Elements of Economics

Economics is the science which studies human behavior and aims at meeting maximum objectives with the help of limited resources. It is the art and science which deals with the economic problems of the people living in a society.

Economics as applied to industrial undertaking has two main divisions:

  1. Micro Economics
  2. Macro Economics

Micro economics can be defined as, “the branch of economics where the unit of study is a firm or an individual.” It is the main concept and a numerical tool for economics concerning with industries. The Micro-Economics deals with smaller units of the economy like behavior of individual customer, plant, or industrial undertaking.

Macro Economics deals with whole economy, and studies the growth of national income and economical environment as a whole. It plays an important role in forecasting and other factors relating to marketing.

Economics is a subject of interest to the engineers, as they are to deal with the economic problems related to increasing he production, reducing the efforts, increasing the wealth, improving the living standard, reduction in cost of products etc.

Must Read: Elements of the State


Income  (personal) is defined as those incomings which are in the form of money or payment in kind. Whereas income from business is found by deducting the outgoings (expenditure on material, labour and other overheads etc.) from gross income. Income can be derived either from personal services or from property.

National income is either

(i) the money value of all goods and services produced during a particular period, generally one year, or

(ii) the sum of all personal incomes derived from economic activity during this time.

Must Read: National Income of India


In a business, investment are made on:

  1. Land and buildings
  2. Procurement of raw materials, tools, instruments etc.
  3. Purchase and installation of machinery
  4. Internal services like material handling devices, transport vehicles, light, water, gas, power etc.
  5. Administrative and selling services.
  6. Works related to productivity improvement, cost-reduction etc.
  7. Payment of wages to the employees.
  8. Other works related to running the business and its development.

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Reserves for working capital are very necessary for sound financial management. It ensures stability and financial soundness of enterprise. This helps, to cover credit, losses, to liquidate debts, to expand, for replacement of machinery, for taxes, to meet contingencies like fire, theft, strikes etc.

Reserves are of two types, namely revenue reserves and capital reserves. Revenue reserves are required to meet future commitments such as, distribution of dividends, research and developments etc. Whereas capital reserves are made for increasing the capital.

Don’t Miss: Stock Exchange – An Organized Market for Purchase and Sale

Some more Important Elements of Economics are:

  • Assets
  • Liabilities
  • Utility
  • Market
  • Money
  • Trade Cycle
  • Profit
  • Price
  • Cost
  • Value
  • Want
  • Demand

Read Also: Special Economic Zone (SEZs)


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