People economic activity Economy as a science Scope of economics
to acquire – набувати, одержувати
vague – невиразний; неясний
scarcity – недостатня кількість, дефіцит
to deprive – позбавляти
satiety – насичення, пересичення
to evaluate –оцінювати
assets – майно, активи
to distribute –розподіляти
wealth – багатство, достаток
stock of goods– запас речей
welfare – добробут, достаток
to attain – досягати, добиватися
expenditure – витрати
Economics is as old as the human race: it is probably the first art which men acquired. When some cavemen went out to hunt while others remained to defend the fire or when skins were traded for flint axes we had economics. But economics as an academic discipline is 2 centuries old. The first scientist who made extraordinary contributions in economics was Adam Smith. He was born in a small fishing town near Edinburgh, Scotland. At the age of 28 Adam Smith became Professor of Logic at the University of Glasgow. Some time later he became a tutor to a wealthy Scottish duke. Then he received a grant and with the financial security of this grant, Smith devoted 10 years to writing his work “The Wealth of Nations” which founded economic science. It was published in 1776. His contribution was to analyse the way that markets organized economic life and produced rapid economic growth. He showed that a system of prices and markets is able to coordinate people and business without any central direction.
Since that time the subject has developed rapidly and there are now many branches of the subject such as microeconomics, international economics and econometrics as well as many competing schools of thought.
Economics is a comprehensive theory of how society works. But as such it is difficult to define. The great classical economist Alfred Marshall defined economics as “the study of a man in the everyday business of life”.
This is rather too vague a definition. Any definition should take account of the guiding idea in economics, which is scarcity. Virtually everything is scarce; not just diamonds or oil but also bread and water. How can we say this? The answer is that one only has to look around the world to realize that there are not enough resources to give people all they want. It is not only the very poor who feel deprived, even the relatively well-off seem to want more. Thus when we use the word ‘scarcity’ we mean that:
All resources are scarce in the sense that there are not enough to fill everyone’s wants to the point of satiety.
We therefore have limited resources both in rich countries and poor countries. The economist’s job is to evaluate the choices that exist for the use of these resources. Thus we have another characteristic of economics: it is concerned with choice.
Another aspect of the problem is people themselves; they do not just want more food or clothing, but specific items of clothing and so on.
We have now assembled the three vital ingredients in our definition, people, scarcity and choice. Thus we could define economics as:
The human science which studies the relationship between scarce resources and the various uses which compete for these resources.
The great American economist Paul said that every economic society has to answer three fundamental questions, What, How, and For whom?
What? What goods are to be produced with the scarce resources: clothes, food, cars, submarines, television sets?
How? Given that we have basic resources of labour, land, how should we combine them to produce the goods and services which we want?
For whom? Once we have produced goods and services we then have to decide how to distribute them among the people in the economy.
One alternative definition of economics is that it is the study of wealth. By wealth the economist means all the real physical assets which make up our standard of living: clothes, houses, food, roads, schools, hospitals, cars, oil tankers, etc. One of the primary concerns of economics is to increase the wealth of a society, i.e. to increase the stock of economic goods. However, in addition to wealth we must also consider welfare. The concept of welfare is concerned with the whole state of well-being. Thus it is not only concerned with more economic goods but also with public health, hours of work, with law and order, and so on.
The scope of economics is indicated by the facts with which it deals. These consist mainly of data on output, income, employment, expenditure, interest rates, prices and related magnitudes associated with individual activities of production, transportation and trade. Economics is also concerned with inflation, international trade, the interaction of business and labour, and the effects of government spending and taxes.
There are major economic goals that are generally accepted. These goals are: full employment, price stability, economic growth, an equitable distribution of income.
The ultimate goal of economics is to make optimum use of resources so that people can attain a good standard of living (that is, have homes, cars, clothes, and other tangibles) and enjoy a good quality of life (that is, education, health, clean environment, and happiness).
Why do people study economics? Give your personal opinion.
Who made extraordinary contributions in economics? Do you know the names of other scientists studying economics?
John Maynard Keynes, one of the most influential economists of the twentieth century, said: ”The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else”. What do you think Keynes meant by this statement? Do you agree or disagree? Give reasons to support your opinion.
Economics has been called “the study of scarcity and choice”. How does this relate to your budget for the month?
How do different economic systems solve the problem of scarcity? Give specific examples.