Purpose of Studying Economics

In this article we will discuss about the purpose of studying economics. After reading this article you will also learn about whether the know­ledge of economics helps us in solving practical problems or not.

Like other sciences, economics has two sides: the theories and facts. A question that is likely to crop up in the mind of a beginner is: why study economics? Paul Samuelson has opined that people study economics for countless reasons.

He has specially suggested the following three reasons:

1. Some people study economics because they want to make money.

2. Others feel that they will be half-educated or even illiterate if they do not understand the laws of supply and demand.

3. People in general are also concerned to learn how current economic problems, such as recessions in major industries, high price of oil or balance of trade problem or debt servicing problem, will affect their lives—now as also in future.

The last point requires elaboration. Inflation, unemployment, monopoly, economic growth, pollution, productivity and other current issues (real life problems) are all covered in the study of economics. Economies is a prob­lem-based social science, and the problems with which it is especially concerned are among the central issues of our times.

Economics is relevant not only to the big problems of society, but also to personal problems, such as one’s job, wages, unemployment, the cost of living, taxes, and voting. As Paul Samuelson and W.D. Nordhaus have put it, “Our economic knowledge serves us in managing our personal lives, in understanding society and in improving the world around us. The ways that economics can help us individually will be as different as our personal lives. Learning about the stock market may help people manage their own finance; knowledge about price theory and anti-monopoly policy may improve the skills of a lawyer; better awareness of the determinants of cost and revenue will produce better business decisions. The doctor, the investor and the farmer will need to know about accounting and regulation to get the most satisfaction and profit from their businesses”.

And J.K. Galbraith has rightly commented:

“Like theology, and unlike mathematics, economics deals matters which men consider very close to their lives.”

In addition to helping people cope with their personal concerns, a study of economics improves our knowledge of crucial national issues.

In truth, economic theory is an abstract way of thinking that allows the development of principles or tools that can be used to study complex social problems. People who have never studied econom­ics in a systematic way cannot understand the nature of any major economic problem such as unemployment, inflation or mass poverty and think about any major national issue.

As Samuelson and Nordhaus have put it, “Economics plays two distinct roles in promoting the analysis of national economic issues—to describe, explain and predict economic behaviour — for example, the causes of poverty. But, for many people the pay-off comes when economic knowledge is applied to help design policies that will build a better society.”

In fact, as a voter one will make decisions on various issues — on the government budget, controlling monopolistic and restrictive trade prac­tices, taxes and foreign trade — that cannot be understood without a background knowledge of elementary economics.

Choosing one’s career or one’s occupation is the most important eco­nomic decision one will make. An individual’s future depends not only on his own abilities but also upon how economic forces beyond one’s control affect his earnings.

Moreover, economics helps one to invest one’s saving in the best way. As Keynes commented: “It (economics) is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor to draw correct conclusions.”

Economics is “the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.” This definition makes it clear that, at the core economics is devoted to under­standing how society allocates its scarce resources.

A study of economics enables us to find an answer to the following questions which affect our daily lives:

1. Why are most people worried about government budget deficit?

2. Does a budget deficit cause inflation?

3. Why do most people worry about inflation?

4. Why are some people rich in our country and most poor?

5. Why did central planning collapse in East Europe and why is there a journey from Marx to markets?

6. What is the exact meaning of a market economy? Does it function?

7. What would happen if we kept foreign machines out of India to protect domestic industries and workers?

8. Why does farmer’s revenue fall in a year of bumper crop?

9. Why does inflation benefit some people and injure others?

10. Why was rupee delinked from pound and linked to a basket of currencies?

In short, the primary function of economists is to formulate policies. At the same time, economic theory helps to explain which economic variables are likely to be related (such as sales revenue of a firm and its advertising expenditure) and why they are linked.

A third, and perhaps more important, reason for studying economics is that, it provides a better understanding of how the world and its people function. Economic theory is very useful in understanding behaviour be­cause it allows the person who under-stands it to develop models with predictive power. As Alfred Marshall commented, “Economics is the study of mankind in the ordinary business of life.”

A knowledge of economics is essential for wise policymaking. Policy makers who do not understand the consequences of their actions are unlikely to reach their goals. In fact, a major reason for studying economics based on the impact that economic ideas and theories have on the world economy. Much of what political decision makers do is based on economic theory.

And the answer to question ‘why study economics’ can best be given in the following words of J.M. Keynes; The idea of economics and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood Indeed, the world is ruled by little el e.

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.