ECONOMIC WAY OF THINKING
WEALTH OF THE NATIONS
Scarcity is the basic and central economic problem confronting every society. It is the heart of the study of economics and the reason behind its establishment. Authors have defined scarcity in various way some if which are complexly stated. One author defines scarcity as a commodity or service being in short supply, relatives to its demand (Kapur 1997) which implies a constant availability of commodity or economic resource relatives to the demand for them. In quantitative terms, scarcity is sad to exist when at a zero price there is a unit of demand, which exceeds the available supply (kapur 1997). Simply put, scarcity pertains to the limited availability of economic resources relative society’s unlimited demand for goods and services.
This figure illustrate the intersection of limited resources available and the unlimited wants of society. If limited resources fall short to meet the unlimited wants of the society, it will eventually create a problem, which is called. “scarcity”.
Since human wants and need are unlimited and available resources are finite, scarcity naturally results leaving the society with the problem of resources allocation. See Figure 1.1 Figure 1.1: Problem of Scarcity
Economics is a science that deals with the management of scarce resources. It is also described as a scientific study on how individuals and the society generally make choices (Fajardo 1997). Specifically, it is the study of the problem of using available economic resources as efficiently as possible a as to attain the maximum fulfillment of society’s unlimited demand for good and series. As Slaving (2005) puts it, economics is simply scarcity and choice. It should be noted that individuals and groups within the society have innumerable wants, and to satisfy these wants, there are available resources that can be utilized. However, since these resources are finite, they are not freely available. Economics steps in to assist individuals and societies n making proper choices that is, the allocation and utilization of economics resources, with the end in view of satisfying human wants for goods and services. Figure 1.2: Economics
This figure depicts the relationship between available limited resources and the unlimited wants of the society. This shows that when limited resources fail to meet the unlimited wants to the society economics comes into play in order to effectively and efficiently allocates resources.
What is the relationship between Economics and Scarcity?
The problem of scarcity gave birth to the study of economics. Their relationship is such that if there is no scarcity, there is no need for economics. The study of economics was essentially founded in order to address the issue of resource allocation and distribution, in response to scarcity.
Origin of the term “economics”
The two Greek roots of the word economics are oikos – meaning household – and nomus – meaning system or management. Oikonomia or oikonomus therefore means the “management household.”
With the growth of the Greek society until its development into city-states, the word became known or was referred to as “state management”. Consequently, the term, “management of household” now pertains to the microeconomics branch of economics, while the phrase “state management” presently refers to the macroeconomics branch of economics (Fajardo 1977). Because of its far reaching significance, in the early years, economics covered other scholarly fields, such as religion, philosophy, and political science.
Ceteris Paribus Assumption
The assumption of “Ceteris Paribus” is important in studying economics. Ceteris paribus means “all other thing...
Please join StudyMode to read the full document