Learning OutcomesOn completion of the lesson, students are expected to;
- understand the problem of unlimited wants and finite resources.
- distinguish between renewable and non-renewable resources.
Students should understand that the economic problem is faced by consumers, producers and the government. Students should also understand the meaning of sustainable resources.
Meaning of Economics
Economics is the study of efficient management of scarce resources so as to get the maximum satisfaction of human wants. The word economics is derived from the Greek word “oikonomia”. It means household management.
Economics has a Microeconomic and a Macroeconomic dimension. Microeconomics is concerned with the efficient supply of a particular good or service. But Macroeconomics is concerned with the overall efficiency of resource use in an economy. In particular, it is concerned with the achievement of economic objectives such as;
- a high and stable level of employment
- a relatively stable price level
- an improved balance of payments position
- a steady economic growth and a rising standard of living
- a more equal distribution of income and wealth
The views of different economists are different in defining the nature of economics.
1. Adam Smith’s Wealth definition
Adam Smith is often seen as the founding father of economics. In his famous book, the ‘Wealth of Nation’ published in the year 1776, he defines economics as “the study of wealth”.
2. Alfred Marshall’s Welfare definition
According to Marshall “Economics is the study of mankind in the ordinary business of life”
3. Lionel Robbins’s Scarcity definition
Professor Lionel Robbins (in an essay on the Nature and Significance of Economic Science, 1932) defines economics as follows;
“Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”.
It can be concluded from the above definitions that;
- human wants are unlimited
- resources are scarce
- scarce resources have alternative uses
- so, we have to choose between wants
In short, Economics is
- a social science
- concerned with economizing the scarce resources
- to satisfy unlimited wants of human beings
Economics is an analytical discipline that answers 'What if...?' questions.
Needs and Wants
Need refers to the basic requirements for the human beings. For example: water, air, cloth etc. Food, Cloth and shelter are our basic needs. They are important for our survival.
Wants are all those commodities above the basic requirements. These are goods and services which people seek to obtain in order to improve their standard of living. For example: television, chocolates, computers etc. Human wants are unlimited.
The following are some reasons why our wants are virtually unlimited.
- goods need to be replaced due to wear out and tear out and obsolescence
- new goods and services become available
- repeated use of a particular good make us bored
Production of goods and services help us to satisfy our wants, but it requires scarce resources.
Resources are inputs used in the production of goods and services. It includes;
- Land – natural resource. For example: oil, wood, minerals etc
- Labour – human resource. For example: carpenter, solicitor, car mechanic etc
- Capital – manufactured resource. For example: money, machinery, tools etc
We have a limited number of resources. Some resources are Renewable while others are non-renewable.
- Replaceable resources can be defined as those resources which are renewable.
- Resources, which can be renewed along with their exploitation, and are always available for use.
- These resources are sometimes called as Sustainable Resources.
- For instance, forests are renewable. Stock of fish, flock of tigers etc are also examples.
- Likewise, solar energy and wind energy are examples of renewable resources.
The formation of some resources like iron ore, coal, mineral, oil etc. takes several thousand years.
- Once they are used in unlimited way, they cannot be easily replaced.
- Thus, their exploitation at large scale will result in their fast depletion.
- Such resources are called non-renewable resources or exhaustible resources.
Therefore, we need to economize the available resources.
Economizing refers to making the best use of the available resources to obtain the highest possible satisfaction. If resources are unlimited in supply economizing would not have given importance. We economize resources due to its scarcity.
It means that a particular commodity is not enough in supply for the complete satisfaction of human wants. Scarcity arises when the supply of a particular commodity is limited in relation to its demand. Scarcity is the central problem in economics.
It dictates that we must answer the three basic questions of allocation. They are:
- What to produce?
- How to produce?, and
- For whom to produce?
By establishing an economic system, we try to find the best solution for the above questions. But, scarcity causes us to make choices.
Choice refers to the act of choosing between items to satisfy human wants. When we make a choice, we select the item that gives maximum satisfaction. At the same time we leave the second best item behind.
Opportunity cost refers to the items given up or foregone when making a choice. In other words,
- It is the next best alternative, or
- It is the highest valued alternative.
The following illustrates few examples of economic problems faced to consumers, producers and the government.
- Consumers: Should we buy sports shoes or an economics text,
- Producers: Should we produce motor cars or cool drinks,
- Producers: Should we employ more labour or more machinery,
- Governments: Should we build a new road or a school.