CHAPTER
ONE
1. NATURE AND SCOPE OF ECONOMICS
1.1 Meaning of Economics
The term economics comes from the Greek for oikos (house) and nomos (custom or
law), hence "rules of the house (hold)."
Economics is essentially a study of the ways in which mankind provides for his
material well being.
That is, how people apply their knowledge, skills and efforts, to the
gifts of nature
in order to satisfy their material wants. [In this sense it is as old as
mankind] Economics is defined as;
A social science, which studies the allocation of scarce resources
that have potentially alternative uses among competing and
virtually limitless wants of consumers in a society.
It is therefore the science which studies human behavior as a
relationship between ends and scarce means which have
alternative uses
The branch of social science that deals with the production and
distribution and consumption of goods and services and their
management
1.2 Basic Economic concepts
i. Human wants
Human wants are peoples’ desires for goods, services and circumstances that
enhance their material well-being.
Human wants are assumed to be limitless in the sense that they can never be
satisfied to the point of satiety. Satiety refers to the feeling of fullness.
Note
a) Human wants in this case does not refer to the desire for a specific
commodity or set of commodities, rather it is to commodities in general.
Page 1 of 31
,b) Human wants are different from human needs.
Page 2 of 31
,Any economic activity [productive activity] is directed towards the satisfaction of
these human wants.
ii. Resources
Resources are the means or ingredients available for producing goods and services.
They can be broadly classified into land, labour, capital and entrepreneurial ability.
These (Land, labour and capital) are combined by the entrepreneur in various ways
to produce goods and services. Thus resources are also referred to as factors of
production or the inputs in production.
iii.Scarcity and choice
Scarcity is defined as the inability of resources to satisfy all human wants (to the
point of satiety).
Scarcity means that available resources are insufficient to satisfy all wants
and
needs. Absent scarcity and alternative uses of available resources, there is no
economic problem.
If resources available to people are insufficient to satisfy all their wants, then they
are said to be scarce.
The problem of scarcity is known as the economic problem.
Note
a) Scarcity is a relative concept that relates the extent of peoples wants to the
means available to satisfy them. [Scarcity is not absolute i.e. not just a
question of fewer or more]
b) Scares resources are called economic resources, and goods produced using
such resources are economic goods.
c) Economic goods/resources command a non-zero price. Abundant resources
are not economic resources; consequently they do not have a price.
d) Scarcity implies also that resources have competing alternative uses.
e) Scarcity is a feature of all societies both affluent and the poor, it is what is
called the economic problem.
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, Choice
Because of scarcity choices have to be made. Since human wants are unlimited and
resources to satisfy these wants are scarce, individuals and society as a whole
cannot have all the things that they want. Choices then have to be made as to which
need to satisfy and which to forego. The choice to have X may imply forgoing Y, or
the choice to have more of X means having less of Y and vice versa.
Rational for choice/ why choice?
First resources are scarce, and secondly (what is the criteria for making these
choices) consumers want to maximise utility, producers want to maximise profits
and resource owners want to maximise factor incomes (we want the best from the
available resources)]
Choices are made by individuals as well as the society.
a) Consumers have to choose how to spend their limited income so as to
maximise utility or satisfaction from consumer goods and services.
b) Producers have to choose how to combine resources to minimize costs and
maximise profits.
c) Resource owners have to choose where to hire their factor services to
maximise factor incomes.
iv. Opportunity cost
Opportunity cost of an action refers to the value of the benefit expected
from the next best-forgone alternative.
Or the benefits you could have received by taking an alternative action.
It is based on the fact that resources are scarce and have competing alternative uses.
Not all the potential uses can be realized thus choices have to be made.
The choice to satisfy one alternative implies that another alternative is foregone. The
value of the foregone alternative is called opportunity cost.
For example
a) The opportunity cost of going to college is the money you would have earned
if you worked instead. On the one hand, you lose four years of salary while
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ONE
1. NATURE AND SCOPE OF ECONOMICS
1.1 Meaning of Economics
The term economics comes from the Greek for oikos (house) and nomos (custom or
law), hence "rules of the house (hold)."
Economics is essentially a study of the ways in which mankind provides for his
material well being.
That is, how people apply their knowledge, skills and efforts, to the
gifts of nature
in order to satisfy their material wants. [In this sense it is as old as
mankind] Economics is defined as;
A social science, which studies the allocation of scarce resources
that have potentially alternative uses among competing and
virtually limitless wants of consumers in a society.
It is therefore the science which studies human behavior as a
relationship between ends and scarce means which have
alternative uses
The branch of social science that deals with the production and
distribution and consumption of goods and services and their
management
1.2 Basic Economic concepts
i. Human wants
Human wants are peoples’ desires for goods, services and circumstances that
enhance their material well-being.
Human wants are assumed to be limitless in the sense that they can never be
satisfied to the point of satiety. Satiety refers to the feeling of fullness.
Note
a) Human wants in this case does not refer to the desire for a specific
commodity or set of commodities, rather it is to commodities in general.
Page 1 of 31
,b) Human wants are different from human needs.
Page 2 of 31
,Any economic activity [productive activity] is directed towards the satisfaction of
these human wants.
ii. Resources
Resources are the means or ingredients available for producing goods and services.
They can be broadly classified into land, labour, capital and entrepreneurial ability.
These (Land, labour and capital) are combined by the entrepreneur in various ways
to produce goods and services. Thus resources are also referred to as factors of
production or the inputs in production.
iii.Scarcity and choice
Scarcity is defined as the inability of resources to satisfy all human wants (to the
point of satiety).
Scarcity means that available resources are insufficient to satisfy all wants
and
needs. Absent scarcity and alternative uses of available resources, there is no
economic problem.
If resources available to people are insufficient to satisfy all their wants, then they
are said to be scarce.
The problem of scarcity is known as the economic problem.
Note
a) Scarcity is a relative concept that relates the extent of peoples wants to the
means available to satisfy them. [Scarcity is not absolute i.e. not just a
question of fewer or more]
b) Scares resources are called economic resources, and goods produced using
such resources are economic goods.
c) Economic goods/resources command a non-zero price. Abundant resources
are not economic resources; consequently they do not have a price.
d) Scarcity implies also that resources have competing alternative uses.
e) Scarcity is a feature of all societies both affluent and the poor, it is what is
called the economic problem.
Page 3 of 31
, Choice
Because of scarcity choices have to be made. Since human wants are unlimited and
resources to satisfy these wants are scarce, individuals and society as a whole
cannot have all the things that they want. Choices then have to be made as to which
need to satisfy and which to forego. The choice to have X may imply forgoing Y, or
the choice to have more of X means having less of Y and vice versa.
Rational for choice/ why choice?
First resources are scarce, and secondly (what is the criteria for making these
choices) consumers want to maximise utility, producers want to maximise profits
and resource owners want to maximise factor incomes (we want the best from the
available resources)]
Choices are made by individuals as well as the society.
a) Consumers have to choose how to spend their limited income so as to
maximise utility or satisfaction from consumer goods and services.
b) Producers have to choose how to combine resources to minimize costs and
maximise profits.
c) Resource owners have to choose where to hire their factor services to
maximise factor incomes.
iv. Opportunity cost
Opportunity cost of an action refers to the value of the benefit expected
from the next best-forgone alternative.
Or the benefits you could have received by taking an alternative action.
It is based on the fact that resources are scarce and have competing alternative uses.
Not all the potential uses can be realized thus choices have to be made.
The choice to satisfy one alternative implies that another alternative is foregone. The
value of the foregone alternative is called opportunity cost.
For example
a) The opportunity cost of going to college is the money you would have earned
if you worked instead. On the one hand, you lose four years of salary while
Page 4 of 31
