A MOMENT WITH JAMES SORIE SAMURA

• Basic concepts of Economics
• Definition of Economics
• Explain wants, needs, scarcity, scale of preference, choice and opportunity cost
• Explain why economics is a science subject
• Explain the basic economic problem of a society (what to produce. How to produce, for whom to produce and effective management of the resources)
• Know the  importance of scale of preference and opportunity cost
• State the reason for studying economics

ECONOMICS

Economics is a science subject, a social science to be specific that deals with the production, distribution and consumption of goods and services.

It is about the study of the social interactions within societies and as well as how economies work.

BASIC CONCEPTS OF ECONOMICS

The basic concept or elements of economics are wants, scarcity, scale of preference, choice and opportunity cost.

WANTS

Wants simply means the desire or wish to own goods or services that give satisfaction. Goods include things such as cars, radios, food, houses, books, etc., (that is tangible commodities), while services incudes hair dressing, the services of an actor, etc. (that is intangible commodities). Wants are also called ENDS.

As these basic needs are satisfied, other needs will arise. That is why we say that human wants are insatiable. This is because human wants are unlimited while resources used in satisfying them are limited.

NEEDS

While wants are desires, needs are survivals. That is the things and services one need to survive. The basic human needs are food, clothing and shelter.

SCARCITY

Scarcity refers to the limited available resources used in satisfying the unlimited human wants.

These resources are scarce relative to their demand. It is as a result of scarcity of resources that the study of economics is very essential as it helps in finding alternative uses of these scarce resources. The available resources cannot satisfy all human wants. Since human wants are unlimited or insatiable relative to the available resources, we have to choose the most pressing ones and leave others that are less important.

As a student, you will need to buy school materials, e.g. exercise books worth Le100, 000 but you have only Le50, 000. It can be seen that the money you have (L50, 000), which is your resources, will not be sufficient to buy all you need. The available resources within the environment can never at any time be in abundance to satisfy all human wants.

If resources were to be unlimited or abundant, no economics problem would arises and there would be no need for a study of economics. Scarcity is the central or basic economic problems

SCALE OF PREFERENCE

Scale of preference refers to a list of unsatisfied wants arranged in order of their relative importance.

That is, a list showing the order in which we want to satisfy our wants arranged in order of priority.

The drawing of scale of preference will make it easier for choice to be made. In order to achieve maximum satisfaction with limited resources at their disposal, an individual, firm has to arrange unsatisfied wants in order of priority.

Each individual is assumed to have a scale of preference. This asserts that economics theory assume that people always behave rationally and would satisfy their most pressing want first.

A scale of preference may not necessarily be a written list. It could be a mental list. For example, Mr John a trader who has only Le10, 000 want to buy a pair of shoes, shirt, cap, fan, stove and pressing iron as shown in table.

JOHN’S SCALE OF PREFERENCE

ITEM’S NEEDED	PRICE (LEONES)
SHOE	3,500
SHIRT	1,000
CAP	500
FAN	5,000
STOVE	3,500
PRESSING IRON	4,000

The table above represents Mr John’s scale of preference; he has carefully arranged all his numerous wants in order of priority.

Since Mr John has Le10, 000, he can only purchase a pair of shoes, shirt, cap and fan. Because his resources (Le10, 000) is limited, he has to choose the first four item, which he can afford, based on his resources.

IMPORTANCE OF SCALE OF PREFERENCE

1. Ranking of needs
2. Financial prudence
3. Identification of highest priority
4. Rational choice
5. Efficient utilisation of limited resources
6. Optimum allocation of resources
7. Maximisation of satisfaction

CHOICE

Choice can be defined as a system of selecting or choosing one out of a number of alternatives. Human wants are many and we cannot satisfy all of them because of our limited resources.

We therefore, decide which of the wants we can satisfy first. Choice arises as a result of numerous human wants and the scarcity of the resources used in satisfying these wants.

OPPORTUNITY COST

Opportunity cost is also known as a real cost or time cost.

The concept of opportunity cost is used in economics to express cost in terms of foregone or sacrificed alternatives. Opportunity cost means the alternative foregone or sacrifice made in order to satisfy another want. It is the satisfaction of one’s want at the expense of another want.

IMPORTANCE OF OPPORTUNITY COST

1. Determination  of relative prices of goods and services
2. Fixation of remuneration to a factor
3. Efficient allocation of resources
4. Decision making

EXPLAIN WHY ECONOMICS IS A SCIENCE SUBJECT

Economics is regarded as a social science because it uses scientific methods to build theories that can help explain the behaviour of individuals, groups and organisations. Economics attempts to explain economic behaviour, which arises when scarce resources are exchanged.

In terms of methodology, economists, like other social scientists, are not able to undertake controlled experiments in the way that chemists and biologists are. Hence, economists have to employ different methods, based primarily on observation and deduction and the construction of abstract models.

ECONOMICS PROBLEMS

America’s first Nobel Prize winner for economics, the late Paul Samuelson, is often credited with providing the first clear and simple explanation of the economic problem – namely, that in order to solve the economic problem societies must endeavour to answer three basic questions – What to produce? How to produce? And, For whom to produce?

WHAT TO PRODUCE?

Societies have to decide the best combination of goods and services to meet their varied wants and needs. Societies must decide what quantities of different resources should be allocated to these goods and services.

HOW TO PRODUCE?

Societies also have to decide the best combination of factors to create the desired output of goods and services. For example, precisely how much land, labour, and capital should be used to produce consumer goods such as computers and motor cars?

FOR WHOM TO PRODUCE?

Finally, all societies need to decide who will benefit from the output from its economic activity, and how much they will get. This is often called the problem of distribution.
Different societies may develop different ways to answer these questions.

EFFECTIVE RESOURCES MANAGEMENT

The management of produced resources is also another challenge that do faced economists in addressing the issue of unlimited wants with limited resources. This has to do with decision-making as well as economic leadership guided by some economics principles and theories.

REASONS FOR STUDYING ECONOMICS

1. INFORMS DECISIONS

Economists provide information and forecasting to inform decisions within companies and governments. This knowledge of economics – or economic intelligence – is based on data and modelling.

• INFLUENCES EVERYTHING

Economic issues influence our daily lives. This includes issues such as tax and inflation, interest rates and wealth, inequality and emerging markets, and energy and the environment. A broad subject, economics provides answers to a range of health, social and political issues that impact households and wider communities.

• IMPACTS INDUSTRIES

Firms of all sizes and industries have to rely on economics, whether that’s for product research and development, pricing strategies or how to advertise. This wide influence means studying economics can open up a variety of career options across all sectors of the economy, from agriculture to manufacturing, to banking and consultancy.

• INSPIRES BUSINESS SUCCESS

Understanding how consumers behave is vital for a business to succeed. Economists use theories and models to predict behaviour and inform business strategies. For example, how to analyse ‘big data’.

5.                INTERNATIONAL PERSPECTIVE 

Economics affects the world we live in. Understanding domestic and international perspectives – historic and current – can provide a useful insight into how different cultures and societies interact. For international corporations, understanding the world economy is key to driving success.