Nature and importance of economics in our life

Nature and importance of economics in our life

Economics plays a huge role in our lives; even when you cannot always directly observe its impact, the importance of economics still remains concrete. The understanding of this phenomenon will certainly give you some advantages in building your own capital. In fact, basic principles of economics are not as difficult to learn as we may think. In this article, you will find some clues to help you understand the real importance of economics in our lives.

Nature and importance of economics in our life

Definition of economics

There are a lot of different versions of the definition of economics in modern science, but there is still some connections between all of them. In this article, we will treat economy as a branch of human activity, not as a science. In general, economics should be understood as the system of social production and the process of creating material goods which are necessary for the normal being and growth of people. In fact, economy is everything related to the production, distribution, exchange and consumption of goods created by human labor.

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The economy has a huge part to play in the life of modern humanity. It provides people with all the necessary materials and products they need — food, clothes and other required commodities. The economy is one of the main spheres of society's life; it defines the course of all processes taking place in it. Economics is an activity which creates wealth and seeks to meet the diverse needs of humanity. Individuals, group, collective and social needs are distinguished by subjects (need carriers).

Importance of economics in our life

The main factors of production (or main resources) are:

  1. Land and its riches.
  2. Labor, which is dependent on the number of people and their education and qualifications.
  3. Capital (machinery, premises, etc.).
  4. Entrepreneurial abilities.

For many centuries, the problem of how to satisfy the numerous needs of people was solved through extensive economic development involving new spaces and cheap natural resources in the economy.

With the development of scientific and technological progress, it became clear that this approach to the use of resources has exhausted itself. From that point on, the economy started to basically develop in an intensive way, implying the rationality and efficiency of resource use. In this case, the importance of economics is huge considering the lack of resources in the 21st century. According to the modern approach, a person must use the resources available to him in such a way as to achieve maximum results with minimum cost.

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General economic systems

The importance of economics lies in the amount of problems it solves. In plain language, there are 3 main issues of economics:

  1. What to produce?
  2. How to produce?
  3. For whom to produce?

We have to admit that different economic systems solve these issues in four different ways:

  1. Traditional
  2. Centralized or command
  3. Market
  4. Mixed
Types of enonomic systems

The entire story of the productive economy began from the traditional economy. These days, it’s examples can be observed in a number of poorly developed countries. It is based on a natural form of human activities. The signs of natural production are:

  1. Direct relations in production.
  2. Distribution.
  3. Exchange and consumption.
  4. Goods are produced for domestic consumption.

The traditional type of economy prevailed at the pre-industrial stage of the society’s development.

The centralized or command economy is built on the basis of a single plan; it is mostly observed on the territories of the former Soviet Union, the countries of Eastern Europe, and in a number of Asian countries. It is now prevalent in North Korea and Cuba. Its main features are:

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  1. Government regulation of the national economy, which is based on government ownership of most economic factors or resources.
  2. Mass monopolization and bureaucratization of the economy.
  3. Centralized planning of all economic activities.
Nigerian market

The market type is understood as an economy based on commodity production. The most important mechanism for coordinating economic activities is the market performance. There are some general requirements for the existence of a market economy:

  1. Presence of private property (the exclusive right to own, use and dispose of goods belonging to people).
  2. Wealthy competition in a market.
  3. Free prices.

The above-mentioned economic systems are practically not found in pure forms. In each country, the elements of different economic systems are combined in their own way. For example, in some developed countries, there is a combination of market and centralized economic systems, but the first play the leading role. Although, the role of the government in organizing the economic life of the society is also significant. This combination is commonly called a mixed economy. The main goal of such a system is to use the strengths to overcome the shortcomings of a market and centralized economy. Classic examples of countries with mixed economy include Sweden and Denmark.

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Economics in our life

As you can see, the importance of economics lies in the numerous benefits it brings; its main goal is to satisfy our numerous needs in conditions of limited resources. Humanity has to continue developing in this direction to guarantee a prosperous life for future generations.

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Source: Legit.ng

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