By Aman Kayal, Academic Content Writer of Economics
When you buy goods (you may want to satisfy your own personal needs or those of your family or those of any other person to whom you want to make a gift) you are called a consumer. When you sell goods to make a profit for yourself (you may be a shopkeeper), you are called a seller. When you produce goods (you may be a farmer or a manufacturing company),or provide services (you may be a doctor, porter, taxi driver or transporter of goods) you are called a producer. When you are in a job, working for some other person, and you get paid for it (you may be employed by somebody who pays you wages or a salary), you are called an employee. When you employ somebody, giving them a wage, you are an employer. In all these cases you will be called gainfully employed in an economic activity. Economic activities are ones that are undertaken for monetary gain. This is what economists mean by ordinary business of life. We cannot get something for nothing. If you ever heard the story of Aladdin and his Magic Lamp, you would agree that Aladdin was a lucky guy. Whenever and whatever he wanted, he just had to rub his magic lamp and a genie appeared to fulfill his wish. When he wanted a palace to live in, the genie instantly made one for him. When he wanted expensive gifts to bring to the king when asking for his daughter’s hand, he got them at the bat of an eyelid. In real life we cannot be as lucky as Aladdin. Though, like him, we have unlimited wants, we do not have a magic lamp. Take, for example, the pocket money that you get to spend. If you had more of it then you could have purchased almost all the things you wanted. But since your pocket money is limited, you have to choose only those things that you want the most. This is a basic teaching of Economics. Scarcity is the root of all economic problems. Had there been no scarcity, there would have been no economic problem. And you would not have studied Economics either. In our daily life, we face various forms of scarcity. The long queues at railway booking counters, crowded buses and trains, shortage of essential commodities, the rush to get a ticket to watch a new film, etc., are all manifestations of scarcity. We face scarcity because the things that satisfy our wants are limited in availability. Can you think of some more instances of scarcity? The resources which the producers have are limited and also have alternative uses. Take the case of food that you eat every day. It satisfies your want of nourishment. Farmers employed in agriculture raise crops that produce your food. At any point of time, the resources in agriculture like land, labor, water, fertilizer, etc., are given. All these resources have alternative uses. The same resources can be used in the production of nonfood crops such as rubber, cotton, jute etc. Thus, alternative uses of resources give rise to the problem of choice between different commodities that can be produced by those resources. Consumption, Production and Distribution If you thought about it, you might have realized that Economics involves the study of man engaged in economic activities of various kinds. For this, you need to know reliable facts about all the diverse economic activities like production, consumption and distribution. Economics is often discussed in three parts: consumption, production and distribution. We want to know how the consumer decides, given his income and many alternative goods to choose from, what to buy when he knows the prices. This is the study of Consumption. We also want to know how the producer, similarly, chooses what and how to produce for the market. This is the study of Production. Finally, we want to know how the national income or the total income arising from what has been produced in the country (called the Gross Domestic Product or GDP) is distributed through wages (and salaries), profits and interest (We will leave aside here income from international trade and investment). This is the study of Distribution. Besides these three conventional divisions of the study of Economics about which we want to know all the facts, modern economics has to include some of the basic problems facing the country for special studies. For example, you might want to know why or to what extent some households in our society have the capacity to earn much more than others. You may want to know how many people in the country are really poor, how many are middle-class, how many are relatively rich and so on. You may want to know how many are illiterate, who will not get jobs, require education, how many are highly educated and will have the best job opportunities and so on. In other words, you may want to know more facts in terms of numbers that would answer questions about poverty and disparity in society. If you do not like the continuance of poverty and gross disparity and want to do something about the ills of society you will need to know the facts about all these things before you can ask for appropriate actions by the government. If you know the facts it may also be possible to plan your own life better. Similarly, you hear of — some of you may even have experienced disasters like Tsunami, earthquakes, the bird flu — dangers threatening our country and so on that affect man’s ‘ordinary business of life’ enormously. Economists can look at these things provided they know how to collect and put together the facts about what these disasters cost systematically and correctly. You may perhaps think about it and ask yourselves whether it is right that modern economics now includes learning the basic skills involved in making useful studies for measuring poverty, how incomes are distributed, how earning opportunities are related to your education, how environmental disasters affect our lives and so on? Obviously, if you think along these lines, you will also appreciate why we needed Statistics (which is the study of numbers relating to selected facts in a systematic form) to be added to all modern courses of modern economics. Would you now agree with the following definition of economics that many economists use? “Economics is the study of how people and society choose to employ scarce resources that could have alternative uses in order to produce various commodities that satisfy their wants and to distribute them for consumption among various persons and groups in society.”