Subject-Matter of Economics

In this article we will discuss about the subject-matter of economics.

Economics is a social science. Paul Samuelson calls it the queen of social sciences. It is concerned with the solution of society economic problems. In fact, many of the world’s most pressing problems, such as unemployment and inflation, budgetary deficits and public debt interna­tional trade and protection, are economic in nature.

The events and patterns of the last 30 years — inflation rates that have soared and declined, high unemployment, recession and recovery-have made a dramatic impact on economic thinking. They have all generated additional interest in the subject matter of economics. People all over the world are now trying to more fully understand these continually unfolding economic events.

Economics is about people and the choices they make. The basic unit of analysis in economics is the individual. Of course, individuals form groups and elec­tive organisations, such as corporations, trade unions and governments. These organisations are still guided and directed by the choices of individuals.

Thus even when collective organisations are studied, the main focus is on the ways in which their mode of operation is affected by the choices made by individuals.

Scarcity and Choice:

Economic theory evolves from a few fundamental postulates about how individuals behave, struggle with the problem of scarcity and choose be­tween a given set of alternatives.

Productive resources — resources used to produce goods — are limited. Consequently all goods and services are scarce (i.e., in short supply com­pared to our needs). On the other hand, the desires of human beings are unlimited. Differently put, although human needs and wants are unlimited the human capacity to satisfy these needs is limited due to our limited resources.

Thus, we have to overcome the problem of scarcity. And we do this by exercising choice. These two facts go by the names, ‘scarcity’ and ‘choice’. Economists make use of the term ‘scarcity’ to indicate that people’s desire for a commodity or service exceeds the amount of it that is freely available from nature.

A good that is scarce is called an economic good. It is different from free goods like air, water, sunshine, etc. whose supply exceeds demand. The first column of Table 1 gives a short list of scarce or economic goods. The list includes food, clothing and various material goods.

What about leisure? Since most of us would like to have more leisure than we enjoy at present leisure time is also a scarce good. Clean air also falls in the same category today because many people living in large cities would like to have more clean air.

Economic history is a record of man’s struggle to transform available, but limited, resources into things that we would like to have—economic goods.

Due to scarcity of productive resources, time and income, the alternatives open to us are limited. Thus, in order to overcome the problem of scarcity we must make choices.

Choice is the act of selecting among limited alternatives. Economics is basically concerned with how people choose when they are faced with limited alternatives. The choices of the household are restricted by the budget and market prices.

The choices of business firms are restricted by competition from other firms, the cost of productive resources, technology and their own entrepreneurial ability to open new markets or use new techniques to satisfy customers’ wants (and needs).

The spending choices of the ruling party are restricted by the taxable income of the citizens and voters’ opposition to taxes. The selection of one alternative in general necessitates doing without others. If you choose to spend Rs. 30 to watch a football match, you will have Rs. 30 less to spend on other things.

Similarly, if you choose to spend an evening watching a movie, you cannot spend the same evening for your studies (or participate in some other activity).

Every day we are making hundreds of economic decisions — choosing when to get up in the morning, what to eat for breakfast, how to travel at the school, college or work place, what television programme to watch and so on. These are all economic decisions because of scarce resources (e.g. time and income).

Our Constant Struggle with Scarcity:

Resources, including our own labour and skills, can be used to produce economic goods. Human effort, skill and talent can be combined with land, machines, natural resources and other productive factors (listed in column 2 of Table 1) to increase the availability of economic goods.

On the one hand, scarcity restricts us. On the other hand, economic resources are ‘tools’ in our struggle with scarcity. Most countries of Asia and Africa are still involved in a losing battle with scarcity. However, some countries have managed to overcome the problem of scarcity. These are known as affluent societies.

Examples of such societies are the USA, Germany, Canada, the UK, Japan, France, etc. The grip of scarcity has been loosened in such countries. However, despite this progress, scarcity is still a fact of life, even in affluent societies. Most people in the world have less goods and resources and less time than they would like to have.