Economics | definition, scope and assumption

ECONOMICS

Economics is a broad term given to the social science of how choices are made in the face of limited resources. Economics is the science, which studies economic problems. Every country, company, and individual financial growth depends on the market economy. we will discuss some essential economic topics like economies of scale, the scope of the economy, supply and demand, and financial news.

What is economics about?

Science studies how societies use scarce resources to produce valuable commodities and distribute them among different people. Economics is the science that studies economic problems. Economic problems arise; due to following reasons;

(a) Man has unlimited wants or ends;

(b) The means or resources to satisfy them are limited.

(c) These resources are not specific but have alternative uses; and

(d) Man has, therefore, to choose between wants.

Economic example 

Man has unlimited wants

Human beings experience wants for food, clothing, shelter, education, entertainment, etc. Some of these want, for example, demand for food, resulting from biological needs, which must be satisfied for the very preservative of life. Most other wants such as the demand for clothing, education, entertainment, etc. However, are products of life in a civilized society. Even the wants, which result from biological needs assume forms determined by the standard of the particular civilization under which human being alive. Human experience clearly shows that wants are unlimited in number; the satisfaction of one wants to give rise to another. The multiplicity of wants is an essential characteristic of human existence but multiplicity alone cannot create economic problems.

Resources to satisfy wants are limited

Wants can be satisfied by means of goods, such as rice, wheat, coal, cattle, building, ships, railways, machinery, stocks of raw material, etc. Goods and services are means or resources, which satisfy human wants. Some resources, such as air or water, are so plentiful that all want, dependent upon these resources fully satisfied. Most resources like land or capital however are not plentiful; they cannot meet all the wants dependent on them; in other words, these resources are scarce. When resources are scarce, certain wants will have to go unsatisfied.

Resources have alternative uses 

Scarcity of resources in isolation cannot lead to an economic problem. if a particular resource is limited but has to be used only for one purpose, there is no problem. The resources at the disposal of a country are not such that they can be put to one use only.

The plot of land can be put under cotton cultivation or for the production of sugarcane. A worker can be employed in a cotton textile factory or in a sugar cane factory. 

However, no single unit of a resource can be used for two purposes at any one given time. It is, therefore, necessary to choose the ends for which the limited resources are to be used.

Man has necessarily to choose. The choice is between ends and scarce resources. An economic problem arises wherever scarce resources are related to the achievement of one end in preference to another.

Suppose, for instance, that a consumer wishes to buy a packet of tea and a tin of coffee, but the money he has is inadequate to satisfy both wants. He must, therefore, choose to satisfy one want in preference to the other. Likewise, in country's economy may want to produce more of both food grains and raw cotton. But since the supply of land is limited it is not possible to increase both goods. Increased use of land for food grains will be only at the expanse of raw cotton. India will have to decide how the limited volume of land may be put to alternative uses. The choice may or may not be correct, but the choice will have to be made. The problem of choice arises 

Scope of economics

Adam smith generally considered as the father of English classical economics, defined economics as the study of the nature and causes of national wealth. Economics, according to smith, was the study of wealth, how to increase its production and how to distribute it. The classical definition of the subject matter and scope of economics came in for bitter criticism for its narrow individualistic view of the scope of economics.

There are various scopes of economics 

(a) Identified the country's supply and demand of goods.

(b)Measure the unemployment of the country and its effect.

(c)Solve the problem of production and resource utilization

(d)Help to increase the wealth of individuals and the country.

(e) Minimize the cost of production and maximize the profit.

The basic assumption of economics 

Economists have generally assumed that human beings are rational and that they are influenced by the 'maximization principle. For example, every consumer is said to maximize his satisfaction with a given amount of expenditure, every producer maximizes his output and minimizes his cost; every seller maximizes his profit, and so on.

The assumption of economic rationality does not carry any moral or ethical implication. Rationality implies that in a period of acute shortage, producers and distributors would raise the price and secure higher profit margins. Such behavior may be condemned from the social point of view, but economically it is justified.

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