Everyone is a part of economy and everyone uses the rules of economy too. From the time we are born, we become consumers of various products and services (say, medical services, baby foods, and so on). We grow and diversify to attain various different roles as producers, traders, mediators and agents. Today’s world is that of “economic imperialism”, where economical factors, most importantly, money dictates all the elements of the society, not to forget close family relations. With recession wreaking havoc, economics is something which even ignorant households are learning. Economics is a science which deals with production, distribution and consumption of goods and services. Therefore, we can conclude that whatever involves “transfer of money” includes “economics”. There are two schools of economics, namely, microeconomics and macroeconomics. The combined results of these two determine the actual effect of economics on people. To list all the important functions of economics would be literary impossible as newer issues keep creeping up. In the following lines, we have described some broad and basic functions of economics.
Significance Of Economics
Optimizes Resource Usage
In today’s world, the amount of resources available to us is reducing each day. This condition will only worsen, if we keep using our resources with low efficiency and effectiveness. Economics provides a mechanism for looking at possible ways to optimize resource utilization and reduce wastages.
Utilizes the “Opportunity Cost”
This is another principle used for resources in which the scarce resources are utilized efficiently, after calculating and checking the opportunity cost. A simple theory of exclusion is put into play. If you choose something over another thing, then what loss you sustain is the opportunity cost. If we minimize the opportunity cost, we get maximum profits. For example, a person who invests $10,000 in a stock denies himself the interest that could have been accrued, by leaving the $10,000 in the bank account instead. The opportunity cost of the decision to invest in stock, is the value of the interest. When this principle is used in budget allocations by government, it results in better growth rates.
Gains Social Efficiency
If a society keeps on putting money into its economy with no profits or loss, then the economy becomes inefficient and so does the society, as it gets dependent on the economy. If the input into an economy is larger than the output, then the society starts disintegrating and falls prey to destructive social evils, like unemployment and poverty. The same is the case if the economy is stagnant. Understanding of economics leads to better planned economy. Also, profitable economic steps introduced largely aid in the society’s overall prosperity.
Stabilizes The Overall Economy
The stability of an economy is inevitable to any country or society. Only through economically sound practices can we ensure that the economy is stable and growing at the same time. In recent times, when the world’s economy fell, only a few countries were able to sustain their growth rate and prevent severe monetary impacts on their citizens.
Understands Individual Economics
This is important for the growth of individuals economically. A person needs to understand the economic situations and stipulations present in his own life. He may not need the hardcore subjective understanding of economics, but he definitely needs to understand the economic practices that he must follow to eradicate chances of going broke or bankrupt. Also, understanding of economics helps in using the resources in the best possible way and gaining maximum profit.