Today with the world in turmoil, due to the pandemic, it seems more important than ever to learn about economics. What once occupied only a section in the newspaper or made a small part of the television news now regularly makes headlines. The pandemic has economically affected everyone’s life, be it a daily wage earner or an industrialist.
Daily we come across terms such as inflation, economic slowdown, economic stimulus, monetary policy, RBI’s intervention, currency depreciation, forex reserves etc. How much do we really understand them?
This BLOG, ECO BYTES, seeks to discuss some of these economic concepts, which we regularly come across. Hopefully, it will help understand better the impact of the pandemic and also the measures being taken and required to address its adverse effect on the economy and people at large.
What is Economics? Is it a study of money? Is it just a play of mathematics and crazy assumptions? Is it a natural science or a social science? To be able to appreciate the discipline fully, it is very important to keep aside all preconceived notions and address the fundamental questions. Economics is a soft science into which all the fields that we mentioned above coalesce. It is where mathematics meets the social sciences and logic meets intuition.
British Economist Lionel Robbins described economics as "the science which studies human behaviour and choice as a relationship between ends and scarce means which have alternative uses.”
The main reason for studying economics can be largely boiled down to a single term - Scarcity. We all know, human wants are more than the available resources. The scarcity of resources calls for the optimum use of available resources which in turn gives rise to the problem of choice; the problem of what to produce, how to produce and for whom to produce. This is exactly where Economics comes into the picture. It studies the interplay between the various constituents of an economy - demand and supply to name a few simple ones - and society, to help any decision-maker exercise this choice.
This concept can be very well understood in the present context as we recently witnessed widespread changes in every aspect of the life of humans and the functioning of the economy in response to the situation created by the pandemic. While there will be differences in opinion on the extent of the impact, all would agree that it has profoundly affected the interactions of individuals and firms within the economy: the businesses, buyers, sellers, markets (microeconomics) and the economy as a whole: at the national and international level (macroeconomics).
As the patterns of demand and supply underwent a sudden drastic change, every person, family, society, government, and economy was required to exercise choice for economizing the use of available resources to meet the requirements for medical equipment, medicines, food and the like, to meet the needs of the situation in an effective manner. We shall not go much deep into the context of the pandemic since it is one of the most complicated events to have ever struck economic studies. However, it is important to address how economics as a subject helps in the choices that are made in such scenarios. Even a layman can figure out that the government will increase investment in health infrastructure to bring down the death toll. But, the choice that the decision-maker (government) has to exercise is much more complex. One of the issues that she shall face is concerning money. Since the funds are limited, to compensate for the increased investment in a sector, she will either have to decrease investments in others or raise more money. This choice can't be arbitrary. Rather it requires a thorough investigation of various aspects of the economy using tools and methods that Economics provides, some of which I endeavour to introduce in my Blogs.
Gaurika Bhanot
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