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A Brief Introduction to Economics: Basic Concept and Definition

Updated on September 8, 2012
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Basic Concept and Introduction

Whenever a baby born in this world he/she has needs so many things to survive in this world such as sunlight, water, air (oxygen), milk, food, clothings and shelter (housing) etc. some of these requirements are met freely (free of cost) like sunlight and oxygen etc because these are available in abundance. These type of wants are 'Non-economic Wants' in Economics. But, to meet some other requirements ( like milk, food, clothings and shelter (housing) etc) one has to pay something in exchange. One has to pay a price for these scarce resources in terms dollars (currency), other goods & resources (for barter or exchange) or may has to render some service in exchange. Thus these types of requirements or wants are called 'Economic Wants' in Economics. Therefore, the Economics studies that how the people meet their Economic Wants through managing these Scarce Resources.

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Definition of Economics

As discussed earlier that Resources are scarce and a man has to pay something for meeting his/her needs to get these Scarce Resources. So, Economics studies that how a person manages the scarce resources to get maximum utility (satisfaction). Economics is Social Science Which Studies Human Economic Behavior. By human Economic Behavior, hereby, we mean the behavior of human beings which they adopt to fulfill their economics wants.

The Resources in this world are scarce so people have to make the rationale decisions (choices) to manage and utilize these scarce resources. So, Economics often termed as the science of scarcity and choice. One thing should also be made clear that the scarce resources have multiple (alternate) uses and man has to decide (make choice) about the optimal use of these resources. In context of 'Scarcity and Choice' Robins defines the term Economics as below,

"Economics is a Social Science which studies human behavior as a relationship between multiple ends and scarce resources which have alternate uses."

In this definitions three terms are used: (i) Multiple Ends i.e wants are unlimited, (ii) Scarce Resources i.e resources are scarce and (iii) Multiple Uses i.e. the resources have multiple uses.

Consequently, we can say that Economics studies human behavior that how he meet his/her unlimited wants and desires through managing his/her scarce resources and by making optimal choice about best use of the resources among their alternate uses. There the concept of preference is developed that to manage multiple wants from limited (scarce) resources he/she has to preferential about the choices. He/she may prefer his/her one want or desire over other then first he/she may fulfill his/her more preferred choice first because of the Scarcity of resources.

Introduction to Economics - Video Lecture

Economics is a Sience of Wealth

Another definition of Economics which is most commonly used is derived from concept of the Adam Smith(the Founder of Modern Economics) is,

"Economics is science of wealth which studies that how the wealth is produced, how it is consumed, for whom it is produced and how it is distributed."

According to this definition, Economics studies,

  1. Production of Wealth
  2. Consumption of Wealth
  3. Distribution of Wealth

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Factors of Production

Here the concept of the 'factors of production' arises. There are four factors of productions i.e (i) Land (ii) Labor (iii) Capital & (iv) Entrepreneur (Managers). So, wealth is created (produced) using these four factors of productions and then distributed among these accordingly. The shares of above mentioned four factors are (i) Rent (ii) Wage (iii) Interest & (iv) Profit respectively. Nowadays the Technology is also also considered as a factor of production.

© 2012 Ghualm Mohey-ud-din

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    • Redberry Sky profile image

      Redberry Sky 4 years ago

      This is a fantastic explanation of the basics of economics (something I seem to barely grasp, looking ruefully at my bank balance). There's quite a lot to take in and understand, but it's something I need as a background to some of the history modules I'll be taking on my Masters course in the next few months, so I'll be returning to your article to try to grasp the concepts better. Voted up and across, and thank you for the help this article provides.

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      Ghualm Mohey-ud-din 4 years ago from Lahore, Pakistan

      Thanks for your suggestions Redberry Sky! I am planning to update it in near future but can't do this immediately due to my very tough schedule these days.

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      falak khan 3 years ago

      can u plzz tell me about rational think at margin????

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