Economics is a social science
that studies how individuals, governments, firms and nations make choices on
allocating scarce resources to satisfy their unlimited wants.
Marshall defined economics as a
study of mankind in the ordinary business of life; it examines that part of
individual and social action which is most closely connected with the
attainment and with the use of the material requisites of wellbeing. Thus it is
on one side a study of wealth; and on the other, and more important side, a
part of the study of man.
Lionell Robbins defines Economics
as a science which studies human behavior as a relationship between ends and
scarce means which have alternative uses.
Economics is the social science
studying the production, distribution and consumption of goods and services. It
is a complex social science that spans from mathematics to psychology.
At its most basic, however,
economics considers how a society provides for its needs. Its most basic need
is survival; which requires food, clothing and shelter.
Once those are covered, it can
then look at more sophisticated commodities such as services, personal
transport, entertainment, the list goes on.
Two major factors are responsible
for the emergence of economic problems. They are: i) the existence of unlimited
human wants and ii) the scarcity of available resources. The numerous human
wants are to be satisfied through the scarce resources available in nature.
Economics deals with how the numerous human wants are to be satisfied with
limited resources. Thus, the science of economics centers on want - effort - satisfaction.
Economics may appear to be the
study of complicated tables and charts, statistics and numbers, but, more
specifically, it is the study of what constitutes rational human behavior in
the endeavor to fulfill needs and wants.
As an individual, for example,
you face the problem of having only limited resources with which to fulfill
your wants and needs, as a result, you must make certain choices with your
money.
You'll probably spend part of
your money on rent, electricity and food. Then you might use the rest to go to
the movies and/or buy a new pair of jeans.
Economists are interested in the
choices you make, and inquire into why, for instance, you might choose to spend
your money on a new DVD player instead of replacing your old TV.
They would want to know whether
you would still buy a carton of cigarettes if prices increased by $2 per pack.
The underlying essence of economics is trying to understand how both
individuals and nations behave in response to certain material constraints.
Adam Smith, known as the Father of Economics, established the first modern economic
theory, called the Classical School, in 1776. Smith believed that people who
acted in their own self-interest produced goods and wealth that benefited all
of society.
He believed that governments
should not restrict or interfere in markets because they could regulate
themselves and, thereby, produce wealth at maximum efficiency.
Classical theory forms the basis
of capitalism and is still prominent today.
A more recent economic theory,
the Keynesian School, describes how
governments can act within capitalistic economies to promote economic
stability. It calls for reduced taxes and increased government spending when
the economy becomes motionless and increased taxes and reduced spending when
the economy becomes excessively active. This theory strongly influences U.S.
economic policy today.
WHAT IS ECONOMICS? / DEFINE ECONOMICS / INTRODUCTION TO ECONOMICS
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