The Importance of Studying

Economics (618 Words)

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Read this article to learn about the importance of studying economics!

Every field of study has its own language and its own way of thinking. For
example, mathematics talks about algebra, science deals with experiments,
accounts deal with profit and loss and so on. Economics is no different.
 Image Curtsey: business.msstate.edu/img/McCoolAtriumStudyingAccounting.jpg

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An Economists language consists of terms like demand, supply, market, etc.
In the coming chapters, you will come across many new terms and some
familiar words that economists use in specialized ways. The most important
purpose of this book is to help you understand an economists way of thinking.
Of course, as one cannot become a mathematician overnight, in the same
way, learning to think like an economist will take some time. Yet with a
combination of theory, numerical and live examples, this book will give you
ample opportunity to develop and practice this skill.

Before we proceed to the meaning of economics, let us first understand the

meaning of economy and reason for studying economics.

What is an Economy?
You must have observed many activities happening around you in your daily
life. For instance, you may have seen factories, mines, shops, offices,
flyovers, railways, etc. All these institutions and organisations may be
collectively called an economy. Such units enable people to earn an income
and, at the same time, help to produce goods and services which people
require for use.

An economy is a system which provides people, the means to work and earn
a living. It is an organization that provides living to the people. In this task, it
makes use of the available resources to produce those goods and services
that people want. For example, Indian economy consists of all sources of
production in agriculture, industry, transport and communication, banking, etc.

Vital Processes of an Economy:

Economy is a system which provides living to the people. For this objective to
be fulfilled, it is necessary that every economy should undertake three
economic activities:

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1. Production

2. Consumption

3. Investment or Capital Formation.

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These economic activities are known as the essentials or the vital processes
of an economy.

On the basis of nature of economic activities, economies can be broadly

classified as: Market Economy and Centrally Planned Economy. But, it is now
out of syllabus and is given in Power Booster Section for knowledge
enrichment.

Why Study Economics?

We go to a cinema hall to watch a movie. We go to a restaurant to eat. We
attend school to get educated or to be able to earn a living. It means, every
activity is conducted for a specific reason. Economics is studied because it
enables us to understand different aspects of the economy.
However, the main reason for study of economics can be simplified to a single
word Scarcity. We all know, human wants are more than the available
resources. So, there is a need to allocate these scarce resources for the
satisfaction of never ending human wants. Hence, Economics is concerned
with selection of resources under conditions of scarcity.

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Let us now understand the concept of Scarcity, the root of all economic
problems.

Scarcity:
Scarcity refers to the limitation of supply in relation to demand for a
commodity. It refers to the situation, when wants exceed the available
resources. As a result, goods are not readily available and society does not
have enough resources to satisfy all the wants of its people. Scarcity is
universal, i.e. every individual, organisation and economy faces scarcity of
resources.

Scarcity of resources calls for economizing of resources. Economizing of

resources refers to making optimum use of the available resources. There is a
need to economize, as we have to satisfy our unlimited wants out of limited
resources.
What weak peso
means
Philippine Daily Inquirer / 01:33 AM November 14, 2015

The peso has weakened in value against the US dollar in recent

weeks, and closed last Tuesday at P47.16 to $1its lowest since
2009. Economists and analysts have attributed this weakening to an
impending increase in US interest rates, which has the effect of luring
funds to the worlds biggest economy and away from emerging
markets such as ours.

The strengthening of the US dollar has been due to the increasing

likelihood that the US Federal Reserve Board will start raising interest
rates next month. This has boosted demand for the greenback as
investors start buying US treasuries in anticipation of higher US
interest rates. Other currencies from the euro to the yuan have also
been weakening against the dollar because of this.

For local consumers, a weaker peso means higher prices in peso

terms for imported goods and services. For example, a weak peso will
negate the impact of falling crude oil prices abroad.
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The pump-prices of gasoline and other petroleum products would

have been lower had the peso not depreciated against the dollar.
Cheaper fuel prices, in turn, would have triggered a reduction in
transport fares and, consequently, food prices.

But for sectors whose earnings are denominated in dollars, a weaker

peso is a positive thing. Exporters and overseas Filipino workers and
their dependents now receive more pesos for every dollar they
exchange. Thus, analysts are divided on whether a weak peso has a
net positive or negative impact on the country. Some believe that the
net effect is negligible.

Beneficiaries of OFW remittances may at the outset be buoyed by a

firm peso. As the peso depreciates in value, they receive more pesos
for every dollar sent to them. However, their pesos can buy less
products here because of higher inflation resulting from higher import
costs due to the weaker local currency.

With a peso depreciation, Philippine exporters also believe that they

become more competitive in foreign markets as their products
become cheaper in dollar terms. But other currencies in the region
have also been weakening against the dollar, thus reducing or even
offsetting the gain in price competitiveness arising from the peso
depreciation. Exporters who rely heavily on imported raw material
components will likewise be heavily affected as import costs also rise
due to a weaker peso.

A weak peso also fuels inflation due to increases in the price of

imported commodities, including milk, wheat and oil. Imported goods
and services are more expensive in peso terms whenever the dollar
strengthens and the peso gets weaker. This has the effect of
increasing the prices of basic commodities and services, a clear
damper to all Filipino consumers, including OFWs and exporters.

For the government, a weaker peso translates to higher debt

servicing. The depreciation of the local currency increases the peso
equivalent of foreign liabilities and the amount of pesos needed to
buy the foreign exchange required to settle maturing obligations. This
should have been money that the government could use to build
more schools and roads or provide health services.

The impact of a declining peso varies for some sectors. The tourism
sector may be affected both ways as foreign tourists find it attractive
to visit the Philippines with their dollars buying more pesos, while
domestic tourists find it expensive to visit places abroad because
they will need more pesos to buy dollars.

From a long-term perspective, the peso has remained stable,

averaging P46.82 to $1 from 1998 to this year. The weakest it has
fallen to was P56.34 in October 2004, and the strongest was P37.84
in May 1999. At the start of the year, the exchange rate was P45.06
to $1, marginally slipping to P45.10 in June and to the P47 to $1
levels this month.

As the impact of a weaker peso varies among sectors, the recent

trend of the local currency cannot be viewed as either positive or
negative for the Philippines in general. The more important thing is
for the Bangko Sentral ng Pilipinas to ensure that any weakeningor
strengtheningof the peso will not be too sharp or too abrupt to
disrupt normal trade or business operations. For OFW beneficiaries, it
is best to save those dollars than splurge on new gadgets this
Christmas season as all indications point to a further strengthening of
the greenback against all currencies, including the peso.

Read more: http://opinion.inquirer.net/90303/what-weak-peso-

means#ixzz4a2HKAvMc
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