LESSON ONE

Economics centers on how human beings can make the best use of the available scarce resources to satisfy the competing ends (needs). Economics deals with the ways in which production and distribution change over time. Therefore it is the use (allocation) and organization of resources that constitute the subject matter of economics.

DEFINITION OF ECONOMICS

There are many definitions of economics as put forward by different economists among which are the following;

  1. Professor Alfred Marshal defines economics as a study of mankind in an ordinary business way of life. This means that the subject is concerned with the study of how man lives, moves and thinks in an ordinary business way of life.
  2. Professor A.C. Pigou defines economics as a means of how to increase production in order to raise people’s standards of living.
  3. The classical economists led by Adam Smith define economics as the science of accumulation of wealth. This means that economics as a subject is concerned with the way people and the nation become rich. However, this definition has been criticized for being narrow because it does not address the main problem facing man i.e. scarcity of resources.
  4. Economist Lionel Robbins said in 1935 that “Economics is a social science that studies human behaviour as a relationship between ends and scarce means which have alternative uses.

NOTE

By the term ends, we refer to human needs (endless desires of man)

By the term scarce means, we refer to inadequate resources.

WHY ROBBINS DEFINITION IS PREFERRED

Robbins definition is the most widely acceptable definition of economics because it carries three main important factors in economic analysis i.e. key economic issues facing man and countries.

  1. It recognizes that human needs are unlimited (endless)
  2. The resources to satisfy the unlimited human wants are scarce.
  3. The scarce resources have got alternative uses and thus there is need to make the right choices when allocating resources.

The definition also recognizes economics as a social science i.e. it deals with that part of economic activity which is concerned with the satisfaction of the material needs.

ECONOMICS AS A SCIENCE AND SOCIAL SCIENCE

Economics has elements that make it a science discipline and these include;

  • It is based on facts in real life.
  • It is research based i.e. it makes experiments to prove certain things.
  • It develops theories, principles and laws.
  • It makes scientific observations.

Economics also has elements which qualify it to be a social science. These include;

  • It is based on value judgement i.e. peoples’ opinions
  • It is dynamic i.e. it changes depending on the social and political conditions.
  • It is based on human reasoning and human satisfaction.

ASSUMPTIONS IN ECONOMICS

It is not possible to isolate the problems in an economy. Economists make assumptions to enable them study the behaviour of an aspect/ phenomenon and hence draw conclusions or predictions whenever there is a change in one variable. Economists use the term “Ceteris paribus.” This is a Latin word which stands for “other factors held constant.”