Elements of Economics

Economics is the science which studies human behaviour 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

Microeconomics 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 industries. The Micro-Economics deals with smaller units of the economy like the behaviour of the individual customer, plant, or industrial undertaking.

Macro Economics deals with the whole economy and studies the growth of national income and the economic 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 the production, reducing the efforts, increasing the wealth, improving the living standard, reduction in the cost of products etc.

Must Read: Elements of the State

Income

Income  (personal) is defined as those incomings which are in the form of money or payment in kind. Whereas income from the 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 the 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

Investment

In business, investment is 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

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.

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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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