Tuesday, November 23, 2010

What is Economics, and why do we study it?

Economics is the social science that studies how a society uses its limited resources to satisfy its unlimited wants and needs.



Lets look at this definition a little more closely.
  • ·     social science -  that is  - economics is the study of people, and how they behave.  

  • ·     Limited resources – that is – every person and every country has a limited (or finite) amount of resources.

Resources are production inputs -  things used to make products. In economics we use the terms ‘resources’, ‘production inputs’ and ‘factors of production’ to mean the same thing – that is – they are all terms to describe things needed to make products.
  • ·     unlimited wants and needs – that is – every person and every country has a unlimited (or infinite) wants and needs.

Another way to look at economics is by stating that ‘Economics is the study of scarcity’. 

This is simply the same idea stated in a different way. Economists state that products are scarce – that is – society cannot produce enough products to satisfy everyone. 


For example, ‘cars are scarce’ because society does not have enough resources to make cars for everyone who wants one. 


Because we have limited resources, we need Economics as a subject to help us decide 3 questions:
  1. What we should produce with our limited resources
  2. How should we produce the products 
  3. Who will get the products we produce

Its important to study economics for many reasons – for example: it helps in
  •  Understanding more about the world around us:  for example, studying economics helps us to understand why countries trade, why some people get are paid more than others. 
  • Questioning the economic decisions made on our behalf by our leaders: for example  studying economics helps us to understand why Governments subsidise firms that produce certain products (e.g. public schools), but tax others such as cigarette companies  
If we didn't study economics, we would live in a very different world - perhaps resources would be 100% owned by the most powerful who would use them to meet only their own wants?. Perhaps there would be no trade, and so we would have to make everything for ourselves?  

1 comment:

meditation said...

What has been believed in the definition of economics is wrong. It is impossible to manage the unlimited of wants along with scarce resource. Who can do that? Even the God is failure.
It is the subject to envestigate what people are doing their economy in the society. And concerning: if this thing happens, what that thing will be in our economy. The target of economy mostly to satisfy those who have money to buy or to invest.
Sadly, economists believe that we should not put our noses into 'what ought to', i.e. normative approach. This is nonsensical. Will we all die if we point out that this is bad, this is good?
For 'how', there is no answer for how in economics. There is merely 'how much?, how many?.' I wish all of us, economists, try to write new definition or description for economics. We lie to students./From Boonserm Booncharoenpol