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THE SUBJECT MATTER OF ECONOMICS
Generally, the subject matter tells us about what we study in Economics. However for the sake of conveniences, economics is concerned with the following:
1. It is concerned with how human being earns their living through exchange i.e. it is concerned with how man employs scarce resources to satisfy material wants.
2. It deals with production, distribution, exchange and consumption of goods and services.
3. It also deals with human activities which involve selling and buying. It doesn’t deal with goods and services that man produces for the sake of self-satisfaction.
These goods and services must have exchange value a part from satisfying human wants.

EcoleBooks | ECONOMICS As LEVEL(FORM FIVE) NOTES - THE SUBJECT MATTER OF ECONOMICS
1.1 ECONOMICS TERMINOLOGIES:-

Distribution: is a process of rewarding or making payment to the factors of production such as Land -Rent, Labour- Wages, capital-Interest and Entrepreneur-Profits.
Wants : this refers to human desires.
Features of Humans wants:
  1. -Human wants are unlimited,
-The resources used to satisfy the wants are (limited in number) scarce.
-Human wants can be satisfied by alternative means, E.g. Thirsty can be quenched by drinking
water or soft drinks.
-Human wants are felt frequently such as food, water
-Human wants are complementary.eg; Driving is satisfied by car and fuel.
Needs:Are those necessary things when you loose it can cause death(Basics needs such as food,shelter and clothes).
Economics Resources:
Refers to the inputs which are needed to produce goods and services. They are also known as the factors of production or means of production. The factors of production are things which are necessary for production. The factors of production may include;
  1. Natural resources such as land and man-made resources such as capital.
  2. Human resources are such as labor and entrepreneurship.
Refers to the total expenditure by households or final users on goods and services which yield utility in the current period OR
Is the process of using goods and services to satisfy wants.

Are things that are produced by the factors of production like land, labor, capital e.t.c. and are consumed by man to satisfy his wants. It involves goods and services.

Production:Is a creation of goods and services for personal consumption or use.
OR
Is a process of making goods and provision of services to satisfy people’s needs or wants e.g. Giving crops for food, building houses.
Wealth
Refers to the country’s stock of resources and goods that can be used to satisfy wants.
A country’s wealth consists of stock of resources and goods that can be used to satisfy wants. It includes; machines, buildings, and human skills.
In economics, wealth refers to all goods which possess the following qualities;
  1. They must have satisfaction (utility).
  2. They must be scarce.
  3. They must have value.
  4. They are capable of being transferred or exchanged.
Refers to the tangible things which satisfy human wants. Goods are categorized in the following ways;
  1. Free goods and Economic goods. Those free goods are provided free by the nature Eg Air, rain, ocean water.
  2. Private goods and public goods.
  3. Intermediate goods and final goods.
Welfare
Refers to the level of satisfaction that a person or group of people derives from the consumption of goods and services.

WELFARE ECONOMICS:The study of the impact of the pattern of resources allocation on society’s well being(or welfare)

Economist are able to judge whether the existing arrangement about

(a)the methods of production
(b)the type and quantity of goods and services produced and consumed
(c)the relative share of goods and service going to each household,are satisfactory.

EFFICIENCY: Pareto efficiency–a situation in which it is not possible to make someone better off without making someone else worse off.

EQUITY:Equity is concerned with the treatment of different individuals or groups in society.

MARKET EQUILIBRIUM:Exist when the price and quantity of a commodity match both consumers and producers.
In this case the quantity demanded and supplied are equal and the market clear.

MARKET DISEQUILIBRIUM:Exist when the price and quantity of commodity fail to match consumers and producers expectation.
Goods: – These are things which can satisfy human wants like clothes, cars, houses etc.
Goods are classified as follows;
Free goods:
These are goods which are provided freely by nature. E.g. Air, sunshine, rainfall, ocean water and forest.
Features of free goods
  1. They are not scarce i.e. they are abundant.
  2. They are not produced by human effort, hence are provided freely by nature.
  3. They are not transferable in terms of its ownership.
  4. They lack exchange value.
  5. They possess utility
ECONOMIC GOODS
These are the goods produced by human efforts and posses the following qualities;
Quality of Economic Goods
  1. They have utility, i.e. ability to satisfy wants/needs.
  2. They have exchange value, i.e. they can be bought
    or sold.
(iii)They are transferable in terms of ownership from one person to another person.
Thus Economics is concerned with economic goods and not free goods because production in Economics is for exchange for which the economic goods possess value.

  1. Consumer Goods– These are goods produced for final consumption or use such as food, radio, clothes, furniture etc.
  2. Producer Goods-These are goods which are produced to assist in the production of other goods. They are also known as capital goods. Producer goods include; machinery, raw material, workshop, building etc.
Perishable Goods : These are goods which can easily be destroyed or spoil like food stuffs e.g., milk, meal, fruits, vegetable etc.
Durable Goods: These are goods which can last or stay for a long period of time without being destroyed or damaged such as buildings, machines, furniture etc.
Private goods: Are goods owned by individuals for example private car, clothes, houses etc.
Public goods: Are goods owned and enjoyed by all individuals in the country. For example roads, defense etc.
Feature of Public Goods:-Non divisibility i.e., provided in totality to the public.
Non rivalry i.e., ther
e is no competition of consumption. One person can consume extra units without reducing consumption of others.
Intermediate goods:– Are goods in progress e.g. raw material.
Final goods:- Are goods ready for consumption.
Normal Goods:- Are the goods for which their demand increases when the real income of the consumers increases while their demand decreases when income of consumers decreases.
Inferior Goods:- Are goods which the demand of the goods by the consumers decreases when real income increases.
PRODUCTION
Is a creation of goods and services for personal consumption or use.
OR
Economists define production as a process of creating goods and services for exchange i.e for sale in order to satisfy people’s needs.
OR
Is a creation of utility. Utility means the level of satisfaction a consumer derives from consuming a certain unit of goods and services.



Economics Activities:
Prof. Marshall defined all activities concerning with the earning and spending income (wealth) such as-; the activities of farmers, labor, shopkeeper, teachers, doctors and advocates. Thus all activities which are done with view to earn income are called Economic activities.
NON ECONOMIC ACTIVITIES:
Refers to all activities which do not have the earning of wealth as their nature. E.g. .playing football for health reasons, singing by mothers, teachings by a teacher to his own children, etc.
SCARCITY
Means limited in supply or less than that what is required or needed.
CAUSES OF SCARCITY.
  • Limited stock of resources.
Resources are limited in number therefore it is not possible to produce enough goods and services to satisfy all wants.
  • Unlimited wants.
Wants are unlimited in number therefore resources available cannot produce enough goods and services to satisfy all wants.
  • Alternative uses of the available resources.
E.g, same land can be used to grow beans, rice or other uses such as land for construction of buildings.
Resources are normally scarce and therefore you have to choose from the few alternatives to satisfy the needs.
Producers – chooses what goods to produce.
Consumers – Decides which wants/needs they require.
SCALE OF PREFERENCE:
Is a list of all wants in an order to their importance such that that the most important wants are kept first on the list followed by the less important wants.
OPPORTUNITY COST.
Welfare Definition
Lionel Robbins published a book “An Essay on the Nature and Significance
of Economic Science” in 1932. According to him, “economics is a science which
studies human behaviour as a relationship between ends and scarce means which
have alternative uses”. The major features of Robbins’ definition are as follows:
a) Ends refer to human wants. Human beings have unlimited number of
wants.
b) Resources or means, on the other hand, are limited or scarce in supply.
There is scarcity of a commodity, if its demand is greater than its supply. In
other words, the scarcity of a commodity is to be considered only in relation to
its demand.
c) The scarce means are capable of having alternative uses. Hence, anyone
will choose the resource that will satisfy his particular want. Thus, economics,
according to Robbins, is a science of choice.
Criticism: a) Robbins does not make any distinction between goods conducive
to human welfare and goods that are not conducive to human welfare. In the
production of rice and alcoholic drink, scarce resources are used. But the
production of rice promotes human welfare while production of alcoholic drinks
is not conducive to human welfare. However, Robbins concludes that economics
is neutral between ends.
b) In economics, we not only study the micro economic aspects like how
resources are allocated
and how price is determined, but we also study the macro
economic aspect like how national income is generated. But, Robbins has
reduced economics merely to theory of resource allocation.
c) Robbins definition does not cover the theory of economic growth and
development.
i) Wealth Definition
Adam smith (1723 -1790), in his book “An Inquiry into Nature and Causes
of Wealth of Nations” (1776) defined economics as the science of wealth. He
explained how a nation’s wealth is created. He considered that the individual in
the society wants to promote only his own gain and in this, he is led by an
“invisible hand” to promote the interests of the society though he has no real
intention to promote the society’s interests.
Criticism:Smith defined economics only in terms of wealth and not in terms of
human welfare. Ruskin and Carlyle condemned economics as a ‘dismal science’,
as it taught selfishness which was against ethics. However, now, wealth is
considered only to be a mean to end, the end being the human welfare. Hence,
wealth definition was rejected and the emphasis was shifted from ‘wealth’ to
‘welfare’.

ii) Growth Definition
Prof. Paul Samuelson defined economics as “the study of how men and
society choose, with or without the use of money, to employ scarce productive
resources which could have alternative uses, to produce various commodities
over time, and distribute them for consumption, now and in the future among
various people and groups of society”.
The major implications of this definition are as follows:
a) Samuelson has made his definition dynamic by including the element of
time in it. Therefore, it covers the theory of economic growth.
b) Samuelson stressed the problem of scarcity of means in relation to
unlimited ends. Not only the means are scarce, but they could also be put to
alternative uses.
c) The definition covers various aspects like production, distribution and
consumption.
Of all the definitions discussed above, the ‘growth’ definition stated by
Samuelson appears to be the most satisfactory. However, in modern economics,
the subject matter of economics is divided into main parts, viz., i) Micro
Economics and ii) Macro Economics.
Economics is, therefore, rightly considered as the study of allocation of
scarce resources (in relation to unlimited ends) and of determinants of income,
output, employment and economic growth.



SHIFTS IN PRODUCTION POSSIBILITY CURVES
An economy’s production potential is constant changing.The Production possibility curve (ppc) will shift outward to the right because capacity to produce goods and services increases as shown below
EcoleBooks | ECONOMICS As LEVEL(FORM FIVE) NOTES - THE SUBJECT MATTER OF ECONOMICS
Improvement of goods and services lead to the increase of Quality and Quantity,Labourforce,stock of capital goods (offices,factories,transport network power station and machinery) an increase in technical knowledge and improvement in training.
PPC INWARD TO THE LEFT as shown below:-
EcoleBooks | ECONOMICS As LEVEL(FORM FIVE) NOTES - THE SUBJECT MATTER OF ECONOMICS
PPC curve shift to the left because economy’s production potential declines.This could occur due to the war or natural disaster which reduces a countries resources.

A CHANGES IN THE SLOPE OF THE PRODUCTION POSSIBILITY CURVE (PPC)
EcoleBooks | ECONOMICS As LEVEL(FORM FIVE) NOTES - THE SUBJECT MATTER OF ECONOMICS
If changes occurred of one type of goods (BUTTER) the slope of the curve will change because of changes of quality or quantity of resources
example improvement of production technique in manufacture.



ECONOMICS RELATED TO OTHER SOCIAL SCIENCE

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  • EcoleBooks | ECONOMICS As LEVEL(FORM FIVE) NOTES - THE SUBJECT MATTER OF ECONOMICS

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