Below are the Basic concepts in Economics:
Want is the needs and desires of individuals, though; it could be tangible (physical goods) or intangible (services) Scarcity: Means the limited nature of resources in supply as to meet up with the wants of people. Scarce resources, therefore, are the insufficiency in supply of resources to satisfy the unlimited wants of individuals, firms and government.
Choice: Is the act of choosing between satisfying some of our wants and forgoing others. This is to say that choice is the selection from a group of alternatives. In order to make a good choice, we must always remember to arrange our wants in order of magnitudes.
Opportunity Cost is defined as the best alternative forgone. Therefore, the opportunity cost of anything is the best alternative forgone in order to satisfy a given want. Note that opportunity cost is the same as real cost or true cost while money cost is the amount of money paid for a particular item.
Importance of Opportunity Cost
- It guides individuals, firms and government in making the best choice of wants amongst numerous wants.
- It also directs individuals, firms and government on the right investment to make in order to maximize profit.
- It also helps government to decide, (to the best of their knowledge) the area of expenditure that is most likely to be beneficial to her teeming population.
Scale of Preference
Scale of Preference is a list of items containing our needs in order of importance. Note that the most pressing needs are usually placed on top while less ones follows below. Our wants and desires are many but the means with which to satisfy then are limited. Eq. a student needs to buy the following items: Sandal, Exercise book. Trousers, and mathematical set and he has only #150. This study is thus faced with the problem of choice because his needs are numerous but the resources (income) with which to satisfy them are limited. For illustrative convenience, the table below shows the items and prices of what the student intend to buy.
With the limited amount of money, the student can’t buy all these things. For this reason, the student wt have to draw a scale of preference in which he lists his needs in order of importance.
Assuming, the student is making a rational choice; his scale of preference will look like this:
From the above, the student has arranged his items in order of importance. The first item is mathematical set because that is the most pressing need in his items. The second preference is the exercise book. In this case, the first two items are regard as the effective needs of the student because he does not only wish to buy them, but his wish is also backed up by the means. I.e. the ability to pay.
Economics as a Science:
Economics is a science because its studies ar. corned out in a systematic way with respect to economic behaviour of individual, firms and government. It observes how this behaviour affects the economic system – i e. how the wealth of the nation are distributed an r.0 the people and their welfare.
From the definition, one can easily deduce that Economics is a social science. This is due to the fact that it studies human behaviour like other social sciences such as Political Science, Sociology, Psychology and Anthropology etc. But unlike other social sciences, its activities are concerned with the aspects of human behaviour, i.e. how people earn their living and make their choices among numerous needs. It deals primarily with production, distribution, exchange and consumption of goods and services (commodities) produced by the combination of factors like land, labour, capital and entrepreneurship.
From the above explanation therefore, it behooves that economics is a Science since it adopts the Scientific method of investigation, observation and analysis as other sciences.