What is Economics
What is Economics
Economics is a social science, which is concerned in large measure with human behavior. Economics, as distinct from other social science, is concerned with three principal matters:
(1)
The behavior of price.
(2)
The force which determine income and employment.
(3)
The creation and distribution of wealth.
Price, income, wealth―all of these are measurable in money terms. Yet economics is concerned with more than money matters. It is a broad field of study and includes such specialized areas as monetary economics, industrial economics, labor economics etc. There is the separate but closely related discipline of econometrics which is concerned with the mathematical and statistical analysis of economic relationships.
The Meaning of “Economics”
Economics is derived from a Greek word meaning the management of a household. At the domestic level this means setting aside a part of one’s income for various expenses necessary to sustain a household―food, clothing, cleaning materials, mortgage payments or rent etc. Since we never seem to have enough money to provide for all the things we would like, we have to economize, i.e. we try to make the best use of our scarce resources, and to use them efficiently.
Free and Scarce Goods
Nearly all goods and services are scarce in the sense that the supply of them is limited. The air we breathe may seem to be an exception, but huge sums of money have been spent to keep the air as clean as it is. Many places are today designated “smokeless zones”. There is a continuing campaign to remove pollutants from petrol or other toxic substances. So even the air we breathe involves a substantial cost in economics terms.
The Economics Problem―Scarcity and Choice
Economics can be seen in terms of the study of human behavior in the context of limited resources, the allocation of those scarce resources and the distribution of those scarce resources among competing groups. As individuals or firms our income is finite, our wants potentially infinite. Except for a few ascetic people, our wants―not the same as our needs―nearly always succeed our available resources. This applies not only to individuals but also for business and governments. It is true for rich and poor alike, although the starkness of choice for the very poor―between sufficient food and adequate clothing―is more striking. An already wealthy businessman will not necessarily jump at the chance of make more money, because for him time is a scarce resource. For the government, the budget is its annual exercise in reconciling scarcity and choice for the national as a whole.
As discussed earlier, the basic economic problem confronting all societies is how to allocate scarce resources between alternative uses, because there are insufficient resources to produce all that are desired. As a result, society is forced to make choices. These choices include:
(1)
What output will be produced? It is obvious that if society cannot have all the output it desires, it must choose which goods and services to produce from the available resources.
(2)
How will the goods be produced? There are various ways of producing any given output. In many of the world’s poorer countries production is largely labor-intensive, while production of the same goods in the richer countries is often capital-intensive.
(3)
For whom will the output be produced? Clearly, is an output is produced there must be some means of allocating it to consumers and of deciding who receives what.