Everyday there is talk of the economy either improving or declining, big and small economies, emerging economies and so much more. We all have a vague idea of what all this means but to be able to truly understand this economy talk we must begin by understanding what economics is all about.
Economics is the analysis of commercial production, distribution and consumption of goods and services. It is a broad subject that looks into how people make use of resources available to them to improve their lives through commerce. Generally there are two levels of economics, micro economics and macro economics. Macro economics looks at the bigger picture and deals with all the components of the system of economics. These include inflation, unemployment, government, industry and much more. Micro economics on the other hand deals with how the system impacts a single business or individual such as location, competition and trends. Economics is based on several theories that attempt to explain the reasons behind the choices in using resources.
Production is carried out in various sectors of the economy. These sectors include agriculture, entertainment, health, technology and finance. Production in these various sectors is interrelated. They are not independent of each other and growth in one may cause another to slow down or cause it to boom. The rate of production indicates the supply available. Distribution deals with marketing and the produced goods and services. Distribution can sometimes cost as much as production or even more. This means that distribution plays an important role in determining price. Consumption simply looks at how the goods and services are used. The rate at which they are taken up indicates the demand present in the market.
One of the most important theories of economics is that of supply and demand. Demand drives production and this means that as long as people are willing to pay for a particular good or service, producers will put more resources into its production in an effort to satisfy the existing need. When this happens over a sustained period, it may get to a point where there is more of the good or service than people can consume. When this happens, supply will have exceeded demand and the producers will reduce resources dedicated to production. This theory therefore explains the choice of the producers in using resources in a certain way. It also explains why prices go up or down. When there is greater demand for a commodity, its price is likely to go up while higher supply is likely to push the price down.
Economics looks at how all the factors that are involved or related to production affect each other and the end product of the production process. It analyzes the distribution strategies undertaken to get the products to the consumers and their impacts on price. It also evaluates consumption and the forces that drive consumers to take up one product at a higher rate than another and the impact of the choices that the consumers make.