SCOPE OF ECONOMICS There is no single universally accepted definitions of Economics. As such, many economics have defined Economics in defferent ways:

SCOPE OF ECONOMICS

SCOPE OF ECONOMICS

There is no single universally accepted definitions of Economics. As such, many economics have defined Economics in defferent ways:

For instance, Adam Smith (1776) defined “Economics as an enquiry into the nature and the cause of the wealth of nations”. He is mostly considered as the father of Economic. By this definition, Adam Smith sees economics as how mankind use the available resource to produce goods and service for distribution and consumption of goods and services.

Alfred Marshall, also defined economics as “a study of mankind in the ordinary business of life”. Marshall, like Adam Smith, seem to examine individual and society that move towards the attainment of economic well-being of mankind, through productivity, distributions and consumption of goods and services.

However, the generally accepted definition is the one given by Professor Lionel Robbins. He defined “Economics as a science, which studies human behaviour as a relationship between ends and scares means which have alternative uses”. This definitions is more acceptable because it identifies the fundamental problems facing humanity such as wants scarcity and choice.

Generally, Economics deals with how best society resources is relation to production, distribution, exchange and consumption of goods and services.

BASIC CONCEPT OF ECONOMICS

(a)   Economics as a Science:

Economics is regarded as a science. However, it is not a natural science like physics, Chemistry, Biology, and Astronomy. But it is a social science which uses scientific approach or methods to study human behaviour. The methods includes:

i.                   Observation of facts:- Economics like other science subject deals with observation or empirical facts. It depends on accumulation of knowledge through observation or research.

ii.                 Formulation of hypothesis:- Economics involves formation of hypothesis or identification of the issues or problem to be studied like other science subjects. Example of hypothesis formation is why demand curve slope downward from left to right.

iii.              Testing of hypothesis:- The hypothesis formation should be tested or researched into find the truth or other wise.

iv.               Sampling:- Data Collection begins with sampling of the population size to collect or seek their view with regard to the problem statement

v.                  Data Collection:- Economists collect data about phenomena for a research purposes. For instance economists conduct market survey as a means collection information about consumer behaviour in relation to price changes

vi.               Classification of Data:- Economists after collection of data have to be grouped them differently for examination.

vii.             Generalization:- After economist have classified and analysed the data collected. The information is used for generalization or formulating of laws, such as the lower the price the higher the quantity demanded.

viii.          Prediction:- Economists like natural scientist make predictions on the basis of theory. The prediction could be on the purchases and sales of security as a result of price fluctuations.

ix.               Conclusion:- After the researcher completed the research have to draw conclusion on the problem statement either accepting it or reject it.

Similarities between social science and natural science

The natural science or the hard science and the social science share the following similarities

1.      The natural science and the social science are both scientific subjects or discipline

2.      They both adopt scientific methods or approaches in under taking research. The methods are observation o facts, formulation of hypothesis, sampling, data collection, classification of data, formulation of laws or theories, interpretations of data, making predictions and drawing conclusion.

Differences between social and natural science

The differences between natural science and the social science include any of the following.

1.      The natural science or the hard science studies natural environment, whilst social science or soft science studies human behaviour.

2.      Predictions in natural science are more precise. While prediction in social science are not precise or exact as human behaviour cannot be predicted.

3.      In natural science hypothesis can be tested in laboratory. However, hypothesis cannot be tested in laboratory, but the facts can be observed over a period of time.

4.      In natural science laws are accurate than the social. This is because, laws relates to human behaviours continue to varies or change. But not so in natural science as into is studies the phenomena or behaviour.

(b)   Human Behaviour

Economists study how individuals behave in the management of the scares resources to satisfy his or her unlimited wants. It is a fact that, human wants are many but resources to satisfy them are limited in supply. As a result, man behaviour continue changing depends on his condition at a given time.

(c)    Ends:-

Ends refers to goals, wants, aims and objective of an individual, firm or government. Every individuals have unlimited goals to attain an a results needs more resources.

Characteristics of Ends

1.      Ends are unlimited or numerous at any given time

2.      Ends different from one person to another. This is because human needs are different from one another.

3.      Ends are competitive to the relative scares resources of man.

4.      Every ends has exchange value or monitory value in it

5.      The satisfaction of one ends could or may lead to another. That is, one achievement for a certification, could lead to a desire for a job.

(d)   Means:-

Means are those resources needed to satisfy our wants. These resources refer to us an factors of production, that is land, labour, capital and entrepreneur. The ends of an individual firm or government are satisfied by the combination of these factors product. Means are limited in supply. Means or resources could be naturally or artificially. It could also be renewable or non-renewable, natural or artificial resources.

Characteristics of  Means

1.      Means are limited or shortage in supply in relation to demand for them

2.      Means also have alternative uses

3.      They have price for their uses that is not free

4.      Means can be combined in different proportions to produce goods and service

5.      Means could be a natural or artificial resources

6.      Means could be a renewable or non-renewable resources

(e)    Alternative uses:-

It refers to how resources could be put into different uses.

(f)     Scarcity:-

Scarcity refers to limited supply of resources in relation to demand for them. Scarcity does not means non-availability of resource, but they are limited in supply to meet all needs of man.

Scarce means, refers to limited supply of resources used to satisfy our needs or want, it could also refers to limited supply of factors of production.

Scarce means is often the fundamental problem facing individual, firm and government.

For instance, an individual student may have 20Gp and wish to buy a pen and an exercise book. However, the money may be tow small to buy the two items

On the other hand a firm too, may have just five thousand Ghana cedis and wish to buy raw materials and new production plant to enhance productivity. But the money may be too small to buy the two items.

Government too, may have about three million Ghana cedis and wish to provide infrastructure in hospitals, schools and road. But the money will be too small to help provide all the project.

Scarcity of resources made it, impossible to meet the desire of an individual firm and government at the same time.

(g)   Choice:-

Choice is the act of selecting one thing among others alternatives. Choice is the only solution to scarcity of resources and the endless ends or desire.

It is a fact that, man at nay point in time is confronted with the endless desire or ends to have many things but constrain with relative scarce means or resources. So, these is the need to make rational choice.

(h)   Scale of Preference:-

Scale of preference is the list of wants in ranking order of importance. in other words, it is the listing or tabulation of wants in order of priority or importance

Scale of preference helps in individual, firm and government in making rational choice over a period of time by placing the most important need first, before the least important need last. In other words, the most pressing needs in first on the list and the least important one last.

Example of an individual student scale of preferences is as follows:

1.      Exercise books

2.      Text books

3.      Graph book

4.      Calculator

5.      Mathematical set

6.      Bags

7.      Mobile phone

The exercise book is first because it is the most important and the mobile phone is last, because it is least important.

Importance of scale of preference

1.      It helps an individual firm, and government in identification of most pressing need.

2.      It guides the economics agents in the optimum allocation of resources

3.      It helps in ranking one needs in order of priority

4.      It helps in making of rational choice over period of time

5.      Maximum satisfaction can be attained through the scale of preference.

(i)     Opportunity Cost:-

Opportunity cost is alternative forgone after making a choice. The opportunity cost of a product, is the alternative which must be given-up in order to produce something else. In other, opportunity cost is the sacrifice made on something in order to enjoy something else. It is refers to as the real cost or the true cost.

For example, Mubarik had five (5) Ghana cedis to buy a mathematical set or calculator, but no both if he decided to buy the mathematical set the leaving out the calculator becomes the opportunity cost. It is important to note that opportunity cost is always based on two things.

Money cost on the hand, it the total amount of money spent to acquire a set of goods and services. It is refereed to us an accountant cost. Opportunity cost is also known as the forgone alternative or the economists cost.

The concept of opportunity cost is relevant to the economies of the world the firm and individual. This is because, it deals with problems of choice which is core or most important to the study of economics. It also deals with the efficient allocation of resources.

Importance of Opportunity Cost

Opportunity cost does have some importance to the individual, firm and government.

1.      It helps an individual, firm and government in making rational choice

2.      The concept helps a producer in selecting the best method of production, which will reduce cost and increase profit.

3.      It helps an individual, firm and government to use their time resources well

4.      The helps the individual, firm government in making retinal choice on what to spend the scarce resource on

5.      It also helps an individual, firm and government to know what to produce

6.      It also helps the government to know what to import into the country.

Production possibility frontiers (PPF)

Production possibility Frontiers is a curve which shows the maximum combination of output that can be produce within the economy over a period of time using its available resources and given technology. It is also known as a transformation curve. With a given resource and technology, a country can produce either goods A or B or combination of them at various level.

The table below shows the various combinations of sharenut and cocoa Ghana can produce in 2011.

Production Possibility Frontier (PPF) Table of Ghana in 2011

Possibilities	Bags of Cocoa (in millions)	Bags of Share nut (in million)
A	0	100
B	40	80
C	80	60
D	120	40
E	160	20
F	200	0

(a)   If the country is at possibility (B) and wish to stop the production of cocoa to share nut, how many extra share nuts bag can it produce.

Solution:

- point of production of sharenut is 80 bags

- maximum attainable production of share nut is 100

Extra = implies = maxim – point of production

Extra = 100 – 80

Extra = 20 bags of share nut

(b)   What percentage of the cocoa in the country producing at possibility (C)

Solution:

Point of Production (C) = 120

Maximum production = 200

(c)    What percentage is producing share nut at possibility (C)

Solution:

Point of production = 40

Maximum production = 100

Illustration the information on the PPF

It is important to note that PPF or PPC curve be any of the follow.

(a)  



This is known as concave or increasing opportunity

(b)  



This is known as convex or decreasing opportunity cost

(c)   



This is known as constant opportunity cost

Sample Questions

i.                   Explain why Economics is considered as science

ii.                 What do you under stand by the term Economics

iii.              Compare and contrast the social science to that of natural science

iv.               Explain carefully the concept of opportunity. Why is the concept so important

v.                  The basic problem of economics is scarcity. Explain this statement

vi.               Explain the term scale of preference. how does it help an individual, firm and government to efficiently allocate resource?

Importance of Economics

The reasons why we study economics include any of the following:

1.      Economics aims at preparing students or learners for gainful employment after course. As a practical subject, it prepares learners to fit well in modern economy as entrepreneurs or employees.

2.      It also enable learners to understand environment and designs ways to positively influence them.

3.      It also enables us to appreciate and understand the effort government is making in the management of national resources towards efficiency and avoid wastage.

4.      It also equips students with practical skills and tools for economic analysis and management.

5.      The subject also promotes national thinking and behaviour and finds possible solution to life and materials problem.

Branches of Economics

We have four branches of Economics. These are Micro Economics, Macro Economics, Positive Economics and Normative Economics.

(a)   Micro Economics is the branch of Economics that studies the economics as a unit. Micro economics is concerned with the basic decision making of an individual and firm. It is also concerned with cost of production, output, pricing and marketing decision of an individual and firm or business enterprise.

Importance of Micro-Economics

1.      It enables the state or government to design and make policies that will improve the welfare and living standard of the people. E.g. Poverty Reduction Strategy and Micro Finance.

2.      It also helps to come out with policies that develop and promote better understanding of the functioning of the various units within the economy. E.g. output, cost of production, pricing and marketing.

3.      It also helps in the development of sound economic tools for analysing, interpretation of the economy.

Limitation of Micro Economy

1.      Most data obtained from micro economic environment are not reliable. As most people in that sector are illiterates and hence do not keep records. Some are also found in inaccessible areas due to bad road network.

(b)   Macro-Economics
Macro Economics is a branch of economics that studies the economy as a whole. In other words, macro economics deals with larger units within the economy. It relates to aggregate demand, unemployment, national income, balance of payment, population, money and banking and so on.

Importance of Macro-Economics

1.      It helps in the fair distribution of income to all sectors of the economy but not in the hands of only few. E.g. investment in all sectors of the economy by the state.

2.      The study of macro economics also helps to satablize prices of goods and services in order to build confidence in the economy. E.g. the use of monetary policies to control inflation.

3.      It also promotes to increase the gross domestic product (GDP) of the economy to promote living standards of the people.

4.      It also works to eliminate infant and maternal mortality within the economy.

Limitations of Macro-Economics

1.      Data Collection is Often difficult.

2.      Some data are grouped without considering the nature of the components.

(c)    Positive Economics

Positive Economics is a branch of economics that uses scientific methods or approach in the economic analysis. It uses the same methods for evaluation and formulation of laws or theories of economics. The methods includes observation of facts, hypothesis formulation, data collection and prediction and forumaltion of laws or theories. It is based on objective analysis.

(d)   Normative Economics

Normative Economics is the study of economics based on personal opinion and not generally accepted theories. It is based on value judgement or subjective judgement, in analysing economic issues.

BASIC ECONOMIC PROBLEMS FACING SOCIETY

1.      What to Produce?

What to produce is one of the major basic problems facing or confronting society. Every society is faced with the problem of what to use the scare resources to produce, for the benefit of the society. Should they use the resources to produce agricultural prodcust, industrial products, consumer products, and so on.

2.      How to Produce?

Another basic problem is how to produce. This refers to the method or technique to adopt in the production of goods and services. The method could be labour intensive or capital intensive. The method to adopt must reduce cost of production and increase output and profit.

3.      For whom to Produce?

This refers to which segment of the society to produce for or who are the target customers? Is it rich or poor people, male or female, infant or adult?

4.      Where to Produce?

Another basic problemis where to locate the industry to minimize cost and maximize profit. It could be near source of raw-materials, water, electricity, market or labour.

5.      When to Produce?

When to produce goods and services to meet customer deadline.

6.      Efficient use of resource

Resources are efficiently used or allocate, when it is impossible to use it to produce more or one commodity without producing less of others. It is also referred to the production of quality goods and services to ensure that, they reach the final consumer.

ECONOMIC SYSTEM

Economic system is an arrangement and specification of how production and consumption of resources are owned and controlled in the society. In other words, it is an arrangement for managing the relative scarce resources in a particular place and time.

We have three types of Economic Systems. These are Capitalism, Socialism and Mixed Economy.

(a)   Capitalism

This is an economic system in which most of the productive resources are owned and controlled by private individuals or group of individuals and the economic activities of the government are minimum.

The role of the government is to provide security and the private individuals engages in the economics activities. The capitalism is also known as free market economy, as prices of goods and services are influenced by market forces or demand and supply. That is, there is not price control.

Characteristics of Capitalism

1.      Private individuals are allowed to own and acquire properties such as building or factors of production.

2.      Producers compete in the production of similar or same goods and services.

3.      Individuals are allowed to inherit properties.

4.      The basic right of an individual is protected by the state.

5.      Consumers is regarded as a king, due to competition.

6.      Prices of goods and services are determined by the market forces of demand and supply.

7.      Producers aim at maximising profit.

Advantages of Capitalism

1.      People enjoy higher standard of living, as a result of job availability

2.      Countries under capitalist economy enjoy rapid economic development as a result of efficiency of private individuals as against government control.

3.      It allows an individual to freely make their choice, and not by the sate.

4.      Capitalism also brings about efficiency of management due to the private ownership of businesses and competition.

5.      It also brings about the specialization and division of labour because of the intension to produce more.

6.      It also brings about the innovation, as a result of freedom enjoyed by the people.

Disadvantages of Capitalism

1.      It widens income gap between rich and poor, as the rich get richer and the poor, poorer.

2.      Little attention is paid to human welfare as a result of profit.

3.      It leads to instability and waywardness as a result of widening income gap between rich and poor. Example, armed robbery and prostitution.

4.      Easy decision making is likely to be unfavourable.

5.      Social vices such as drug addiction becomes the order of the day, as a result of unemployment.

(b)   Socialism / Centrally Planned Economy

Socialism is an economic system in which the means of production are owned and controlled by the state. The economic activities of the individual is minimum. Resources are bein allocated or distributed by the state. Cuba is an example of socialist state.

Features of Socialism

1.      Resources are owned and controlled by the state. Example factors of production.

2.      Economic decisions are made or taken by the government in the interest of all.

3.      Factors of production are optimally utilized. Example no unemployment.

4.      Freedom of choice in terms of consumption and occupation.

5.      Absence of unhealthy competition by producers which sometimes result to proce war, is non-existent.

Advantages of Socialism

1.      There is optimum production, that is, no under or over production.

2.      There is equitable distribution of resources for general welfare of the people rather than profit motives or reasons.

3.      No room for exploitation of the people by the private individual.

4.      Full employment can be achieved in socialism. That is, no redundancy of labours.

5.      There is often commensuration of incentives for all workers as a promotion, rewards and allowances.

6.      There is absence of bribery and corruption as in the case of mixed economy.

Disadvantages of Socialism

1.      Prices of goods and services are artificial. That is, pricing is being influenced by the state, which can collapse the businesses.

2.      State controlled suppresses or kills individual initiatives in setting-up industries.

3.      Economic decisions are worrying and cumbersome.

4.      Absence of competition reduces the economic management of resources or businesses.

5.      Workers are often lazy, which may negatively affect production.

(c)    Mixed Economy

Mixed economy is an economic system in which the productive resources are owned and controlled by both the state and private individuals. Mixed economy is the combination of the capitalist and socialist ideas for efficient economic management.

In the mixed economy some enterprises are owned by the state, some are owned by the private sector. Also, in the mixed economy privatize and nationalize business enterprises.

Nationalization is the process by which the state takes ownership of the private enterprise. It is the case, when government sees the facility as being strategic to provide essential services for the general well-being of the people. Accra Brewery Limited is an example.

Privatization on the other hand, is the process by which the state owned enterprises are shifted either partly or whole to the private sector. It is when the state had a major problem for the efficient management of the facility. Examples are Ghana Telecom and Ghana Commercial Bank Limited.

Features of Mixed Economy

1.      It promotes private initiatives with government regulatory role.

2.      There is freedom of choice by both the producers and the consumers.

3.      Both the state and private sectors engage in economic activities.

4.      State invest in the strategic sector such as health, education and transportation.

5.      Fair competition among producers and consumers.

6.      Government can privatize the state owned enterprises to the private sector.

7.      Government can also nationalize the private owned enterprises.

Advantages of Mixed Economy

1.      Equitable distribution of wealth and income by government through minimum wage policy.

2.      Exploitation on the part of the private sector is greatly reduced as a result of competition and government regulatory power.

3.      Limited controlled by the government encourages private initiatives and innovation.

4.      There is freedom of choice by both producers and consumers.

5.      Workers enjoy job security because of government regulatory power and trade unions.

Disadvantages of Mixed Economy

1.      Pricing of goods and services of the state owned enterprises are often artificial and can collapse the industry.

2.      It creates room for bribery and corruption in the state owned businesses.

3.      Inefficiceny and mismanagement often characterized by state owned enterprises.

FUNCTIONS OF ECONOMIC SYSTEM

Every economic system whether capitalist, socialist or mixed performe the following functions.

(a)   What to Produce?

Every economic system determines what to use the available resources to produce in order to satisfy the need of the society. The available resources could be used to produce consumer or industrial goods.

(b)   How to Produce?

They also think of a method or a technique to adopt in the production of the commodity. The method could be capital intensive or labour intensive methods of production, to minimize cost and maximize profit.

(c)    For Whom to Produce?

They also determine for whom the goods should be produced in order to avoid wastages or shortages.

(d)   How Much to produce?

(e)    Where to Produce?

This is where the economic system decides where to locate the industry. In the capitalist economy, it is the private sector that determines where to produce. But in the centrally planned economy, it is government. Both government and the private sectors determine where to produce.

(f)     How to Distribute?

It is also the function of the economic system to decide the efficient method for the distribution of goods and services in the country. This will ensur