A basic understanding of economics is a must for all citizens who want to make informed decisions about things that are at the centre of life.
What are these things? Food, clothing, shelter and numerous other goods and services associated with a comfortable or affluent standard of living.
People need love, social recognition and beauty. Economics is not concerned with these things, but material wealth necessary to put the body and soul together.
The material wants and necessities are so numerous than the means of solving them. Scarcity is the mother of economics. If everything people need were in abundance, there would be little or no justification for studying economics.
One direction of economics is that it is concerned with the efficient utilisation or management of limited productive resources for the purpose of attaining the maximum satisfaction of human materials.
Another definition states that economics is the study of the production, distribution and consumption of goods.
In all these activities, we encounter the problem of scarcity in terms of land, labour and capital and, therefore, you cannot produce enough.
Because you have not produced enough, in distributing the goods and services some people receive less than they feel they are entitled to.
In economics, we tackle such specific problems as inflation, unemployment, energy crisis, poverty, pollution, government regulation of business. Is that all? No, we study economic growth, balance of payments, population problems and so on.
We live in the age of economics, as such, most governments of developed and developing countries have councils of economic advisers.
These councils study macro-economic trends such as employment, inflation, trade, taxation, productivity and submit recommendations of what should be done about them.
Economics is studied because these days governments are mostly concerned with economic problems. Government need to be advised by experts in economics when economic issues arise.
Economics is of use to both companies and individuals. Large firms these days employ economists to collect data on the market structure and price trends.
An executive must make the right decisions for his firm in times of inflation, stagnation and when the company is faced with government regulations about pollution, competition in markets, taxation.
There must be someone who specialises in the study of these matters.
An individual must know how inflation affects his savings. Should he retain his savings in the bank even when due to inflation they are losing purchasing power?
Those who understand the damage that inflation inflicts on savings usually withdraw their money and buy assets such as land, gold, cattle and other assets whose values you can adjust to match the level of inflation.
In spite of its practical benefits, economics is an academic not a vocational subject. Economics is not like accounting, advertising, marketing or a how-to-be-rich tool.
It examines problems from the point of view of society as a whole. All the same, accountants, advertisers, marketing managers will be strengthened in their vocations with the knowledge of economics.
If they understand the general economic situation of a country and causes of such things as growth, recession, inflation and energy crisis, they will perform a better job.
What do economists do? How do they do their work?
Economists establish economic principles which they find useful in formulating policies meant to solve such economic problems as unemployment, inflation, poverty and others.
The economist first collects facts of the economy, finds out what is happening. Are prices rising of falling? Is growth taking place or there is stagnation? How many workers have been hired or laid off this year and how many last year?
This action of gathering facts is the basis of descriptive economics.
The facts must be interpreted. Do they take place haphazardly or do they follow a formula?
When a regular process is identified, an economist arrives at the principles or theories of economics.
It has been said that “theories without facts may be barren, but facts without theories are meaningless.”
Principles and theories are meaningful statements based on facts. A theory that is not backed by facts is useless. Before an economist applies a particular theory in policy formulation and in trying to solve a particular problem, he/she must first gather the facts.
Economics is said to be a science subject, albeit a social science.
It makes use of some methods used in the natural sciences such as physics, chemistry and biology.
But it mostly uses observation to formulate principles, not laboratories or the community is its laboratory.
Economists use such terms as are used in natural sciences as law, principles, theories and models. These terms mean almost the same thing: generalisations or statements of regularity concerning the economic behaviour of individuals and institutions.
Some people say the term â€˜economic lawâ€™ is a bit misleading because it implies a high degree of exactness like the law of gravity. It is neither universal in application nor has its moral connotation. It is about tendencies in the behaviour of economic events. ?
â€”to be continued