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A Brief Overview Of Economics Essay

980 words - 4 pages

The word ‘Economy’ is derived from the Greek word ‘okinomous’ which means one who manages a household. Economics is the study of how society manages to run its scarce resources. Scarcity means that society has limited or finite resources and therefore cannot produce all of the goods and services people desire to have. God has created man with innumerable desires and wants. So, unlimited wants surround man throughout his life without having an end till the death of his life. But if the human wants were limited, he would have been able to satisfy them easily and the society would be getting optimal benefits from its scarce resources which is called ‘Efficiency’ in economics. Economics also assumes that normally people are rational and they weigh their costs and benefits before doing any action. But to know how people preferences and decisions change, economists give them incentives. An incentive is something that persuades a person to react. So in economics scarcity, efficiency and incentives play a very important role in making conclusions and decisions.
If we talk about scarcity it means that man’s resources like his income and wealth are very less as compared to his wants. To get one thing that we like, we usually give up another thing that we like and this is exactly what the scarcity principle says in economics that “having more of one good necessarily requires having less of another good” (lecture slides, Chapter 1). For example: Consider a student Julie, who must decide how to allot her most precious resource ‘time’. She can spend all her time studying chemistry or spend all her time studying economics. For every hour she studies chemistry, she gives up an hour in which she could have studied the other subject. And for every hour she studies, she could have spent that hour watching T.V, enjoying with friends or spent sleeping. Or consider the example of parents deciding how to make their family budget. They can buy food, clothing or go to a family vacation. When they choose to spend one extra dirham on one of these goods, they have to spend one dirham less on any other good because of lack of income. So that is why in every part of world people face scarcity problems because of scanty or insufficient resources.
Moreover, in order to take decisions and optimize individuals people gauge their own costs and benefits. For example: The soap making company like ‘Lux’ thinks whether it should produce 99 or 100 units of soaps? Now this is where the role of Cost and Benefit principle comes into account. The answer to this question will be yes but if and only if the benefit for making the 100th unit of soap will be larger than the cost for producing the 100th unit. And the cost benefit principle also says that “take an action if and only if its benefit is at...

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