INTRODUCTION
It is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Human wants are insatiable. They are endless. There are four essential economic activities which are resource maintenance, the production, distribution, and consumption of goods and services. In economic theory, we can look at two parts of economics: Microeconomics and Macroeconomics.
MICROECONOMICS
Microeconomics is the study of the economic behaviour of individual units of an economy (such as a person, household, firm, or industry). It is not the study of the aggregate economy as we study in Macroeconomics. It is primarily concerned with the factors that affect individual economic choices, the effect of changes in these factors on the individual decision makers, how their choices are coordinated by markets, and how prices and demand are determined in individual markets. The main subjects covered include theory of demand, theory of the firm, the theory of supply, demand for labour, and other factors of production.
Basic principles of Economics scarcity, choice, opportunity cost.
- Scarcity: This is concerned with economic goods. Scarcity means that all commodities are relatively fewer than people’s desire for them.
- Choice: Due to scarcity of economic goods, individuals have to make rational decisions (not emotional) on what to buy or leave. If we assume that human beings are rational, then they would rank their needs in their order of preference. It means that they follow a priority list (scale of performances): satisfying the most pressing wants and buying those they have on the end of the priority later and may be less.
Sometimes they are emotional as we study the case of hungry shopper in Behavioral Economics. - Opportunity cost: In life, and according economics, there are several alternatives to choose from. Serious considerations have to be made when making choices. opportunity cost is the alternative foregone when choice is made. Scarcity makes individuals choose to buy one item and leave out the other. You can choose to buy a car and forego an apartment. If you had the finances you would acquire both the car and the apartment.
Economic Systems
- Economic Systems: Economic systems refer to the organized way in which a state or nation allocates its resources and apportions goods and services in the national country. It is concerned with the way the economy of a given country is operated or managed.
- Free Enterprise Economy (e.g., USA, UK): The price of goods and services is determined by forces of demand and supply. The government does not interfere but intervenes in the operations of the market during a market failure (government comes in to provide for example to provide health centres or public schools). This is system allows for individual ownership of property and the means of production.
- Command Economy or Socialist countries (centrally controlled economy) e.g., former USSR.
- Mixed Economy: There is also mixed economy which is neither fully capitalist nor traditional economy. This is an economic system in which some resources and enterprises are owned by the state while some other resources are owned by the private enterprises or individuals. There is a continuing debate that there is no pure capitalist or socialist economy in the world. Some economies especially in the EU and the USA tend more to capitalism while there are still countries in continental Europe, Latin America, and Asia that tend more to command economies.
Useful concepts in economics
Wealth: a measure of the value of all of the assets of worth owned by a person, community, company or country. It is calculated by taking the total market value of all the physical and intangible assets of the entity and then subtracting all debts. For individuals, net worth is the most common expression of wealth, while countries it is gross domestic product (GDP) or GDP per capita.
Resources: are also referred to as factors of production or inputs (or means of production). Resources include natural resources (land, water, minerals); man-made resources (capital); and human resources (labour and entrepreneurship).
Wants: Desires or needs of a human being. They are unlimited. One has to make a choice – based on available resources and considering opportunity cost.
Commodities: Things produced by factors of production and consumed by human beings to satisfy their wants (desires or needs).
Goods: are tangible things which satisfy human wants
Free goods which are assumed to exit in non-exhaustible amounts such that an individual’s desire for them can be satisfied at a zero price (e.g. air).
Economic goods, goods that arise out of scarcity and choice. These goods have three key characteristics: they provide satisfaction; are relatively scarce; and have value (obtained from the market at price).
Final goods: goods ready for use. You can buy a car and use it (drive it) for mobility.
Intermediate goods: good to be used in the process of production – e.g. raw materials, or work-in-progress.
Private goods (goods or services that excludable, rivalrous, and they are charged a price in the market): are enjoyed exclusively by an individual that has acquired them (from the market) – e.g. personal cars, boats, houses, etc.
Public goods (e.g. defense, public roads, non-charge public health facilities): Generally, the term has often used to mean any good or service supplied by the public sector. In economics, we refer them as goods or services provided by government, non-excludable and non-rivalrous, and the market would not provide them.
Services: Services are identifiable, and intangible activities that are sometimes the main object of a transaction and at other times support the sale of tangible products. There are several services offered in an economy and they include teaching, medical services, financial services (banking, insurance), marketing services (advertising, sales promotions, etc.), entertainment (music, dance, and drama), tour and travel, repair and maintenance.
Economic Agents: These are decision making units in any economic system. They include households (as owners of factors of production), firms (that employment factors of product; they invest), and central authorities (government agencies – central bank, police, etc.)
Economic Questions
The economic questions that confront an individual, household, and a
country, in the midst of scarcity of resources and the need for opportunity cost, are supposed to answer to What? Why? How?When? Where? For whom?
These economic questions may be tackled differently in different socio-economic systems – and individuals, households, or firms – but they usually have to be addressed.
What? This addresses decisions on what individuals, households, or firms can produce or purchase given their current resources (human resources, time, and finance) and technology. Because of scarcity of resources, individuals, households, or firms, have to decide what to buy. Purchase decisions have to be informed by the availability of financial resources. This question can also be asked about the entire economy considering its human resources, time, and finance.
Why? Individuals, households, or firms have to answer this. Why do you want to produce this? Why do you want to buy this? Decisions must be made about why you have chosen this item and not the other one. Again, choices are informed by the available resources and necessity.
How? How to buy, for example, refers to the methods an individual, households, or firm will follow to finally purchase and acquire the item. There is also the question of how to produce confronting individuals, households, or firms. This question about the methods of production – which consider technology to be used as well.
For whom? Individuals, households, or firms have to make choices about the target for their choice of purchase or production. For whom are you producing this item? For whom are you buying this item (self, your child, other users, etc.)? At the national level, this concerns the distribution of the national product to different sectors and interest groups.
When? Decisions have to be taken about consumption, saving and investment today or in future. If an individual, household, or firm decides to consume now, they forego future investment. This will deny them future revenue streams that would accrue from their investment decisions made today. Therefore when to consume, save and investment is important.
Where? This is a question about where to produce or deliver the service from: farm in rural areas, a factory in the source of raw materials, or a shop in town.
