The Nature of Economics
Economics refers to the study of the production, distribution, and exchange of goods and services in an economic system
Scarcity of resources refers to resources being limited. Resources are not infinite and therefore choices must be made on how the will be used.
Opportunity cost means that the use of resources always involves an opportunity foregone in using the resources for some other activity or purpose.
The economic problem arises because there are not enough resources to meet needs and wants.
The economic problem involves analysing:
1. What goods and services should an economy produce?
2. How should goods and services be produced?
3. Who should get the goods and services produced?
Needs refers to basic necessities that one requires to survive, e.g. Water, food shelter, etc.
Wants refers to things that one desires.
Production is any activity undertaken to satisfy the wants of humans.
There are many economic factors underlying decision making and include:
A. Individuals - individuals can either spend or save their income and decisions individuals makes these decisions as a result of the economic condition.
B. Businesses - businesses like individuals are affected by economic factors like for example, a business may decide to increase prices of its products if there is an increasing demand. Economic factors also influence the overall level of production.
C. Governments – governments are influenced by economic condition by the adopting policies according to this. These policies and decisions made by governments in turn affect individuals and businesses.
The Operation of an economy
The fundamental concept on an economy is to be able to production goods and services in order to fulfil people’s wants. In order to do this there are 4 key inputs which must be used. These include:
1. Natural (land) rent
2. Labour wages
3. Capital interest
4. Enterprise (Entrepreneurial resources) profit