Economics for Beginners: Understanding the Basics
Fundamental knowledge of economics may not be vital for maintaining a family budget, but the factors at the core of economics influence every aspect of our lives. At its most fundamental level, economics tries to explain the behaviors that drive our basic needs and the purchases we make to satisfy them. So how does economics work, and how can it be used as a benefit of investing in precious metals?
Economics–what is it?
Economics is a branch of social sciences that studies how products and services are produced, distributed, and consumed. It investigates how people, corporations, nations, and governments allocate resources.
Human behavior is at the center of economics, founded on the notion that individuals act rationally, seeking the highest amount of gain or value.
Types of Economics
There are generally two types of economics
Microeconomics deals with buying behaviors and purchase decisions on a smaller scale, particularly for individual decision-making units. This may include a single entity or one household, a single business organization, or a government body.
Microeconomics examines some characteristics of human behavior to understand how people react to price changes and why they desire certain things at certain price levels.
Macroeconomics examines the entire economy on a national or global scale, simulating it with a large number of input data, indicators and factors. It might be focused on a certain geographical location, a nation, a region, or perhaps even the entire globe. The field of study emphasizes repeated economic cycles and development and economic growth.
Indicators of Economy
Economists worldwide are skilled in making calculated predictions and estimations for how the economy may act in the future. These predictions rely on certain indicators that economists closely examine before reaching a decision. Following are the main economic indicators:
- Gross Domestic Products (GDP)
- Retail Sales
- Employment Rate
- Industrial Production
- Investment Markets
The Concepts of Economics
Some economics concepts explain how humans allocate their resources to make a purchasing decision. Some of these concepts are given below:
The underlying economic dilemma of scarcity is that the earth has limited resources to fulfill limitless desires. As a result, people are forced to judge how to distribute their resources efficiently.
Cost and Benefits
This concept is linked to the rational choice theory that drives economics. When economists argue that individuals act rationally, they imply that they make decisions to optimize their own benefit-to-cost ratio.
Humans are constantly thinking and making decisions about what would benefit them in the short or long run. These benefits come after a cost that they pay after careful consideration.
Supply and Demand
Supply and demand are crucial to operating a market. Take the example of gold; this precious metal commodity is scarce, so people invest in gold for the value it offers. Any time there’s a high demand for gold investment, its value skyrockets in the market.