The Meaning of Fundamental Concepts in Economics

Economics can be broadly classified into fundamental economics, macro-economics, micro-economics, international economics and personal finance economics. These are also the core ideas that explain the various fields of economics and are essential for understanding their purpose and application to real-world situations. Each one of these categories has fundamental concepts that can help understand economics in all its aspects.

Fundamental Economics

The key concepts of fundamental economics include decision making and cost benefit analysis, division of labor and specializations, economic institutions, economic systems, incentives, money, opportunity cost, productive resources, productivity, property rights, scarcity, trade exchange and interdependence. Division of labor means dividing the workforce into various crafts and professions. Productivity is the relationship between inputs and outputs and this can be applied to individual factors of production.

Macro-Economics

Macro-economics deals principally with the national, regional or global economy at large and these include aggregate demand and supply, budget deficits and public debt, business cycles, economic growth, employment and unemployment, fiscal policy, inflation and GDP. Demand and supply is the twin driving forces of the market economy. Demand is not limited to measuring the wants of people but also involves the amount of goods and services that people are willing to buy. Fiscal policy comprises government spending and taxation. It also involves any government assistance to the private sector.

Micro-Economics

Micro-economics focuses on the decisions and economic behavior of households and businesses and how these affect the price and therefore, supply and demand of goods and services. The fundamental concepts of micro-economics include competition and market structures, consumers, demand, elasticity of demand, income distribution, market and prices, profits, price elasticity. Competition leads to efficiency among firms and enables prices to be low. Competition can be categorized into perfect and monopolistic competition. Price elasticity can be termed as a measure of the response that demand has to a change in price.

International Economics

International economics looks at how the financial dealings among different countries affect consumers and governing financial institutions. Some basic concepts here include balance of trade and balance of payments, economic development, barriers to trade, exchange rates, benefits of trade and foreign currency markets and trade. The exports of a country minus its imports would be balance of trade. Balance of payments (BOP) is used by counties to monitor all international monetary transactions. BOP is divided into current account, capital account and financial account.

Personal Finance Economics

Personal finance economics focuses on individuals and families and how they handle their monetary resources. Key concepts include compound interest, interest, financial markets, human capital, insurance, money management, budgeting, risk and return, saving and investing. As per an economist the meaning of saving would be consuming less in the present and keeping your resources for future use. Investments are putting your resources to work in order to earn more from them. This is just a brief description of some of the fundamental concepts in economics.