Nature and Scope of

Economics
Definition of Economics
Resources
Human Wants versus Human Needs
Scarcity
Economics as a science, an art and as a social
science
Micro and macro economics
Importance of Studying Economics
 SESSION OBJECTIVES

At the end of the discussion, you should be able

to:
Define the term economics and explain its
scope;
Distinguish between microeconomics and
macroeconomics;
Explain the relationship of economics to other
social sciences; and
Appreciate the importance of knowing economics.
 Economics

Came From the Greek word,

oikonomia, the management of the
household.
It is the study of how society
manages its scarce resources for
optimum use.
It is also the science and art to make
a living
It is a social science that deals with the
study of proper allocation and
efficient use of the scarce (limited)
resources for the maximum
satisfaction of human wants
(unlimited wants).
 A social science that studies how
people and institutions within a
society make choices and how these
choices determine the use of societys
scarce resources.
ECONOMICS IS

Science of scarcity
Science of efficiency

Studyof how society

manages its scarce
resources
 Scarcity . . .
. . . means that society has
limited resources and therefore
cannot produce all the goods
and services people wish to
have.
Scarcity
All economic questions arise because we
are unable to satisfy all our wants.
Our inability to satisfy all our wants is
called scarcity.
 Concept of Scarcity

Scarcity Means more than limited, for

everything in the material world is
limited but not everything is scarce.
The concept of scarcity arises because
of certain qualities of resources and
human wants.
Resources are prolific in that they can
be substituted for capital in the
production of commodity.
Human wants are numerous and are
multiplying as a result of several
factors.
 BUT, theres a
Fundamental Problem:
SCARCITY: unlimited wants and
needs but limited resources
What are resources?
 RESOURCES

Natural, human, and man-made

wealth that can provide satisfaction
through the production of goods and
services.

*Wealth is an abundance of valuable

material possessions or resources.
 Categories of Resources

1. NATURAL
Forms of wealth derived from nature,
including land, forests, mountains,
rivers, and seas.
2. Human
Human labor is the most basic
form of wealth. Brain power is also
part of the human wealth of an
economy
3. Physical
Natural, human, and man-made
wealth that can provide satisfaction
through the production of goods and
services.
Choices, Choices

Because ALL resources,

goods, and services are
limited WE MUST
MAKE CHOICES!!!!
 Why Choices?

We make choices about how we spend

our money, time, and energy so we
can fulfill our NEEDS and WANTS.

What are NEEDS and WANTS?

 Wants and Needs,
Needs and Wants
NEEDS stuff we must have to
survive, generally: food, shelter,
clothing

WANTS stuff we would really like

to have (Fancy food, shelter, clothing,
big screen TVs, jewelry, conveniences
. . . Also known as LUXURIES
VS.
 HUMAN WANTS

The main concern of economics is the

fulfillment of human wants among the
competing uses of resources.
2 CATEGORIES:
Material
Non-material
 Aspects ( characteristics to
be considered ):
Physical involves certain mechanism
of nerves, muscles, and sense organs
programmed to respond to certain
stimuli.
Subjective based on the
consciousness of enjoying pleasure
and avoiding the unpleasant in
anything that one does.
Concept of Economizing and
Efficiency
There is a need to choose among the
competing uses of resources in order
that each scarce commodity will yield
the highest level of satisfaction to the
individual and to society. This
involves the process called allocation.
 Allocation

A process of choosing among

competing ends which resources are
going to be employed for the
production of commodities chosen to
satisfy the human wants that have a
higher value in the priority system.
>To economize is to choose something
with the minimum costs or to choose
that which will give maximum benefit
to the individual and to society.
 Efficiency

is the proper use of resources to get

the maximum benefit to society.
 Allocation Process

There is no unique way of allocating or

choosing how resources should be
utilized to meet human needs. Some
societies have used customs and
traditional beliefs as a basis for
allocating the societys wealth and the
fruits of its resources.
 There are societies where planning
boards decide where resources are to
be employed on the basis of societal
objectives and political orientations.
In many societies today, the price or
market mechanism is used as a basis
for allocation.
 A household and an economy
face many decisions:
Who will work?
What goods and how many of
them should be produced?
What resources should be used in
production?
At what price should the goods be
sold?
Society and Scarce Resources:
The management of
societys resources is
important because resources
are scarce.
 IS IT A
SCIENCE?
ECONOMICS IS A SCIENCE

becauseit uses SCIENTIFIC

APPROACH OR METHOD in
studying economic
phenomena
Observe facts
Collect and Analyze data
Formulate hypothesis
Test the hypothesis
 IT IS A SCIENCEBUT

It does no EXPERIMENTS in LABORATORIES

It does USE ACTUAL DATA OF PEOPLE AS

THEY BEHAVE IN THE REAL WORLD!
 ECONOMICS vs. HARD
SCIENCES?
Unlikenatural science
which uses experimental
data, economics uses
history, real or actual
data or non-experimental
data
IT IS ALSO AN ART
 ECONOMICS AS AN ART?

Art is a skill acquired by experience,

discipline, study or observation
It is also considered an art because it
will give you a certain kind of skill
which can only be gained through the
application of economic principles in
ones life or through study and
observation on how economics is put
to use by others
 ECONOMICS AS A SOCIAL
SCIENCE?
It is a social science because it
studies people comprising the
economy
It studies the economic behavior
of man in the market
 These are interrelated studies
that deals with mans
relationship to his physical,
social and cultural environment.
These are interrelated studies that deals with mans
relationship to his physical, social and cultural
environment.
 MIC-MAC
MICROECONOMICS VS.
MACROECONOMICS
WHATS THE DIFFERENCE?

MICROECONOMICS MACROECONOMICS

I A
 TREES VS. THE FOREST

Two major fields/divisions

1. Microeconomics = Trees
About INDIVIDUAL economic
units such as CONSUMER and
FIRM or BUSINESS
Demand & Supply, Elasticity,
Utility, etc
 TREES VS. THE FOREST

2. Macroeconomics = Forest
Studies how the economy
behaves as a whole
GNP/GDP, Inflation, and
employment and
unemployment, balance of
payments and exchange rates
 The Scope of Economics

Microeconomics
is the study of choices made by
individuals and businesses, the way
these choices interact, and the influence
that governments exert on them.
Macroeconomics
is the study of the effects on the national
and global economy of the choices that
individuals, businesses, and governments
make. 1-43
 The Scope of Economics

EXAMPLES OF MICROECONOMIC & MACROECONOMIC CONCERNS

Production Prices Income Employment

Microeconomics Production/Output in Price of Individual Distribution of Income Employment by

Individual Industries and Goods and Services and Wealth Individual Businesses &
Businesses Industries
Price of medical care Wages in the auto
How much steel Price of gasoline industry Jobs in the steel industry
How many offices Food prices Minimum wages Number of employees in
How many cars Apartment rents Executive salaries a firm
Poverty Number of accountants
National Aggregate Price Level National Income Employment and
Production/Output Unemployment in the
Macroeconomics Consumer prices Total wages and salaries Economy
Total Industrial Output Producer Prices Total corporate profits
Gross Domestic Product Rate of Inflation Total number of jobs
Growth of Output Unemployment rate
 Why Study Economics?
TO LEARN A PARTICULAR WAY OF THINKING
THREE FUNDAMENTAL CONCEPTS:
*Opportunity Costs*
That which we forgo or give up when we make a
choice or decision.
the best alternative that we forgo, or give up,
when we make a choice or a decision
arises because time and resources are scarce.
 *Marginalism*
Weighing cost and benefits that are
contingent upon the decision
In weighing the costs and benefits of a
decision, it is important to weigh only
the costs and benefits that arise from
the decision
 *EFFICIENT MARKET*
A market which profit opportunities are
eliminated almost instantaneously
is one in which profit opportunities
are eliminated almost instantaneously
Profit opportunities are rare because,
at any one time, there are many
people searching for them.
 TO UNDERSTAND OUR SOCIETY AND
UNDERSTAND GLOBAL AFFAIRS:
Economics affords us an opportunity to better
understand certain social phenomena that
surround and affect us in our daily lives.
TO BE AN INFORMED VOTER:
Economics helps us make wise decisions especially
in choosing political figures who can efficiently use
taxes for the benefit of the people
 Importance of the study of
economics

In modern times the importance of

the study of economics is infinite. It is
not only provides us knowledge, but
also helps to solve the different
problems in real life. The importance
of economics in different areas of
human life is discussed below:
 In the daily life of people: People
are confronted with manifold wants in
their daily life. But the resources to
satisfy those wants are limited. By
studying economics we can know the
use of limited resources to satisfy
alternative wants on the basis of
priority.
 In the proper use of
resources: We can learn about the
use of resources with the knowledge
of economics. Study of economics
helps us to understand about how to
produce the maximum output by the
proper use of limited resources.
 In state management: The knowledge of
economics is indispensable to manage the
economic and development activities of a state.
For this reason the politicians and the govt.
officers need to have proper knowledge of the
currency system, banking system, tax system,
industrial and trade policy, budgeting etc. The
knowledge of economics helps in managing the
state affairs.
 To social workers: Economic causes
lie at the roots of maximum social
problems. The social workers need to
have knowledge of economics to
diagnose and solve the problems of
poverty, unemployment, illiteracy,
excessive growth of population, lack
of housing and medical facilities etc.
 To the labor leaders: The leaders of the workers
should have the knowledge of economics for
improving their bargaining capacity in respect of
the formation of trade unions, the increase of
wage and other benefits, the improvement of their
working conditions etc. In economic planning: It is
necessary to have sound knowledge of the
economic problems and the available resources for
the formulation and implementation of economic
plans for the country. For this reason the
knowledge of economics is indispensable.
 Acquisition of knowledge of
international issues: The knowledge
of economics is necessary to know
and understand the socio economic
events of different countries,
international relationship, commerce
etc.
LET US APPLY WHAT WE
HAVE LEARNED!