Meaning, Importance and Basic Concept Of Economics

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Last Updated on November 23, 2020 by admin

MEANING OF ECONOMICS

Economics has many definitions. The reason is that Economists see the subject from different points of view.

Adam Smith: He is regarded as the father of Economics because he laid the foundation of Economics as a discipline/subject. In his book titled “The wealth of nations” written in 1776, he defined Economics as “an inquiry into the nature and causes of the wealth of Nations”.

Other notable Economics are Alfred Marshall (1890), John Stuart Mill (1843); Professor Alfred Pigou; Lord Keynes, H.J. Davenport; Professor Paul Samuelson, Professor Sam Aluko of Nigeria, Professor Lionel Robbins etc.

Economics has many definitions. The most widely accepted definition is given by Professor Lionel Robbins which says “Economics is a social science which studies human behaviour as a relationship between ends and scare means which have alternative uses”. His definition is widely accredited because it embraces the following terms:

  1. Economics is a Social Science because it deals with human behaviour and the activities of the people in the society.

  2. Ends: These are needs which are desired by the consumer to give satisfaction. Examples are cares, clothes, foodstuffs, handsets, books etc.

  3. Scarce means: These are resources which are scare relative to the demand for them.

  4. Alternative uses: The scarce resources can be put to so many uses. For example land can be used for farming or construction of houses, factories.

SCOPE OF ECONOMICS

Economics covers the actions and activities of individual, households and firms (microeconomics); and the actions and activities of the government (macroeconomics)in relation to production, distribution, consumption, money and exchange of goods and services.

IMPORTANCE OF ECONOMICS

We study economics for the following reasons

Allocation of resources:

  1. It enables the individuals, households, firms, and the government to know how limited resources can be used effectively and efficiently.

  2. Reduction of resource wastage: Economics helps to reduce wastage in resource allocation. Economic decision-makers channel their resource to areas where they are mostly needed.

  3. Solution to basic economic problems: the study of Economics provides students with basic skills for analyzing economic problems

  4. Technique of reasoning and critical thinking: Economics teaches the techniques of reasoning and power of critical thinking.

  5. Provision of basic tools for analysis: Economics equips the economic agents with the tools of economic analysis to understand and solve current issues and economic problems confronting the society e.g. oil glut, oil spillage, oil theft, unemployment etc.

  6. Rational decision-making; economics enables individuals, and other economic agencies to be rational or reasonable in the application of scare resources to satisfy unlimited wants. A normal individual takes decisions in the most acceptable and beneficial ways.

  7. Helps government economic policies and development: economics helps us to weigh the economic policies of the government, determine their advantages and disadvantages and offer the right suggestions on the way forward e.g. problem of unemployment, ‘white-elephant’ projects, inflation, budget etc.

ECONOMICS AS A SOCIAL SCIENCE

Economics is not a physical, pure or natural science subject like Physics, Chemistry or Biology because its experiments are not carried out with chemicals in the laboratory or with plants in the farm. Rather, its scientific nature stems from the fact that Economics has laws; and again its theories and principles are analyzed based on scientific techniques, like observation, selection and classification of data, analysis and generalization; just like the pure sciences. Its theories and principles can be verified with facts and figures.

In the strict sense of the word, Economics is a Social Science. This is because it studies human behaviour, which though cannot be tested in laboratory setting, but can be observed and tested by applying them to real life situation.

 

BASIC ECONOMIC CONCEPTS

a .Wants
b.Scarcity
c.Scale of Preference
d. Choice
e.Opportunity Cost

 

  1. WANTS

Wants may be defined as mere desire, needs, wishes or ends of human beings not backed by ability to pay. The basic needs of man are food, shelter and clothing. Human wants are many and insatiable but the resources to satisfy them are scarce and limited. Examples of wants are houses, cars, shoes, air-conditioner, books, hand-sets, computers properties etc.

  1. SCARCITY

Scarcity is the limited supply of resources to satisfy unlimited wants. It is a fundamental economic problem because individuals, firms and the government are all faced with limited resources to satisfy competing and unlimited wants. For example, asa student, if you are told to list all that your heart desires, you will find out that you do not have the resources to satisfy all your wants.  This is the essence of choice-making.

 

  1. CHOICE

Choice arises as a result of scarcity of resources to satisfy man’s numerous and unlimited wants. Since it is impossible to produce everything a person wants, choice has to be made a among competing wants by picking the most pressing wants based on the available resources.

 

  1. SCALE OF PREFERENCE

A scale of preference refers to a list of unsatisfied wants arranged in order of priority or importance. This aids decision-making. The most pressing needs are ranked first followed by the less pressing ones.

 

For example, a student might rank his wants in following order according to their level of importance:

  1. Pair of school uniform

  2. Exercise books

  3. Wrist watch

  4. Dictionary

  5. Scientific calculator

  6. An arm chair

If he is to choose between items 1 and 4, he chooses the first. Scale of preference of individuals, firms and the government differ from time to time.

OPPORTUNITY COST

For an economist, the cost of something is not just the cash payment, but all of the value given up in the process of acquiring the thing. For example, the cost of a university education involves tuition, and text book purchases,

and also the wages that would have been earned during the time at university, but were not. Indeed, the value of the time spent in acquiring the education – how much enjoyment was lost – is part of the cost of education

Opportunity cost is also known as real or true cost or the alternative forgone. It means the satisfaction of one want at the expense of the other he fails to enjoy. For example, a student wants to buy a book and a shirt, each costing N200.  Since he is limited by his resources of N200, he will need to choose between the book and the shirt. If he eventually decides to buy book, the opportunity cost of the book he buys is the shirt he forgoes. Hence opportunity cost is alternative forgone.

RELEVANCE/IMPORTANCE OF OPPORTUNITY COST

Opportunity cost is important to individuals, firms and the government in many ways.

Individuals: An individual has limited income but numerous wants. He therefore lists his wants and arranges then so that the most pressing one is first on the list. What is first in student B’s list may not first in Student A’s list Student A may desire to buy a book, shoes, clothes, wrist-watch, food and pen. He arranges his wants like this: food, clothes, book, wrist watch, shoes and pen.

Firms: opportunity cost assists firms to allocate resources of production to ends which guarantee maximum profit. He allocates resources to produce goods and services with high demand in the market that will assure maximum profit.

For example, the firm may produce foot wares instead of textile.  The opportunity cost of producing foot wares is the textile forgone or sacrificed.

The Government

Opportunity cost helps the government in taking decisions on the type and quantity of goods and services that will be most beneficial to the society. Example, if the government decides to set aside a larger percentage of its resource to the provision of health facilities, the opportunity cost is the allocation of less resource to other sectors like education or road construction which is forgone.

RESOURCES

This refers to the means, or input or factors of production with which human wants can be satisfied. It includes productive or economic resources like land, labour, capital and entrepreneurship, which are used for producing goods and services. Other examples are time and money. Resources are scarce or limited in supply relative/compared to the demand for them.

Types of Resources

  1. Economic Resources: they are resources that have opportunity cost. Their supply is inadequate relative to the demand for them. Producers are willing to forgo certain wants in order to obtain them.

  2. Non-economic Resources: they are items whose supply is inexhaustible or greater than demand for them. It does not have opportunity cost. They are ‘free’ goods.  Examples are air, water.

  3. Natural Resources: these are minerals in the soil e.g. coal, crude oil.

REFERENCE TEXTS

Exam Focus on Economics for SSCE by A.A. Aderinto et al

Fundamentals of Economics for SSCE by R.A.J. Anyanwuoa

Comprehensive Economics for SSS BY Johnson Ugoji, Anyaele

Essentials Economics for SSS by Cole EsanAnde. 2011 edition

Bounty Economics for SSS by B.A. Adeleke, IshayaLawanson Bounty Press, 2010.

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