The Nature of Economic Reasoning

Generally, most people feel that the world “Economics” is quite familiar, but it is hard to explain the subject surely. There are many different answers regarding with economics, some people can say ‘it is about studying of money”, “It is a kind of making business that can get profit and loss” that explain by another person, some other people argue “No, it is about society choosing and then it is going to contribute wealth” other people with different point of views might claim “ It is expression and explaining the prices movement so as to be in term of mathematical patterns”. There are many ways and series of calculation of the economic point of view that are amazing in their variety.

Economics is a kind of science and then, it is one of the youngest sciences that is why it become the main reason of confusion when people study economics. The beginning realization was provided by a lot of scholars that economics was a new way of looking at society. Rather than any other social philosopher, Adam Smith is more popularized compare to other social philosopher the notation that human beings, left free to pursue their own goals, and would give rise to a social order without being had continuously planned. He put it in The Wealth of Nations, free man acts as if “led by an invisible hand to promote and end which was no part of his intention. Studying economics has good benefits that can be having a deeper understanding of own saturation. For example, people usually cannot make proper account for their choice, however, when people understand that costs are measured in terms of foregone alternatives, most of them might have a very different view of some common choices. It is crucial to evaluating questions of policy is one of the other benefit of understanding of economics. The central concept of economics is the planned actions of real human beings, and it advantages by analyzing the thinking used in making those plans.

Production and consumption are economics problems. Scarcity is the central economic problem, shortage the resources. The resources or factor of productions are labour, land and raw materials and capital. Demand and supply are importance to be reconciled. There will be actual and potential demand and supply. For those industries with labour intensive like agriculture, restaurant and food service, hostility will need less capital and for those kinds of industries with capital intensive like oil production, telecommunication will not need much labour.

Two common types of economics are macroeconomics and microeconomics. Macroeconomics is about the whole economics issues like growth, unemployment, inflation, balancing of payments problems and cyclical fluctuations. Microeconomics is for individual economics. Microeconomic issues are choices between limited and unlimited resources. For example, what resource will use, labour intensive resource or capital intensive resource, how to utilize it and those production or services for whom. The concept of opportunity cost is key concepts in economics that described the basic relationship scarcity and choice.

The rational economic decision making considered between marginal costs and marginal benefits. If marginal costs are less than marginal benefits mean that products or services will do more, but when marginal costs are greater than marginal benefits, products or services need to reduce and do less. If marginal costs and marginal benefits are same, it is the best saturation. Microeconomics objectives are efficiency and equity. The production possibility curve shows choice and opportunity cost, increasing opportunity cost in microeconomic and the production possibility shows production within the curve and shift in the curve in macroeconomics.

The circular flow of income considered the size of total flows for macroeconomic issues and it considered individual markets and choices within goods and factor markets for microeconomic issues. The circular flow involved firms and households. The goods markets consist of real flows: good and services, money flow: consumer expenditure. The factor markets consist of real flows: services of labour and other factors, money flow: wages and other incomes.

There are generally three types of economic systems as market economies, command economies and mixed economies. Market economies are that all productive activities are privately owned and production is determined by the interaction of supply and demand. In command economies, government is the one who plans the goods and services that a country produces, the quantity that is produced, and the prices as which they are sold. Mixed economies mean there are certain sectors of the economy servicing under private ownership and free market mechanisms while some other sectors have significant state ownership and planning. The advantages of command economies are high investment, high growth, stable growth and social goals pursued, and then there is low unemployment. On the other hand, there are problems of gathering information, expensive to administer, inappropriate incentives and shortages and surpluses as disadvantages. In the free market economy, demand and supply decisions are key factors.

As for the price mechanism, there are shortage and surpluses, equilibrium price and respond to changes in demand and supply and another fact is the interdependence of markets. The advantage of free market economy are transmits information between buyers and sellers, no need for costly bureaucracy, incentives to be efficient and competitive markets responsible to consumers. There are problems of a free-market economy also, the competition may be limited with problem of market power, and there is no equality, the environment and other social goals may be ignored.