Topics

1.1 What is economics?

Economics = social science, because:

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It deals with human society and behavior(how societies organize their activities,how they behave to meet their needs and wants)

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Its approach to studying human society is based on the scientific method.

Due to the complexities within societies, economists build models so as to better understand certain interactions

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A model is a simplified version of reality

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All models make a range of assumptions. These are often generalized on behaviors, choices and outcomes

Scarcity	Excess of human wants over what can actually be produced to fulfill these wants • People have unlimited wants but resources are limited • All needs and wants can’t be satisfied; this necessitates choices and give rise to the idea of opportunity costs
Choice	Since resources are scarce, not all needs and wants can be satisfied → choices must be made
Efficiency	Making the best possible use of scarce resources to produce the combinations of goods and services that are optimum for society → minimize resource waste. • Allocative efficiency refers to making the best possible use of these resources that is optimum for society = minimizing resource waste
Equity	Idea of fairness
Economic well-being	Quality of living standards enjoyed by members of an economy. Multifaceted concept encompassing prosperity, quality of life, financial security, and freedom of choice.
Sustainability	Ability of the present generation to meet its needs without compromising the ability of future generations to meet their needs.
Change	World that is studied by economists is always subject to continuous and profound change at institutional, structural, technological, economic and social levels.
Interdependence	Economic agents such as consumers, firms, households, workers and governments interact with each other to achieve economic goals. Therefore, any action of economic agents will impact other agents.
Intervention	Government involvement in the workings of markets.

The basic economic problem is that resources are scarce

In economics, these resources are called the factors of production

There are finite resources available in relation to the infinite wants and needs that humans have

Needs are essential to human life e.g. shelter, food, clothing

1. Introduction to Economics