THE SCOPE OF ECONOMICS
After reading and retaining comprehension of the contents of this chapter you should be able to:
- Define the term Economics” and explain its major classes
- Explain the relevance of the following terms to Economics; public goods, private goods merit goods, demerit goods and free goods.
- Describe the crucial roles played by price in Economics.
- Distinguish between Macro Economics and Micro Economics
- Explain all the factors of production.
We can define economics as:
- Economics is a science of scarcity. It is the study of mankind behaviour in processes of production, exchange, distribution and consumption that seek to maximize material well-being from the limited resources available.
- It is the study of how people behave when faced with the problem of scarcity.
- It is a social science that deals with the allocation of scarce resources. It is closely related to such social sciences as ethics, politics, sociology and others in that it deals with human behaviour
The study of economics can be classified into normative and positive economics, depending on whether one is looking at proven facts or subjective statement. Alternatively, the study of economics can be at micro or macro level. Both aspects are going to be looked into in this book.
NORMATIVISM VERSUS POSITIVISM
Economics of positivism deals with economic principles, laws and facts that can be objectively verified. These include issues such as the law of demand and supply. Normative economics deals with subjective statements such as what ought to be done or what is good or bad in a society. Normative economics involve individual opinion and unsubstantiated value judgments or insights. These include issues on fairness, equality, etc
PROBLEMS OF NORMATIVE ECONOMICS
- It cannot be experimented as it deals with human behaviour rather than with physical properties;
- Any measurements used or applied are only approximate and even so take time to collect;
- It deals with human behaviour, which can change from time to time;
- Economic studies are rarely distinct from those of other sciences – as state planning of the economy increases, so that area which economics overlaps with politics increases.
- It cannot directly measure welfare, as it is impossible to measure satisfaction because it is a personal feeling, which cannot be measured objectively.
THE NATURE AND METHODOLOGY OF ECONOMICS
Economics is a social science. This means that an economist attempts to understand economic problems rationally and systematically by collecting and sifting facts before coming to any conclusions or theories. In this case economists used a method very similar to that of scientists but their job is made more difficult by the fact that he cannot set up controlled laboratory experiments. Instead of studying objects, the economist has to study man and his economic decisions. Economic study, like any other social science, moves from abstraction to generalization. Economists collect data from many economic agents. In the data there are always outliers and inconsistent behaviours!, but the economist reads general or average behaviours or trends to come up with widely predictable conclusions, laws, theories and principles.
Resources are scarce. Scarce resources are used to make goods and services. Resources that are not scarce are free goods, which do not have value. These include free air that we breathe or desert sand.
NEEDS AND WANTS
All people have the same basic needs. People usually want more than they need and human wants are without limit. This is because the resources needed to make goods and services are scarce as compared with people’s wants and this is the centre of the economic problem. Nobody can have sufficient goods to satisfy all their needs and wants, so people must choose which wants they will satisfy. Scarce resources have alternative uses.
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By: T.Titus Nyakudyara