Economics - a social science

Economics is a social science that investigates how society manages its finite resources and the decisions that people, governments, and the entire community make when faced with scarcity. The science entails the management of limited resources as well as the resolution of social and economic problems such as inflation, public debt, unemployment, budgetary deficits, and international commerce. Recourses comprise items and services capable of directly or indirectly gratifying human desires through the development of other products and services. As basic requirements are addressed, the focus moves to other human desires. The wants are unlimited such that after the satisfaction of one obligation, others come up while means to satisfy them are limited as their supply is less than demand. The resources are scarce by nature hence ought to be utilised productively within the available means to derive satisfaction to the maximum (Barnett, & Morse, 2013). Limited resources can be described that is insufficient to completely satisfy human wants and only satisfy them partially hence the partial fulfilment raises problems in resource administration which form the subject matter of economics. The paper, therefore, focusses on how various aspects of the economy form the subject of the economy.

What is the subject matter of economics?

Economics has a subject manner of its own as it tells how man utilises limited resources for the satisfaction of unlimited wants. There is a limited amount of time and money available for meeting these needs. For instance, man needs food, clothing and shelter and to obtain satisfaction money is required which also demands efforts to result in satisfaction. Therefore, wants, efforts and satisfaction sum up the subject matter of economics in a society where the relationship between wants, efforts and satisfaction is direct. There has been a difference of opinion among renowned economists regarding the subject matter of economics. Robbins focuses on the multiplicity of ends that needed to be satisfied by scarce resources which have alternative means. He notes immediately the somewhat radical implications for the scope of economics and insists that as long as there are opportunity costs imposed by scarcity, there are no limitations to the subject matter of the economic science. He, however, did not pursue the implications of his statement and therefore his work was subjected to questions as to whether he believed in his definition. Marshal’s definition emphasises the human attached secondary importance to wealth while Adam Smith was concerned with nature and causes of the wealth of a nation. He explained how a nation’s wealth is created and considered that the individual in the wants to promote his wealth and while at it he is led by an invisible hand to promote the interests of the society (Walras, 2013).

Robbins’s definition of economics is the most accepted definition in the modern world hence the subject matter of economics is discussed basin on this definition. Since human wants are limited, man is forced to engage in some economic activities that take the form of labour, land, capital and entrepreneurship which result in rewards in the form of rent, wages, profits and interest which are distributed among factors of production. The rewards of income are man’s resources that he converts into real supplies by purchasing products and services that are gushed towards satisfying needs and wants. The cycle rotates representing the economic life of people hence forms the core of economics or the somewhat subject matter of economics. The subject matter of the economy can be explained under the traditional and modern approach as discussed.

Traditional approach

Classical economists introduced the traditional method. Classical is defined as something that has been followed for a long time and function as the basis from which other ideas develop. This approach is studied under five essential divisions as discussed below (Samuels, 2013).

Production

Goods and services used to satisfy human wants and needs are known as bundles of utility. Production refers to the efficiency or instead of creating products and services used to meet human needs and wants. In their production, resources such as labour, land, capital and entrepreneurship are essential. It involves processes and methods applied while transforming tangible inputs, raw materials, partly finished goods or subassemblies and other physical contributions such as knowledge, ideas into finished products and services for consumption by man.

Consumption

Consumption is the process through which human wants are satisfied through the use of goods and services produced. It also relates to the destruction of utility or the use of commodities and services to meet human wants.

Exchange

Goods and services are not only created for direct consumption but also for sale in markets. Hence, the buying and selling of products and services constitute the trade. This exchange may occur between individuals or countries. The transfer of goods results to an increase in the welfare of an individual through the creation of higher utilities for products and services.

Distribution

Distribution is referred to as the process of determining wage, rent, interest and profit. It relates to functional distribution and personal distribution. Personal distribution focusses on the forces behind the distribution of income and wealth among individuals of a country while functional distribution refers to the share of total revenue received. The production of goods and services require land, labour, capital and entrepreneurship. The four factors of production are rewarded for services rendered in the process of creation where the landowner gets rent; the labourer earns wages, an investor receives interests, and the entrepreneur gets to profit.

Public Finance

This area studies how the government gets revenue and how it spends it. Therefore in public finance, public income and public expenditure are examined.

The economic variables show various limitations which largely minimise their capacity to tackle problems of growth and development successfully. While almost every process of growth and development has certain particular aspects, it is after specific experiences that have brought questions as to whether the dominance of specific economic problems as presented by traditional economic models in the days to come is justifiable.

Microeconomics

The approach is the study of decisions that individuals and businesses regarding the allocation of resources and prices of products and services. The method takes a bottoms-up strategy as it tries to understand choices by man and resource allocation for satisfying the decisions made. Taxes and regulations created by the government are taken into account in the study. Microeconomics focusses on demand and supply as well as other forces that determine price levels of goods and services in an economy (Baumol & Blinder, 2015). For example, microeconomics may study how a particular company could maximise its capacity and production, so that its prices are lowered and given a competitive advantage over its competitors. It explores the behaviour of an individual decision-making unit about price fixation and output, and the reaction to the changes in demand and supply condition hence referred to as the price theory. Within this approach, different methods emphasize some expectations and economic behaviour. The most important argument is the neo-classical theory that underlines on free markets and assumes that individuals are rational beings and seek to maximise utility. However, this model is a subject to many critiques who argue that economics is more complicated with issues of market failure and irrational behaviour.

Macroeconomics

Macroeconomics refers to the study of the economy as a whole or all of the decision making units including, individual consumers, households and consuming units put together. For instance, macroeconomics may look at how decrease or increase in net exports affects a country’s capital account or how Gross Domestic Product (GDP) may affect the unemployment levels in a country. Macro-economics studies deal with the economic behaviour of the economy’s aggregate such as gross national product (GNP), total employment, and general price level hence referred to as the income theory (Van Staveren, 2013). Macroeconomics is also known as the price theory as it explains the composition or allocation of total production, why some things are produced more than others and defines the level of overall output and why its levels rise and fall. Macroeconomics attempts to answer questions such as, what stimulates the growth of an economy. Or what should the rate of inflation be?

In conclusion, macroeconomic studies ignore individual welfare and preference. Similarly, microeconomics does not give an idea regarding the functioning of the economy as a whole. What applies to a part or particular economy may not represent the other individual decision-making units. For instance, when studying about one small-scale farmer, a general conclusion cannot be drawn from all other farmers in a country (Clawson & Knetsch, 2013). While the two approaches appear to be different, they complement each other and are interdependent as there are several overlapping issues between both fields. For instance, an increase in inflation which is a macro effect result in an increase in the prices of raw materials for companies hence, transfer the end product and service prices charged to the consumer. Both fields create fundamental tools for economists and should be studied concurrently to fully understand how firms operate and generate revenues that will, in the long run, manage and sustain the entire economy.

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Baumol, W. J., & Blinder, A. S. (2015). Microeconomics: Principles and policy. Cengage Learning.

Clawson, M., & Knetsch, J. L. (2013). Economics of outdoor recreation (Vol. 3). Routledge.

Samuels, W. J. (Ed.). (2013). Economics as discourse: an analysis of the language of economists (Vol. 21). Of pure Springer Science & Business Media.

Van Staveren, I. (2013). The values of economics: An Aristotelian perspective. Routledge.

Walras, L. (2013). Elements economics. Routledge.