Economics as a Science

Introduction

Economics is a social science that studies how individuals, businesses, governments, and nations make choices on allocating resources to satisfy their wants and needs. It is categorized as a social science because it uses scientific methods to track human behavior and social patterns.

Basic Economic Concepts

• Wants: These are the desires of human beings which are numerous and insatiable. They range from basic needs like food to luxuries like sports cars.
• Scarcity: This is the fundamental economic problem. It refers to the limited nature of resources in the face of unlimited human wants. Scarcity is relative, not absolute.
• Choice: Because resources are scarce, individuals must make choices. Choice arises as a result of scarcity.
• Scale of Preference: This is a list of unsatisfied wants arranged in order of their importance. It helps individuals make rational choices by satisfying the most pressing needs first.
• Opportunity Cost: Also known as 'real cost' or 'alternative forgone.' It is the value of the next best alternative that is sacrificed when a choice is made.
• Rationality: This is the assumption that economic agents (consumers and producers) behave in a way that maximizes their benefit. Consumers aim to maximize utility, while producers aim to maximize profit.

Economic Activities

• Production: The transformation of raw materials into finished goods to satisfy human wants.
• Distribution: The process of moving goods from the producer to the final consumer.
• Consumption: The use of goods and services to satisfy human wants.

Fundamental Economic Problems

Every society faces four basic economic questions due to resource scarcity:

• What to produce? Determining which goods and services are most needed by society.
• How to produce? Choosing the technique of production (Labour-intensive vs. Capital-intensive).
• For whom to produce? Deciding how the produced goods will be distributed among the population.
• Efficiency: Ensuring resources are used in the best possible way to minimize waste.

Production Possibility Frontier (PPF)

The PPF (or PPC - Production Possibility Curve) is a graph that shows the maximum combination of two goods an economy can produce with its available resources and technology.

• Points on the curve: Represent efficient use of resources.
• Points inside the curve: Represent under-utilization or inefficiency.
• Points outside the curve: Represent unattainable levels given current resources.
• Shifts in PPF: A rightward shift indicates economic growth (better technology or more resources). A leftward shift indicates economic decline.