What is Economics and it’s type
The word economics is derived from a Greek word ‘Oikonomiaʼ. The word is a combination of two other Greek words oikos and nomos. Oikos means household or family. Whereas nomos means management hence Oikonomia means household management. It refers to how a family manages its expenditure using its limited resources. As economics is derived from the word Oikonomia it can be defined as a discipline or a subject which deals with the study of the process of household management. However, it is the simplest definition of economics which is possible.
Oikonomia =Oikos(Household) + Nomos(Management)
The scope of Economics is much wider than that. In other words, economics can be defined as a systematic discipline which deals with the study of the process of production, distribution and consumption of goods and services. The process of production distribution and consumption of goods and services can be termed as the economic activities which constitute an economy. Hence, these economic activities or the economy is the subject matter whereas economics is the subject which deals with study of this subject matter.
Classification of economics
As a discipline economics can be broadly classified into following two parts—
- Micro economics
- Macro economics
This classification of economics into micro and macro was given by a Norwegian economist Ragnar Frisch. Along with Jan Tinbergen of Holland, Ragnar Frisch was the first recipient of Nobel Prize in economics in 1969. Nobel Prize in economics is its popular name, officially it is termed as Sveriges Riksbank Pirze in Economic Sciences. Sveriges Riksbank is the central bank of Sweden which is the oldest central bank in the entire world. When this bank completed three hundred years of its existence on this occasion this award was announced.
Micro economics and macro economics are different from each other but they are very closely associated with each other. They both influence each other. Micro is a Greek word which means small and hence micro economics deals with study of the smaller aspects of the economy. It deals with the study of those individual units with which the economy is constituted. In other words, micro economics deals with the study of the economic activities at the level of a family and at the level of a firm. It deals with the study of demand and supply which are the basic units of economic activities. It also deals with the study of the market where goods and services are bought and sold.
Macro is another Greek word which means large hence it can be said that macroeconomics deals with the study of larger aspects of the economy. In other words, macroeconomics deals with the study of economic activities at the level of the entire society/country/state etc. It includes study of gross domestic product, national income, economic growth, economic development, economic policies, inflation, unemployment and so on.
Economic growth and Economic Development
Economic growth is a quantitative concept whereas economic development is a qualitative concept. Quantitative concept means it is related to quantity and change in production whereas qualitative means something that brings about qualitative change in oneʼs life.
Economic growth can be defined as increase in GDP over a period of time. For instance, when the production in any economy increases over a period of time then itʼs economic growth.
On the other hand, growth with equity is economic development. Along with increase in production when equitable redistribution of resources takes place leading to improvement in the standard of living then it is economic development. When the benefits of increase in production or economic growth reach the common people then it is economic development. Because of increase in production employment is generated, the people are made capable enough to procure the necessities of life such as food, shelter, clothes, education and healthcare then it is termed as economic development.
It can be concluded that economic growth is essential for economic development but only growth cannot be sufficient in order to ensure development. Development also requires proper redistribution of the resources. For example, Green Revolution enhanced food grain production in India. It made India food sufficient. However, even after that starvation continues to exist. It means that India is yet to become food secure. It can be concluded that because of green revolution economic growth took place but economic development still lags behind. In terms of GDP India is the fifth largest economy in the world but it is still categorised as a developing country.
Inclusive Development
Development is a value laden concept. It means when the term development is used it can be concluded that something positive is taking place. Development refers to gradual unfolding of the society in a positive direction. Inclusive development is a combination of two important aspects — development of all and development in all the aspects.
Development of all means that every single member in the society should be made a party to the process of development.
It means the benefits of development reach every single individual. It is based on the concept of ‘Antyodayaʼ to ‘Sarvodayaʼ. ‘Antyodayaʼ refers to development of those/upliftment of those who are at the bottom of the rank order. If it is done continuously the goal of ‘Sarvodayaʼ can be achieved which means upliftment of all.
It is said that no chain is stronger than its weakest link. Similarly, no society is stronger than its weakest member. Hence, for social empowerment the empowerment of the weakest has to be ensured. This is development of all.
Development in all the aspects means economic development, socio-cultural development and political development. Economic development refers to making people capable enough to procure the basic necessities of life. On the other hand, socio-cultural development refers to elimination of discrimination based on gender, caste, race, religion, region etc. Political development refers to democratisation of the society. It refers to people being provided opportunities for political participation which includes the right to contest elections and the right to choose our representatives. When all such forms of development take place then it is development in all the aspects.
Development of all along with development in all the aspects leads to inclusive development.
Sustainable development
Development is a positive concept however the consequences of development may not be always positive. It may have a number of side effects. Development always comes at a cost. This cost of development is not only monetary but may even be social and environmental.
In the process of development such as construction of dams, thermal power plants, airports etc. the local people are displaced. They are the one who pay the cost of development but the benefits are taken away by the others. This may lead to a feeling of relative deprivation(when we compare our condition with someone else and in comparison when we feel deprived then it is termed as relative deprivation). This relative deprivation may become a cause behind conflict in society.
In the process of development even the exhaustible resources are extracted in a reckless manner. Because of this it becomes obvious that these resources maybe exhausted completely and they may no longer remain available to the next generations. In the process of development land under cultivation is used for different economic activities affecting production of food. In the process of development even deforestation takes place. We also cause environmental pollution in different ways.
If this is how development takes place, this process of development may not be continued for long. That process of development which can be continued generation after generation is termed as sustainable development. In the process of development if the resources are used in a judicious manner they can be preserved even for future. In the process of development if we take care of the environment it will benefit not only the present generation but even the generations to come. Development should take place with a human face. It means that those who are displaced are compensated adequately and they are rehabilitated properly. This process of development can be termed as sustainable development.
Sometimes, even the objective of inclusive development may lead to rapid process of development which may compromise the objective of sustainable development. The idea of sustainable development is based on the belief that this earth and its resources have not been inherited by us from our ancestors but they are something that we owe to our next generations.
Types of Economies
Based on the fact that how exactly an economy functions and who exactly owns and controls the forces of production the economies can be classified into different types:
- Capitalist economy= Capitalism is an ideology which propounds a particular type of economic arrangement known as the capitalist economy. In this type of economy the forces of production are owned and controlled by individuals who are the capitalists. The capitalists are those who have resources. Investment and re-investment are the means whereas maximisation of profit is the objective.
In a capitalistic economy the government has a limited role. It acts as a facilitator and provides a conducive environment for investment and business. The interference of the government is minimum. Since the government keeps itʼs hands away from the economy it is also known as ‘hands off economyʼ. In French it is termed as ‘laissez- faireʼ. A capitalist economy is driven by market forces that is demand and supply. Hence, it is also known as ‘free marketʼ economy.
- Socialist economy
In socialist economy the role of the government is maximum. In this type of economy the forces of production are owned and controlled by the state and it is the responsibility of the state to ensure equitable redistribution of resources.
- Mixed economy
It refers to that type of economy which has co-existence of public as well as private investment. Here public investment means the investment done by the government and private investment means the investment done by the individuals.
India is an example of mixed economy. It has public as well as private investment. Post-independence during the first five-year plan India adopted Harrod-Domar model of development. Harrod and Domar were two different economists who suggested that for a developing country labour and capital are the most important factors for development. Such countries have sufficient labour but in absence of the investors capital is not sufficient. Therefore, the government must play the role of an investor. Based on this model the government in India started investing in business along with the private investors. Hence, indian economy became a mixed economy. However, gradually even the Indian economy is moving towards capitalistic arrangement.
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