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What is Economics? Definition, Types, Scope, and Principles Explained
23-02-2026
Ever thought about why petrol prices suddenly increase or how money flows through an economy?
These questions lie at the heart of economics.
Economics is the study of how societies use limited resources to produce, distribute, and consume goods and services.
As an essential discipline, economics influences everyday life. It develops awareness about earning, spending, saving, and investing.
It explains movements in prices, changes in income, savings patterns, and consumption habits.
Through economic understanding, individuals are better equipped to make informed financial decisions and contribute to a stable and sustainable society.
In this blog, we will explore the definition, microeconomics vs macroeconomics, career scope, and more.
What is Economics?
Economics is a field within social sciences that deals with the decisions made by people, companies, governments and nations to use the limited resources.
Economics is intertwined in areas like politics, psychology, business, and law as these decisions affect many areas of the society.
Economics assists in answering the following key questions:
- Why are the prices of commodities increasing?
- Why does unemployment occur?
- How do the policies of the government have an impact on the economy?
- What should be done to alleviate poverty and inequality?
Types of Economics
There are two types of Economics - microeconomics and macroeconomics. The table below discusses the primary differences between microeconomics and macroeconomics.
| Basis of Comparison | Microeconomics | Macroeconomics |
| Meaning | Microeconomics studies the behaviour and decision-making of individuals, households, and firms regarding the use and allocation of limited resources. It focuses on markets for goods and services and specific economic issues at a smaller scale. |
Macroeconomics examines the overall functioning and performance of the entire economy. It studies large-scale economic indicators such as Gross Domestic Product (GDP), unemployment, inflation, and economic growth. |
| Area of Study | Concentrates on specific market segments within the economy. | Focuses on the economy as a whole, covering multiple markets and sectors together. |
| Deals With | Covers topics such as demand and supply, pricing of goods and factors of production, economic welfare, production, and consumption. | Deals with national income, income distribution, employment levels, money supply, and the general price level. |
| Business Application | Applied mainly to internal business decisions, such as pricing, production, and resource allocation. | Applied to external and environmental factors affecting businesses, such as inflation rates, government policies, and economic growth. |
| Scope | Includes issues like demand, supply, factor pricing, product pricing, production, consumption, and welfare. | Includes issues such as national income, employment, distribution, money, and overall price stability. |
| Significance | Helps determine product prices and factor prices (labour, land, capital, and entrepreneurship) within the economy. | Helps maintain stability in the overall price level and addresses major economic problems such as inflation, deflation, unemployment, and poverty. |
Principles of Economics
According to Gregory Mankiw in Principles of Economics, Economics is based on ten principles that explain how individuals make decisions, how people interact, and how the overall economy functions. These principles are discussed below:
| Sl. No. | Principle | Core Idea |
| 1 | People face trade-offs | Every decision requires giving up something to gain something else (e.g., efficiency vs equity, guns vs butter). |
| 2 | The cost of something is what you give up to get it | True cost includes opportunity cost — the value of the next best alternative forgone. |
| 3 | Rational people think at the margin | Decisions are made by comparing marginal (additional) benefits with marginal costs. |
| 4 | People respond to incentives | Individuals change their behaviour when costs or benefits change (rewards and penalties matter). |
| 5 | Trade can make everyone better off | Specialisation and exchange allow all parties to benefit. |
| 6 | Markets are usually a good way to organise economic activity | In a market economy, decentralised decisions guided by prices efficiently allocate resources (invisible hand concept). |
| 7 | Governments can sometimes improve market outcomes | Government intervention may correct market failures such as externalities or monopolies and promote equity. |
| 8 | A country’s standard of living depends on its productivity | Higher productivity leads to higher income and improved living standards. |
| 9 | Growth of money supply leads to inflation | Excessive increase in money supply reduces money’s value and raises overall prices. |
| 10 | Society faces a short-run trade-off between inflation and unemployment | In the short run, lower unemployment may come at the cost of higher inflation, especially during economic fluctuations. |
What are the Economic Indicators?
Economic indicators are statistics that show how well a country’s economy is performing. They are released regularly by government bodies or private institutions and can strongly influence stock markets, employment trends, and global financial markets.
Investors and policymakers use these economic indicators to understand current conditions and anticipate future economic changes that may affect investment and policy decisions. The different types of economic indicators are discussed below:
| Economic Indicator | Issued By | What It Measures | Why It Matters |
| Gross Domestic Product (GDP) | Bureau of Economic Analysis | Total market value of all final goods and services produced within a country during a specific period | Broadest measure of economic performance Confirms overall economic growth or contraction trends |
| Retail Sales | U.S. Department of Commerce | Total dollar value of goods sold by retailers nationwide | Reflects consumer spending, which drives a large portion of GDP and indicates economic direction |
| Industrial Production | Federal Reserve | Output levels of factories, mines, and utilities Includes capacity utilisation rate. |
Shows strength of the industrial sector and signals possible inflation, slowdown, or recession risks |
| Employment Data (Nonfarm Payrolls) | Bureau of Labour Statistics | Monthly changes in employment levels across the economy (excluding farm workers) | Indicates economic expansion (job growth) or contraction (job losses) |
| Consumer Price Index (CPI) | Bureau of Labour Statistics | Changes in prices paid by consumers for a basket of goods and services. | Main measure of inflation Affects interest rates, currency value, and market volatility |
Scope of Economics
Economics offers a broad range of career options where you can apply important skills such as analytical thinking, quantitative reasoning, data interpretation, and effective communication.
For rewarding careers in Economics, you must pursue a relevant course that demonstrates your understanding of core economic concepts, Mathematics, Statistics, and Computer Science. Some of the popular courses that you can pursue in this field are as follows:
| Sl. No. | Name of Course | Type of Course |
| 1 | Diploma in Economics | Diploma |
| 2 | Bachelor of Arts (Hons) in Economics | Undergraduate |
| 3 | BA (Hons/Hons with Research) in PSE (Psychology, Sociology, Economics) | Undergraduate |
| 4 | Bachelor of Science (BSc) Hons. in Economics | Undergraduate |
| 5 | Master of Arts (MA) in Economics | Postgraduate |
| 6 | Master of Science (MSc) in Economics | Postgraduate |
| 7 | Postgraduate Diploma (PGD) in Economics | Postgraduate |
| 8 | Master of Business Administration (MBA) in Business Economics | Postgraduate |
| 9 | Master of Philosophy (M.Phil) in Economics | Postgraduate |
| 10 | Doctor of Philosophy (PhD) in Economics | Doctorate |
After graduating, you can pursue the following careers in Economics:
| Job Title | Job Description |
| Economist | Analyses economic data and trends to study markets, policies, and financial systems. |
| Policy Analyst | Evaluates public policies and recommends improvements based on economic research and data. |
| Financial Analyst | Assesses financial data to guide investment decisions and business planning. |
| Research Associate | Conducts data collection and analysis to support economic studies and reports. |
| Market Researcher | Studies consumer behaviour and market trends to help businesses make strategic decisions. |
Final Thoughts
Economics is not just about money and markets. It is a science that describes how the choices made at both personal and national level determine growth, stability, and prosperity.
Economics can offer us a holistic way of explaining the world around us, whether it is understanding microeconomic behaviour or studying macroeconomic trends.
A degree in economics helps you to pursue careers in policy-making, finance, research, consulting, etc. due to its robust analytical background and broad career prospects.
If you are keen to pursue a career in this area, it is time to start now.
Kickstart your career with a degree in Economics.
Enrich yourself with the knowledge and skills that will help you contribute meaningfully to the global economy.
FAQs
Q1. What is the definition of Economics?
A1: Economics is a branch of social science that studies how individuals, businesses, and governments allocate scarce resources to satisfy unlimited wants.
Q2. Why do we study Economics?
A2: We study economics to understand how economies function and how decisions affect individuals and society. It helps in making informed choices about spending, saving, investing, and policymaking.
Q3. What is the role of an Economist?
A3: An economist analyses data, studies economic trends, and evaluates policies to provide insights on growth, inflation, employment, and market behavior.
These individuals help governments and businesses make better decisions.
Q4. Is Economics hard to study?
A4: Economics can be challenging because it involves analytical thinking and basic mathematics.
However, with strong conceptual understanding and practice, it becomes manageable and interesting.
Q5. Why is Economics important?
A5: Economics is important because it helps address issues like inflation, unemployment, poverty, and economic growth. It guides policymakers in improving living standards and resource allocation.
Q6. What are the types of Economics?
A6: The two main types of Economics are Microeconomics, which studies individual markets and decision-makers, and Macroeconomics, which examines the economy as a whole.