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Definition of Economics Explained

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ECONOMICS

 

DEFINITION: Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.

 

ENDS/WANTS

 

MEANING: Ends are wants or desires that individual consumers, firms or businesses and government are constantly using their scarce resources to satisfy. They are in the form of goods and services, goals or circumstances that mankind desires.

 

 CHARACTERISTICS OF ENDS/WANTS

1.      They are unlimited.

2.      They differ among individuals and over time.

3.      As soon as they are satisfied, they tend to create other ends. This explains why they are unlimited.

4.      They have value and command price.

5.      They compete for the scarce resources.

 

MEANS

 

MEANING: Means are the same as resources. They are the goods and services used to produce other goods and services to satisfy human wants.

Personal income and time are part of what are classified as means. Other terms used for means are factors of production, resources and inputs.

 

 CHARACTERISTICS OF MEANS

1.      They are limited in supply.

2.      They have value and command price.

3.      They have alternative uses.

4.      They can be combined in many different ways when they are being used to produce goods and services.

 

SCALE OF PREFERENCE

 

MEANING: Scale of preference is the arrangement of wants in order of importance with the most urgent want topping the list. This arrangement could be written or mental.

 

 

 IMPORTANCE OF SCALE OF PREFERENCE TO THE INDIVIDUAL

1.      It helps the individual to make rational or wise choices.

2.      It helps the individual to be prudent in the use of scarce resources.

3.      It helps the individual to maximize satisfaction by choosing the most urgent want.

 

 IMPORTANCE OF SCALE OF PREFERENCE TO THE FIRM OR PRODUCER

 

1.      It helps the firm to make rational or wise choices as to what to produce given the scarce resources.

2.      It helps the firm to make rational or wise choices as to how to produce. That is, to choose the most efficient method of production in the face of limited resources.

3.      It helps the firm to make the best decision regarding the allocation of the scarce resources in order to produce at minimum cost and minimum price for the consumer.

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IMPORTANCE OF SCALE OF PREFERENCE TO THE GOVERNMENT

 

1.      It helps the government to make rational choices regarding the projects to be provided for the society.

2.      It helps the government to maximize social welfare by being prudent in its use of scarce resources.

3.      It helps the government to make rational choices in the allocation of resources to the various sectors of the economy and to the various segments of society.

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