This paper will examine the issue of “why is the science of economics concerned with the activity of households and individuals at one end of the scale, and that of multinational corporations and governments at the other?” The matter will be considered from the perspective of economic theory in relating the concepts to the determinants of demand and supply and other macro issues of large corporations, states, and governments.
Economics is about studying how limited resources are used by people to meet their needs and requirements. It is known that all resources are limited and given the unlimited wants of consumers, people and larger entities must take decisions in efficiently allocating the scarce resources to get maximum satisfaction and utility. Economics is a social science that deals with the economic actions of consumers and provides theoretical frameworks for distribution, production and the spending of capital in meeting the requirements and needs of consumers. Theoretically, economics is a science that comprises two specific areas; microeconomics and macroeconomics. Microeconomics is concerned with the study of how and why consumers make decisions about allocating their scarce resources in purchasing goods and services at given prices. In other words, microeconomics deals with demand and supply and consumer behavior in different markets. Conversely, macroeconomics deals with larger economic activities such as economic growth, inflationary patterns, economic policies and employment issues (Maurice et al, 2008, pp. 23-25).
Eventually macroeconomics attempts to determine the influence of government policies on these parameters. In this perspective, both microeconomics and macroeconomics imply that the science of economics deals with the economic activities of consumers on the one hand and with multi-national companies and governments on the other. It is known that the economies of nations are driven by the forces that apply to demand and supply conditions prevailing at any given time. Individual consumers and households form the several entities that drive the forces of demand and supply in the economic system. Hence the study of consumer behavior is very significant in determining the pattern of demand and supply which in turn gives direction to the production process in the economy. Since households and individual consumers are the final sources of consumption, they drive the economy, while governments and multinational companies become the driving forces behind productivity of goods and services. Governments play a vital role in determining the economic policies of a nation which have a direct bearing on the availability of goods and services which in turn influences the consumption patterns.
The science of economics thus deals with the behavioral patterns of the two major entities and with the balancing of demand and supply so as to create a viable and developing economic environment. The balancing efforts in this regard are aimed at achieving equilibrium, without which short-term and long-term complications develop in the economy, adversely impacting economic growth and prosperity. In extreme cases, where equilibrium is not maintained consistently, there is danger for the economic system to collapse; leading to complications such as high rates of inflation, deflation, adverse balance of payments situation and high unemployment levels (Foldvary, 2009).
Economic uncertainties have their root cause inconsistent disequilibrium situations whereby there is imbalance in energy consumption and productivity. Economic problems also arise due to faulty economic policies pursued by governments in keeping with political and social structures of the state. Sometimes governments are unable to maintain equilibrium due to their weakness in accurately predicting demand and supply situations and in pursuing efficient economic systems. Hence the need for the science of economics to study all parameters within the economic system from the perspective of individual consumers as also multinational companies and governments, to achieve optimum utilization of scarce resources and to efficiently allocate them in terms of the principles of demand and supply.
Reference
Foldvary, Fred, E. (2009). The Science of Economics, Web.
Maurice, S., & Thomas, C. (2008) Managerial economics w/ CD (9th ed.) New York, NY: McGraw-Hill. ISBN: 007334656X.