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Untitled

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Hk
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1. Explain the meaning and concept of “Economics”.

What are the stages of economic


evolution? State the fundamental problems in an Economy.

Basic Economic ConceptsScarcity: -

Scarcity

means limited in supply. According to Thomas Sowell, the first


lesson ofeconomics is scarcity. There are three categories of economic
resources: Land, labour and capital.Each of these resources exists in a finite,
limited quantity. People have unlimited wants and since wehave a limited amount of
resources it means we can only produce a limited amount of goods andservices,
that is, the limited resources cannot produce enough to satisfy everyone’s
unlimited wants.This gives rise to the study of economics for better allocation of
scare resources among competingand insatiable needs so as to maximize welfare.

Choice:

A choice is a comparison of alternatives. The problem of scarcity leaves us in a


situation inwhich we must constantly choose which of our wants we will
seek to satisfy. For instance, anindividual consumer must choose among the types
of goods and services to consume because of hislimited income. He must also choose
between spending on present consumption and saving for futureconsumption.The firm
with its limited capital must decide what to produce and what not to produce. A
situationwhere the firm wants to produce two commodities, the choice to produce
more of one would mean aresolve to produce less of the other.The government is
also forced to make a choice on the nature of public goods to provide for
thecitizens. The government has the task of utilizing the scare resources
effectively in order to improvethe welfare of the people. Scarcity gives rise
to choice and making a choice creates a sacrificebecause alternatives must
be given up leading to the loss of the benefits which the alternative wouldhave
provided.
Scale of Preference: - In economics, it is assumed that man is rational in his
choice making, that is, ifa man has to choose between one thing and another, it is
expected that he will always choose thealternative that will yield the greatest
satisfaction. Similarly a firm faced with how to make a choicebetween production of
one product and another, will choose the product that will yield the greatest

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