Economics scarce resources to meet the unlimited needs and
desires of the individual members of a given society. Economics seeks to understand how those individuals interact within the social structure to address key questions about the production and exchange of goods and services. First, how are individual needs and desires communicated such that the correct mix of goods and services become available? Second, how does a society provide the incentives for these individuals to participate in the production these goods? Third, how is production organized such that maximum-possible quantities are made available given existing resources and production technology? Finally, given that these individuals are at one time involved in the production process and at other times seeking to acquire the goods that have been produced, how are trading rules and exchange agreements established? The above questions stress the importance of understanding the process of production. The goal here is to understand the basic features of production without getting mired in great technical detail. This is accomplished by developing a simple model that maintains the important features of what are, otherwise complex, engineering relationships. Production is about the conversion of scarce resources into desired goods and services. These resources are often referred to as the factors of production Land ( acreage and raw materials Labor ( unskilled, semiskilled, professional Capital ( machines, factories, transportation equipment, and infrastructure Entrepreneurship ( organizing the other factors of production and risk-taking This list is brief and yet complete intended to provide sufficient detail to model the input choices available to the producer.
Accordingly, the combination of Land, Labor, Capital, and Entrepreneurship will lead to the production of Apples, Wheat, Automobiles, Houses, a Freight Train, Education, or any other good or service. However, we do live in a world of scarce resources. Scarcity refers to a physical condition where the quantity desired of a particular resource exceeds the quantity available rationing system. Potential candidates for rationing systems include: Tradition and Culture, where the problem of allocation is addressed via social norms, customs and past history. Planning and Central Government Command, making use of complex mathematical tables to determine output goals and input requirements. Voting and Political Procedures, communication about resource allocation among individuals thorough the development of a consensus or perhaps majority rule. Markets — using a system of prices to act as a means of communication about the availability of resources and the desire for those resources. Final Goods and services — those products that are directly consumed by individuals to satisfy their needs and wants. Intermediate or Capital Goods — are those goods used to produce other goods. In the case of final goods, Needs represent those goods and services required for human survival. Needs are determined by nature, climate and region, and are often finite.
Human Wants or Desires refer to everything else. Human wants are determined by society and the culture in which an individual lives. These wants are indeed unlimited and represent the source of the problem facing all economic systems. We need to be careful in noting that Economics is not just about the production of goods and services. Equally important is developing an understanding about how wants and needs are communicated to the economic system, how to involve individuals in the production process and provide incentives for these individuals to specialize in areas of production where their talents are best used and then exchange goods with others. Concepts for Review: Wants and Needs Let us make an in-depth study of economics as a social science. The term Social Science refers any subject that deals with human behaviour. Political Science, Psychology, Ethics, etc. come within the definition of Social Science. Economics is a social science because it deals with one aspect of human behaviour, viz. , how men deal with problems of scarcity. Samuelson says that Economics is the queen of the social sciences. Economics deals with human beings living in a society, i. e. , in a large group of persons with touching interests and problems. It does not deal with problems of solitary individuals like Robinson Crusoe. In a community of people everybody is influenced by the actions of the others. Economics deals with the activities of people, living in an organised community or society, in so far as such activities are related to the earning and use of wealth or with the problems of scarcity, choice and exchange.
Economics is, thereВfore, considered to be a branch of sociology which is a study of the history and nature of society. As a consequence of this we find that economics is closely related to the other social sciences like Ethics, Political Science, and History etc. Is Economics a Science? The answer to this question is yes and no. Economics can never be an exact science, and is a different kind of discipline to, say, physics or chemistry. The essence of science is prediction. Physical laws tell us what we believe must happen. If you drop a pencil out of an upstairs window, the known laws of physics predict that it must falls to the ground. If ever a pencil flew vertically upwards, then physicists would have to look again at those laws in order to accommodate this new possibility. One thing that would not enter the discussion would be the possibility that the pencil decided to fly upwards, and here is where the laws of economics are very different from the laws of physics. Economics is a social science, which means that it studies aspects of human behaviour. The usefulness and importance of the Science of Economics in social and individual life is beyond measure. The impact of Economics in social life is further stressed by awarding the Nobel Prize on this subject from 1969. The 1998 prize was given to Prof. Amartya Sen and the 1999 prize to R. Mundell.