What is Economics

There's no one universally accepted answer to the question "What is economics?" Various definitions are:

The Economist's Dictionary of Economics defines economics as "The study of the production, distribution and consumption of wealth in human society."

"Most simply put, economics is the study of making choices."

"Economics is a social science that studies human behavior. Economics has a unique method for analyzing and predicting individual behavior as well as the effects of institutions such as firms and governments, or clubs and religions."

"Economics is a social science that studies human behavior as a relationship between ends and scarce means which have alternative uses (Lionel Robbins, 1935). That is, economics is the study of the trade-offs involved when choosing between alternate sets of decisions."

“Economics is the Social science devoted to studying the production, distribution, and consumption of wealth.”
Another definition is "Economics is the study of how individuals and groups make decisions with limited resources as to best satisfy their wants, needs, and desires". This definition is perhaps better suited to Microeconomics, but it gets the important idea across that economics is not simply the study of money and the stock market.

Economics is the study of how, in a given society, choices are made in the allocation of resources to produce goods and services for consumption, and the mechanisms and principles that govern this process. Economics seeks to apply scientific method to construct theories about the processes involved and to test them against what actually happens. Its two central concerns are

• the efficient allocation of available resources and
• the problem of reconciling finite resources with a virtually infinite desire for goods and services.

Economics analyzes the ingredients of economic efficiency in the production process, and the implications for practical policies, and examines conflicting demands for resources and the consequences of whatever choices are made, whether by individuals, enterprises, or governments.

It very broadly consists of the disciplines of microeconomics (the study of individual producers, consumers, or markets), and macroeconomics, (the study of whole economies or systems – in particular, areas such as taxation and public spending).

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KK

Depriciation & Ammortisation

Importance of depreciation – Depreciation as seen under “Accounting Concepts” is to make a provision out of the income of the enterprise every year to take care of requirement of funds for replacing an old asset as and when it is worn out. Depreciation is an important tool in tax planning, as to the extent of depreciation claimed in business, the profits are less and so is tax. Thus depreciation is necessary for tax planning.

Depreciation also provides funds to the enterprise, as there is no cash outlay in this case, unlike other operating expenditure involving cash outlay. Again depreciation fund is not kept in any bank account, but invested in business assets only. Depreciation funds can be used along with internal accruals for repayment of loan installment.

Amortisation – There are certain expenses incurred in a business enterprise, like patent registration fees, copyright fees, franchise fees, preliminary expenses representing company incorporation expenses, public issue of debt or equity expenses like debenture and share capital etc. These are called deferred revenue expenditure as they are incurred at one point of time and get written off over a period of time against future income, unlike revenue expenditure that gets written off during the year in which it is incurred.

Further, these expenses give benefit for a long time to the enterprise but do not generate tangible assets. Hence they are also referred to as “intangible assets”.

Opportunity cost and opportunity gain

Opportunity cost and opportunity gain – A phenomenon arising out of comparison between returns on alternative investment opportunities available to an investor.

For example an investor gets return of 13% p.a. in bank deposits, while he can get 18% in shares, the opportunity cost of investing in bank deposits vis-à-vis the investment in shares is 18% - 13% = 5%. As against this, the investment in shares fetches an opportunity gain of 5% p.a. Thus opportunity cost and gain are relative terms and absolutely dynamic, as the returns even in the case of same investment vary from time to time.
Opportunity cost or gain is a dynamic concept and not static one. Further it is a product of time and holds good only for a short period. It is always determined for a pair of alternative investment opportunities.