Many people think that economics is about money. Well, to some extent this is true. Economics has a lot to do with money: with how much money people are paid; how much they spend: what it costs to buy various items; how much money firms earn; how much money there is in total in the economy. But despite the large number of areas in which our lives are concerned with money, economics is more than just the study of money.
It is concerned with:
· The production of goods and services: how much the economy produces; what particular combination of goods and services; how much each firm produces; what techniques of production they use; how many people they employ.
· The consumption of goods and services: how much the population as a whole spends (and how much it saves); what the pattern of consumption is in the economy; how much people buy of particular items; what particular individuals choose to buy; how people’s consumption is affected by prices, advertising, fashion and other factors.
In 1932 Professor Lionel Robbins defined economics as “ the science, which studies human behaviour as a relationship between ends and scarce means which have alternative uses.” Economics is simply the study of how society decides what, how and for whom to produce. In answering the questions what, how and for whom to produce, economics explains how scarce resources are allocated between competing claims on their use. The central economic problem is the problem of scarcity.
Countries can only produce a limited amount of goods and services due to a limited amount of resources. There are three types of resources:
· Human resources: labour
The labour force is limited both in number and in skills.
· Natural resources: land and raw materials
The world’s land area is limited, as are its raw materials.
· Manufactures resources: capital
All inputs into production that have themselves been produced: e.g. factories, machines and tools.