Professor Paul A. Samuelson offers us a modern growth-oriented definition of Economics as follows. He writes, “Economics is the study of how people and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternate uses to produce various commodities over time and distributing them for consumption, now or in the future, among various persons or groups in society. It analyses costs and benefits of improving patterns of resource allocation.”
I, as a layman, define economics as a social science that studies how people work together to transform scarce resources into goods and services to satisfy their most pressing and unlimited wants, and how they distribute these goods and services among themselves. As such, the field of Economics addresses the issues of dealing with scarce resources to satisfy unlimited human wants.
Main features of scarcity as it appears from the definitions above are due to the following;
• Our wants as humans are unlimited.
• Only a limited amount of resources exists to satisfy human wants
• We therefore have to find alternate and efficient uses of scarce resources
• Because of scarcity there arises a need for choice and optimisation. This brings in the concept of Opportunity cost which refers to the next best alternative chosen instead of the other.
To address the above, each society must provide answers to the three central economic questions…
What goods and services will be produced and in what quantities?
• The answer is those goods and services that consumers are willing to spend their income on and which can be supplied profitably.
• Goods that consumers do not want will not be produced.
• Only those goods which can be produced and sold profitably will continue to be produced.
How will each of the goods and services be produced?
• Decisions on the combination of factors of production are governed by the prices of the various factors and their productivity.
For whom will the various goods and services be produced?
• In a market system, the goods and services go to those who have the means to purchase them.
The following topics will be discussed; various Market groups in Economics; Production, Income and Spending in the Mixed Economy; and a graphical illustration of the Circular Flow Diagram in the Economy.