This article introduces a very basic difference between two highly popular yet frequently confusing terms economy and Economics.
Main difference between ‘Economy’ and ‘Economics’
ECONOMY is the system of trade and industry by which the wealth of a country is made and used. An economy is a system that attempts to solve the basic economic problems. The function of the economy is to allocate scarce resources among unlimited wants.
ECONOMICS is the study or social science of human behavior in relation to how scarce resources are allocated and how choices are made between alternative uses of those resources. Economics studies mankind’s activities, which are production, distribution (or exchange) and consumption of goods and services that are capable of satisfying human wants and desires.
The three major branches of the study of Economics are:
1. Microeconomics. This is the branch of Economics that is concerned with the behavior of individual entities such as market, firms and households, e.g. how individual prices are set, how prices of land, labor, capital are set, inquires into the strength and weakness of the market mechanism.
2. Macroeconomics. This is the branch of Economics that is concerned with the overall performance of the economy, e.g. studies the effect of unemployment on the economic growth, inflation etc.
3. Econometrics. This is about application of mathematics to economic theories. The branch of Economics that uses the methods of statistics to measure and estimate quantitative economic relationships.
Does it make sense to learn about economy and Economics?
People who study Economics will:
- Know some ways individuals and groups attempt to satisfy their basic needs and wants by utilizing scarce resources.
- Explain how people’s wants exceed their limited resources and that this condition defines scarcity.
- Know that scarcity requires individuals to make choices and that these choices involve opportunity costs.
- Understand how societies organize their economies to answer three fundamental economic questions:
- What goods and services shall be produced and in what quantities?
- How shall goods and services be produced?
- For whom shall goods and services be produced?
The study of Economics requires an understanding of major economic concepts and systems, the principles of economic decision-making, and the interdependence of economies and economic systems throughout the world.
