to stabilize the national economy that is, to minimize fluctuations in growth and prices. Those policies can include spending and taxing actions by the government or monetary policy actions by the central bank.

Positive and Normative Economics

Positive economics addresses the issue of a theory having validated data and facts that must be considered prior to the theory’s development. Take the Law of Demand, for instance, a hypothesis based on established facts.

The foundation of normative economics is values judgement, which promotes social welfare and is better for the country’s economic future. Consider the idea that the economy’s income should be allocated fairly.

WHAT IS THE ECONOMY?

An economy is a system of interrelated production and consumption activities that ultimately determine the allocation of resources within a group. The production and consumption of goods and services as a whole fulfil the needs of those living and operating within it.

In simple words, an economy is a system for deciding how scarce resources are used so that goods and services can be produced and consumed. Resources are things like land, people (who can work or innovate through their ideas), and raw materials. They are seen as scarce because we have unlimited wants but there are not enough resources to produce the goods and services to satisfy these wants.

Problem of Allocation of Resources

Just as an individual’s resources are limited, so are the community’s resources when compared to what the members of the society may desire in unison.

Since Resources are scarce and Demands are unlimited

there is a Problem of Allocation of Resources.

The society’s limited resources must be distributed wisely among its members to produce a variety of goods and services that suit their preferences.

Any allocation of resources of the society would result in the production of a particular combination of different goods and services. The goods and services thus produced will have to be distributed among the individuals of the society. Two of the fundamental economic issues that society faces are the distribution of the final mix of commodities and services and the allocation of scarce resources.

Central Problems of an Economy

The three main economic activities in life are the production, exchange and consumption of products and services. Every community has to deal with these fundamental economic issues including:

Scarcity of resources

Problem of choice

An economy’s issues are frequently summed up as follows:

What is to be produced and in what quantities?

Every society has to choose how much of each of the countless products and services it can manufacture.

How are these goods produced?

Every civilization must choose which resources to employ in what proportion to produce the various commodities and services.

For whom are these goods produced?

Dividing the created products and services among the persons within the economy and allocating limited resources to the creation of various conceivable commodities and services are problems that every economy must deal with.

Production Possibility Frontier

A certain mix of various goods and services is produced by the economy’s allocation of its limited resources. With the available resources, various combinations of all potential goods and services can be achieved by allocating the resources in a variety of ways. The production possibility set of the economy is the set of all potential combinations of commodities and services that can be created from a given stock of technological knowledge and a given quantity of resources.