Meaning of Economics and Related Concepts

Economics is not a subject that can be given a single sentence definition because the founding fathers viewed the subject from different angles and gave it different definitions. This is the reason for the contention that there are as many definitions as there are many Economists. This problem is hot peculiar to Economics as a discipline as it is typical of disciplines in Social Sciences.

However given the centrality of production, distribution, exchange and consumption to economic activities, one will be right to define Economics as a subject that studies human endeavours in respect of production, distribution, exchange and consumption. This definition is justified on the basis of the fact that there is no economic activity that can be divorced from these concepts.

Nature and Scope of Economics
The subject scope is quite wide. Generally, it covers the study of individuals, households, firms and the aggregate behaviours of the units, including market demand and industries. These are collectively known as Macroeconomics.

Economics belongs to a group of subjects called social sciences. Other social science subjects are sociology, geography, psychology, government, political science, religious studies, anthropology and philosophy. Economics is regarded as a social science because it studies human behaviour. For example, is the price of a commodity rises, people will buy less, while if the price of such commodity decreases, people will buy more, all things being equal.

Economics is also concerned with human behaviour, such as how people achieve their wants. Man interacts with people in the process of buying and selling. Economics as a social science subject is also concerned with the study of firms or companies and the government which is responsible for the provision of goods and services for its people in order to satisfy their wants.

Economics is also regarded as a science because it adopts the scientific method. The. scientific methods involves the following:

(i) Observation
(ii) Formulating a hypothesis.
(iii) Collection of data
(iv) Organising or analysing the data.
(v) Formulating laws.
(vi) Testing the laws
(vii) Prediction on the basis of the laws.

Even though economics is often regarded as a science subject, it does not assume the same level of precision and accuracy as any of the natural pure or physical sciences like chemistry, physics and biology.

This is because economics deals with human behaviour, which is very complex and changes from time to time depending on the circumstances.

Basic Concepts of Economics
The basic concepts or elements of economics are: wants, scarcity, scale of preference, choice and opportunity cost.

Want may be defined as insatiable desire or need by human beings to own goods or services that give satisfaction. The basic needs of man include: food, housing and clothing. Human needs are many. They include tangible goods like houses, ears, chairs, television set and radio, while the others are in form of services, e.g. tailoring, carpentry and medical. Human wants or needs are many, and are usually described as insatiable because the means of satisfying them are limited or scarce.

To an economist, all goods and services are scarce relative to demand. That is, beyond the generally accepted notion of scarcity as limited supply of resources to abundantly produce for all, scarcity emphasises the ability to demand supplied goods.

Thus, in a modem day world where advanced technology has brought about mass production of goods and service the problem of scarcity still persists. This is because the mass produced goods are only meant for those who could afford their prevailing market price. To those who could not demand the goods at the market prices of such mass produced goods, they are said to be scarce relative to demand for then.

This is the arrangement of one’s needs in order of importance. That is, if we arrange our needs in order of priority, it connotes that we have drawn a scale of preference. Thus, from a mere list of wants, one can draw a scale of preference.

It will be noted that two or more people may have the same mere list of wants but rarely do such people have the same scale of preference. This is because individual preferences differ. Second, once a scale of preference is drawn, one should attend to the listed needs as stated, paying attention to items one, two, and three in that order. It should also be noted that it may be difficult to fulfill one’s scale of preference due to impulse buying and emergencies.

Choice can be defined as a system of selecting or choosing one out of a number of alternatives. Human wants are many and we cannot satisfy all of them because of our limited resources. We, therefore, decide which of the wants we can satisfy first. Choice arises as a result of numerous human wants and the scarcity of the resources used in satisfying these wants.

Choice therefore arises as a result of scarcity of resources. Since it is extremely difficult to produce everything one wants, choice has to be made by accepting or taking up the most pressing wants for satisfaction based on the available resources.

Opportunity Cost (Real Cost)
Simply defined, the opportunity cost is the forgone alternative out of two competing needs. This means the opportunity cost of a good we buy is the other good left unbought. For example, a student faced with either buying a school bag or a school sandal each costing N500 and the student in question having only N500 will be compelled to buy one and forgo the other. If he/she decides to buy the school bag, the opportunity cost of the bag is the school sandal forgone.

Importance of Opportunity Cost

  1. To Individuals
    (i) helps to make wise choice
    (ii) efficient use of scare resources
  2. To Industries/Firms
    (i) Rational decision: It assists the firm to make rational decision about production process
    (ii) Techniques of production: It also helps manufacturing industries in deciding the techniques of production
  3. To the Government
    (i) Preparation of budget: Opportunity cost helps the government in the preparation of budget through efficient allocation of resources.
    (ii) Decision making process: It helps the government in making certain decisions for the interest of the nation.

Why We Study Economics
We study the subject Economics for the following reasons:

(1) Allocation of resources: The study of economics enables the government to allocate scarce resources to various sectors of the economy.

(2) Development of programmes: It also enables the government to develop certain programmes that are beneficial to the people.

(3) Rational decision: Economics enables the individuals to choose certain wants among the numerous needs using their scarce resources.

(4) Preparation of budget: Economics assists the government to determine the expected income and expenditure of a country

(5) Solutions to economic problems: Economics also enables individuals, firms and governments to solve their problems using various principles of the subject.

(6) Production: The study of economies assists us to determine what to produce, when to produce, factors of production and how to produce goods and services required to satisfy human wants.

(7) Provision of basic tools: The study of economics provides basic tools for analysing economic problems among individuals, firms and governments.

(8) Maximisation of profits: Economics enables traders and businessmen to maximise their profits using economic principles in their business.

(9) Consumption of commodities: Economics also assists us to determine the pattern of consumption of goods and services in our local environment

(10) Satisfaction of wants: The study of economics helps us to utilise the principles of choice, opportunity cost, scale of preference, etc. in order to satisfy human wants.

(11) Participation in government: The understanding of the subject economics does help individuals to participate actively in the art of governance.

Branches of Economics
Economics can be grouped into two major divisions. These are micro-economics and macro-economics

Micro-economics refers to the branch of economics which deals with smaller units or components of the economy. It is concerned with the analysis of the basic decision making components of households, individuals, firms and governments. It relates to cost, output, production, pricing and marketing activities of households, firms and governments.

Advantages of Micro-economics

(1) Better understanding: Micro- economics helps in the better understanding of the functioning of the various units or components of the economy.

(2) Making of policies: It also enables us to make and develop better policies that will improve the welfare of the people.

(3) Knowledge of vibrant sector: The knowledge of micro-economics enables us to determine the vibrant sector of the economy.

(4) Development of economic tool: The study of micro-economics helps us to develop sound economic tools used for interpreting or solving economic problems.

Disadvantage of Micro-economics

(i) Unreliability of data: Data derived from the use of micro-economic principles are not always reliable for the same components or units.

Macro-economics refers to the branch of economics which deals with larger units or aggregate of the economy. Macro-economics relates to large aggregates such as national income, inflation, unemployment and balance of payment. In summary, macro-economics deals with the broad aggregates in the economy.

Advantages of Macro-economics

(i) Even distribution of income – this make sure that the wealth of the nation is not concentrated in the hands of few individuals

(ii) Provision of goods and services: Goods and services are generally provided for the people in macro economics

(iii) Balance of payment: Macro economics ensures adequate balance of payment in the economy.

(iv) Stability of price: Price stability is achieved in macro economics by minimizing price disturbances in the economy.

(v) Increase in Gross Domestic Product (GDP): The study of macro-economics has resulted in the increase in gross domestic product (GDP) leading to economic development.

Disadvantages of Macro economics

(i) Statistical difficulties
(ii) Negative grouping of data

Other Branches of Economics

(1) Pure economics: This is concerned with the study of the laws and theories derived from the study of economic behaviour.

(2) Applied economics: This is concerned with the application of the laws and theories in analysing and solving economic problems.

(3) Mathematical economics: This is concerned with the collection and analysis of data as well as statistics.

(4) Monetary economics: This involves the study of money and banking.

(5) Business economics: Business economies is concerned with the study of trade, business organisation and accounting.

(6) Development economics: This is concerned with the study of economic planning and national economics.

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