You may be taking an Economics class or curious about the concept and unsure what to expect. You've heard a lot of rumors about how Economics can be confusing and all that. Well, we're here to debunk all that! Now, check this out - you want an endless supply of pizza, but you do not have an endless supply of money for the pizza. So, you have to do what you can with what you have. And what you have are unlimited wants and limited resources. This is what the scope of economics is all about. What was so confusing about that? Nothing! Read on for a definition of the scope of economics, importance, and more!
Scope of Economics Definition
Society wants things that cannot be completely satisfied given the resources available. The scope of economics is addressing this issue. Let's break it down. Society has unlimited wants like food, water, clothes, roads, houses, video games, phones, computers, weapons, you name them! This list can go on and on, however, the resources to achieve these wants are limited. This means that sometimes we can afford some of the things we want, but we will have to consider the things we want the most and get them while leaving out some other things. This is the scope of economics; it analyzes how economic agents satisfy their wants by carefully using their limited resources.
Economics analyzes how economic agents satisfy their unlimited wants by carefully using their relatively limited resources.
Limited Resources, Pixabay
Economics involves microeconomics and macroeconomics. Microeconomics studies the economy in terms of an individual or a company. On the other hand, macroeconomics studies economies in terms of the country as a whole.
Microeconomics studies the economy in terms of an individual or a company.
Macroeconomics studies economies in terms of the country as a whole.
Scope and Importance of Economics
The importance of economics is that it helps society satisfy its needs in the best way possible. Economics is all about solving the problem of scarcity. Economists cannot cause resources to suddenly stop being scarce. Still, they can help us find the best ways to use our scarce resources to get the best satisfaction possible.
Look at this example.
You have $30 and you'd like to get a regular shirt, pants, and a pair of shoes to attend a free show that's normally $10. At the same time, there is a special brand of shoes that you're interested in. The regular shirt, pants, and pair of shoes cost $10 each, whereas the special brand shoes cost $30 a pair.
Economics is important because it helps you decide how to use your $30. Let's assume you have no clothes, to begin with. Buying the special brand pair of shoes means you don't get to see the free show because you are still naked! Looking at this situation, economics suggests that you should take the first set of options and buy the regular shirt, pants, and pair of shoes for a total of $30 because this enables you to go to the free show and gain additional value than if you had chosen just the shoes! This is the option that makes the best use of your $30.
Shoes on Sale, Pixabay
The Main Scope of Economics
Economics is a social science since it studies people's behavior as they try to get what they want with the little they have. It involves demand and supply. While demand is about buying, supply is about selling!
The Main Scope of Economics and Demand and Supply
You will encounter demand and supply a lot throughout your time with economics. These are very simple and interesting concepts. Demand is about the willingness and ability of consumers to purchase a quantity of goods at any given time.
Demand is the willingness and ability of consumers to purchase a quantity of goods at any given time.
On the other hand, supply is the willingness and ability of producers to sell a quantity of goods at any given time.
Supply is the willingness and ability of producers to sell a quantity of goods at any given time.
Economists are concerned with making sure that demand matches supply. If this happens, they successfully satisfy as many of the unlimited wants
as possible.
Four Steps of the Scope of Economics
Economics involves four steps. These steps are description, analysis, explanation, and prediction. Let's look at each one carefully.
The importance of description in the scope of economics
Economics is concerned with describing the economic activity. Description answers the "what" aspect of economics. It describes the world in terms of wants and resources. For instance, you may have heard of GDP and the oil market. GDP is an economist's way of describing what a country's economy is worth. It involves all the goods and services produced by a country. Also, when you hear "the oil market," this is a way for economists to describe all the vendors, buyers, and transactions involving oil. It does not necessarily mean a specific place where oil is being sold!
Economics is concerned with describing the economic activity.
The importance of analysis in the scope of economics
After describing the economic activity, economics analyzes such activity. Analysis helps economists understand how and why things are the way they are. For instance, if one pair of shoes costs $10 and another pair of shoes costs $30. Yet, people still buy both. Economics analyzes the situation to understand why and how such activity occurs. In this case, one can infer that the $30 shoes provide a special value or use that the $10 pair can't satisfy.
Economics is concerned with analyzing economic activity.
The importance of explanation in the scope of economics
After analyzing economic activity, the acquired understanding has to be explained to the rest of society in a way they can also understand. Look, not everyone is an economics enthusiast - you need to break things down for the rest of the world to understand you! By explaining things to others, they can trust economists more and follow their suggestions. For example, why would we spend our money on roads instead of dirt bikes just because you told us to? You need to make us understand by explaining why.
Economics is concerned with explaining the economic activity.
The importance of prediction in the scope of economics
Economics predicts what will happen in the future regarding wants and resources. An important part of convincing people to trust your expert opinion is successfully predicting what will happen. For example, if economists suggest that there will be an economic boost if the government exports more and imports less, this is a successful prediction. It's not magic; it results from describing, analyzing, and explaining economic activity! Prediction helps us make informed decisions.
Economics predicts economic activity.
Scope of Economics Example
Let's use one last example to capture the scope of economics.
A coffee shop uses the same machine to make coffee and tea. A cup of coffee sells for $1, whereas a cup of tea sells for $1.5. The coffee shop wants to make as much money as possible and can only make 1 cup of either coffee or tea at a time. People visit the shop frequently for both coffee and tea. As an economist, what do you suggest the shop does?
The shop should just sell tea since it uses the same machine and sells for a higher price. This is even more advisable when you consider that people frequently come in for tea, so there's no shortage of tea customers.
Done. You finished this topic! You should check out our article on The Theory of Production to understand more about how firms produce their products.
Scope for Economics - Key takeaways
- Economics analyzes how economic agents satisfy their unlimited wants by carefully using their relatively limited resources.
- The importance of economics is that it helps society satisfy its needs in the best way possible.
- The four steps of economics are description, analysis, explanation, and prediction.
- Economics involves microeconomics and macroeconomics. Microeconomics studies the economy in terms of an individual or a company. On the other hand, macroeconomics studies economies in terms of the country as a whole.
- Economists are concerned with making sure that demand matches supply. If this happens, they successfully satisfy the unlimited wants in the best way possible.
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