Economics is the study of how individuals, businesses, governments, and societies make choices about using limited resources to satisfy their needs and wants. It explores how goods and services are produced, distributed, and consumed, and it helps explain how people respond to incentives, make trade-offs, and allocate their time and money.

Economics is typically divided into two main branches:

  1. Microeconomics: Focuses on individual decision-making units like households and firms.
  2. Macroeconomics: Examines the economy as a whole, including issues like inflation, unemployment, and economic growth.

At its core, economics helps us understand how the world works and how to make better decisions in everyday life, business, and policy-making.


Some important terms for better understanding:

  1. Production – converting raw materials into final goods.
  2. Consumption – to use those products available in the market.
  3. Factors of Production –
  4. Land – space for production
  5. Labour – working force
  6. Capital – money or any kind of investment
  7. Entrepreneur – the one who organise and control the above mentioned three things.
  8. Economy – situation where economic activities take place.


There are 3 kinds of economy, which are as follows:


  1. Capitalist Economy - an economic system where private individuals or businesses own the means of production and operate for profit. 
  2. Socialist Economy – equal distribution of wealth and resources between people of a country. Focuses on equal distribution of resources rather than profit and competition.
  3. Mixed Economy – it comprises of both capitalist and socialist types of economy. Capitalist + Socialist = Mixed Economy.


Economics – defined in 3 different contexts:


  1. Wealth Definition –
  2. According to J.B. Say, “Economics is the science which treats of wealth.”
  3. According to J.S. Mill, “Economics investigate the nature of wealth and the laws of production and distribution.”
  4. Welfare Definition – According to Alfred Marshall, “Political Economy is economics as a study of mankind in ordinary business of life.”It examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being.
  5. Scarcity Definition – According to Robins, “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative use.”
  6. Growth Definition – According to Samuelson, “Economics is the study of how people and society choose, with or without use of money, to employ scarce productive resources, which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in future among various people and groups of society.”


Central Problems of Economy

Economy of a country has to go through various aspects. Central problems with the economy of a country are as follows:


1.What to Produce? In how much quantity?

Societies must decide which goods and services to produce and in what quantities.

For example: Should more resources go into producing food, clothing, education, or military equipment?

This depends on consumer needs, available resources, and societal priorities.


2.How to Produce?

This question/problem revolves around what type of production method must be used.

Labour-intensive (more human labour) or Capital-intensive (more technology and machinery).


3.For whom to Produce?

It refers to how the goods and services produced in an economy are distributed among the population, deciding which individuals or groups will benefit from the goods and services produced, and how much they will receive. 


These are the three major central problems, economy of a country faces. Other than these some issues are:

  1. Efficiency – are the resources properly used?
  2. Growth – are we growing; is the economy growing sustainably over time?
  3. Stability – is there stability in the market/economic atmosphere?