Chapter 1: Economics

1.       Economics

Economics is a branch of social sciences, which concerns people’s attempts to organize the environment to satisfy their needs. Economics concentrates on satisfying material needs such as the need for food and shelter and spiritual needs such as acquisition of knowledge or enhancement of beauty. Specifically, it concerns production, distribution, and consumption of goods and services.

Economics is the Queen of all social sciences representing the procedures, the body of knowledge and attitudes developed during the process of finding answers to the certain basic problems of life.

Economics is the study of choosing among alternative ways in which scare resources may be allocated to maximize the satisfaction of wants.

Economics is a discipline which analyses what, and for whom society produces. The central economic problem is to reconcile the conflict between people’s virtually unlimited demands with society’s limited ability to produce goods and services to fulfill these demands. 

2.       Economic resources

Economic resources are the things that go into the making of goods and services. There are three kinds: natural resources, human resources and capital resources.

Natural resources are things from natural world used as raw material inputs for production of goods and services. Air and water, minerals such as iron one, gold and quartz, coal and gas, vegetable products, such as trees, plants, grains and fruits – all are natural resources. Without natural resources, there could be no goods of any kind. Natural resources appear plentiful. Yet no nation has an unlimited supply of them.

Capital resources: The machines, tools, and buildings used in the production of goods and services. They are also called capital goods. A nation’s wealth is often measured in terms of the capital it possesses.

Human resources are people who put everything together to make goods and services. These individuals are the producers we mentioned earlier. How much a nation can produce depends to a large extent upon the abilities of its people. A nation of educated people and highly skilled people is able to produce more, earn more, and live better than a nation whose people have little training and few skills.

3.       Economic cycle

The periodic changes or the ups and downs in the level of a nation’s economic activity are called economic cycle or business cycle. Economic cycle occurs in phases.

Each economic or business cycle consists of four parts, or phases. These phases are recession, low point (or bottom), expansion (or recovery), and peak. Some cycles last only a few months, while others may last for years.

Recession: Recession feed on themselves. During the recession, business people try to spend less than they once did. Because sales are falling, businesses will do whatever they can to reduce their spending. They lay off workers, buy less merchandise, and postpone plans to expand. When this happens, business suppliers will also do whatever they can do to protect themselves. They too lay off workers and reduce spending. As workers earn less, they will spend less, and consequently business incomes and profits will decline still more. And as businesses earn less, they try to lay off still more workers. In this way, the economy continues to slide.

Low point or Bottom: Sooner or later, the recession will reach the bottom of the business cycle. How long the cycle will remain at this low point varies from a matter of weeks to many months. During some depressions such as in the 1930s, the low point lasted for years.

Expansion and Recovery: When the business cycle begins to improve a bit, firms will hire a few

More workers and increase their orders of materials from their suppliers.  Increased orders lead other firms to increase production and rehire workers. More employment leads to more consumer spending, further business activity, and still more jobs. Economists describe this upturn in the business cycle as a period of expansion and recovery.

Peak: At the top, or peak, of the business cycle, business expansion ends its upward climbs. Employment, consumer, spending and production will hit their highest levels. A peak, like a depression may last for a short or a long period of time. When the peak lasts for a long time, we are in a period of prosperity. One of the dangers of peak periods is that of inflation.

4.       Goods and services

Goods are tangible or visible man-made or natural products being on sale in the market. Examples of goods are shoes, sandal, miniskirts, under wears or computers. Goods have values as they satisfy people’s needs and wants.

Services are intangible or invisible things, which result from useful work done by people for people in the market. Services have values, just as goods do.

Goods and services must be made or produced. Businesses offer both goods and services for sale. The business owners, managers and workers who made the shoes, sneakers, and textile material for tailoring miniskirts are called producers. The teachers, barbers, and bus drivers are also producers. They are producing services. The users of the goods and services are called consumers.

5.       Scarcity

In economics the limit on resources is called scarcity. Scarcity, defined in everyday language, means that there is not enough of everything to go around. Economists defined this term by comparing the particular demand for a certain resources with the availability of its supply. A scare resource is one for which the demand at a zero price would exceed the available supply. We have said that all resources are limited, but human desires for goods and services are almost limitless. Therefore choices have to be made as to how to allocate our scare resources to maximize the satisfaction of our wants.

When the choices are made, alternatives are given up. This fact is due to the scarcity of economic resources. We are living in a world where there’s nothing which is unlimited. Within our limited economic resources we have to sacrifice something for the sake of the other thing and we do it everyday

6.       Opportunity cost

Opportunity cost is an economic term used to describe the trade-off faced by people, businesses, and governments when making economic choices. It means that by spending a certain amount on A, we are giving up the opportunity to have B.