Scope/Basic Concepts of Economics

Scope/Basic Concepts of Economics

Economics covers the following aspects of human lives and the basic concepts are:

  • Wants
  • Scarcity
  • Scale of Preference
  • Choice
  • Opportunity Cost

Wants simply means the desire or wish to own goods or services that give satisfaction. Human beings want or need many things at a particular time. The basic needs or wants of man are food, shelter and clothing. As these basic needs are satisfied, other needs will arise. This is why we say that human wants are insatiable. This is because, human wants are unlimited while resources used in satisfying them are limited.

Scarcity refers to the limited available resources used in satisfying the unlimited human wants. These resources are scarce relative to their demand. It is as a result of scarcity of resources that made the study of Economics very essential in order to find alternative uses of these scarce resources. The available resources cannot satisfy all human wants. Since human wants are unlimited or insatiable relative to the available resources, we have to choose the most pressing ones and leave others that are less important because resources are scarce.
For instance ten students need ten pairs of school sandals but they are able to buy seven pairs of school sandals due to the insufficiency of resources (money), it therefore implies scarcity of school sandals relative to the needs of the student.

Economically, resources such as money, material, time, productive resources etc are relatively scarce to the peoples demand.
The producers, -consumers as well as government face the problem of scarcity and this leads us to the study of what to produce, how to produce, for whom to produce and howto distribute.

Items Needed
Price (N)

Exercise Book


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Scale of preference refers to a list of individual wants in order of their relative importance. The drawing of scale of preference will make it easier for choice to be made. Since human wants are unlimited and the available resources used in satisfying these wants are limited and cannot satisfy all human wants; human beings have no choice than to rank these needs in order of their relative importance, called scale of preference, placing more important or pressing needs first before the less important ones that may be satisfied at a latter day. This hierarchicalization of needs .which is inevitable as a result of limited resources helps one to make rational choices. For example, a student who is in dire need of textbooks, sandals, biro, shoes, trousers, shirts, exercise book, etc., but with limited resources, may draw his scale of preference like this:

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Suppose the student has N20.00 at hand at the time he needed the above items; judging from his scale of preference above, he can afford to purchase only exercise book, biro, textbook and sandals as a result of his limited available resources of N20.00 relative to his needs. This student will therefore face the problem of choice and opportunity cost.
When a student follows or makes use of the above table i.e. according to how important they are, the student is said to behave rationally.-

1. Scale of preference helps us to rank cur needs in order of their relative importance.
2. It helps or aids an individual to make rational choices. ‘
3. It leads to efficient utilization of limited available resources.
4. The drawing of scale of preference shows our needs at a glance and reminds us of such needs and compels us to plan for the satisfaction of such needs.
5. Since human wants are numerous and the resources to satisfy them are scarce, scale of preference is therefore necessary to aid us to make choices that give maximum satisfaction
6. The scale of preference aids an individual to forgo those wants he cannot satisfy as a result of his limited available resources.

Choice involves decision making.
Choice arises as a result of numerous human wants and the scarcity of the resource used in satisfying these wants. Choice therefore, arises as a result of scarcity. Choice in is this case means the act of selecting some needs for satisfaction out of many Jima lamed on the resources available to the person making the decision. Man is faced with problem of choice because, as soon as some needs are satisfied, other needs will a se Since it is impossible for any human being to satisfy his wants at a particular time, human being must choose the most pressing wants for satisfaction based on the resource within his reach. For instance, every being will like to eat good food, own a nice house with all the necessary household appliances like television and video sets, radio set, refrigerator, air conditioner, etc. But not everybody can afford all these luxuries at a time. As a result, the person will have to choose the most pressing needs among the above itemized needs. In this case the choosing of one want in place of another will be done based on the above drawn scale of preference.

Also read:  Types of wages in Economics.

Government also makes a choice on how to allocate the available resources concerning what goods and services to produce for he” citizens and the proportion of the resources to each sector such as agricultural sector, health sector, administration, educational sector e.t.c.
For firms, a choice of the kind of business to embark upon, wages to pay, forms of distribution to embark upon must be made because of the limited resources.
Conclusively, the individuals, government and firms have to choose between alternatives in order to achieve their objectives i.e. maximization of utility, provision of services or welfare and maximization of profit respectively.

Opportunity cost means the alternative foregone or sacrifice made in order to satisfy another want. It refers to the need that is left unsatisfied in order to satisfy another more pressing need. For instance, in the students scale of preference above; the cost of the exercise book, biro, textbook and sandals bought are the shirt, trousers and shoes he had left unbought.
The shirt, trouser and shoes that were left unsatisfied or unbought are known as alternative, forgone or sacrificed alternatives. This alternative forgone or sacrificed is known in Economics as opportunity cost or real or true cost.

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