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ECONOMICS AS A SCIENCE; ECONOMIC SCARCITY, CHOICE AND OPPORTUNITY COST

Updated on March 3, 2011

ECONOMICS AS A SCIENCE; ECONOMIC SCARCITY, CHOICE AND OPPORTUNITY COST

Economics is regarded by many economists as a science. This fact is even seen in the definitions of John Stuart Mill, Davenport and Professor Lionel Robins. In the light of this, it will be appropriate to discuss the view that economics is a science.

Science may be defined as knowledge acquired by observation and testing of fact in an orderly manner. Economics is regarded as a science because it uses certain methods, which methods are also used in the physical sciences such as physics and chemistry, in explaining and observing a phenomenon. Economists observe economic events; attempt to find patterns in them; formulate theories about them, test their theories and finally apply them.

The economic theorist firstly, observes the event about which a theory is to be constructed. The economist does this by collecting the relevant data about a phenomenon. Government agencies, business firms, questionnaires are some sources and means by which data could be obtained.

The economist then tries to find consistent relationship in the data they collected. This is done by organizing and analyzing the data. The relationship discovered, enables the formulation of economic theory, which if it is to be useful, explains certain types of economic event. An economic theory is a generalization, based on a variety of facts, about why or how an economic event occurs.

The theory formulated needs to be tested. This is to ensure that additional data does not contradict it. A generally accepted economic theory can be used to predict the outcome of specific economic events. The law of demand is an example of an economic theory. It states that as the price of product falls, the quantity demanded of the product rises, other things being equal. It could therefore be presumed that if the price of shoes falls, ceteris paribus, people will buy more shoes.

Economics, though a science, is considered a social science. This is because it studies human behavior. Economics is also a positive science because it says things as they are and not what the y ought to be. Economics is not as accurate, in terms of its conclusion, as the pure sciences. This is because economics deals with human behaviors which to some extent are unpredictable.

ECONOMIC SCARCITY AND CHOICE

Economic scarcity means limitedness of resources in supply relative to the demand for them. There is scarcity of all resources – land, capital, labor and enterprises. This means resources are in quantities smaller than the demand for them. Due to the problem of scarcity, goods an services needed by human beings to satisfy our numerous wants are relatively scarce. This is because society can only produce limited amounts of goods and services with the limited resources.

The resources, however, though scarce, have alternative uses and can be combined in various proportions. With the alternative use to which scarce resources can be put, choices must be made. Scarcity therefore gives rise to choice.

CHOICE

Choice may be seen as the act of selecting from alternatives. If resources were used for only one purpose, there will not be any choice decision-making by the individual, firms, and governments. At all levels of choice decision-making, a scale of preference could guide one to make the best choice. This is an arrangement of needs (wants) of the individual in order of importance or priority, with the most pressing needs on top of the scale of preference.

OPPORTUNITY COST

The significance of scarcity, has been emphasized so far. Because of scarcity, choices are necessary. In making a choice, some alternatives are forgone. Economists use the term opportunity cost to mean the cost of a specific choice measured in terms of the next best alternative choice. In other words, it is what the decision maker must forgo in order to make the choice that is finally made.

The opportunity cost of doing or choosing one thing over the next best alternative is the forgone benefit the alternative would have provided. Another term for opportunity cost is “real cost”. Opportunity cost generally does not involve money a money payment; it simply represents an opportunity given up. The concept of opportunity cost, in fact, emphasizes the problem of scarcity. For instance an individual may have limited income of $100. This consumer may want to buy a pair of shoes or a shirt, both of which cost $100 each. Due to the limitedness of his income, he cannot buy the two; he has to choose one. His choice, however, depends on his scale of preference. If he chooses to buy the pair of shoes, the opportunity cost is the shirt forgone.

The concept of opportunity cost presupposes that if the consumer technically can buy the two goods but chooses to buy one, there is no opportunity cost. In the example above, if the consumer had $200, he could buy both goods. If he decides on only one, it only means he did not like the other. The opportunity cost would be some other commodity.

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      Laiba Khatri 3 months ago

      This answer wouldn't show that what is the question

    • profile image

      nomatter 4 years ago

      Thank you for the info hey

    • Chrisagbe profile image
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      Chrisagbe 6 years ago

      Andrew, great to know that. Let's talk then.

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      Andrew Zanegin 6 years ago

      Your penchant for economic theory (I am that kind of person too)makes me believe that you'd be interested to visit andrewzanegin.hubpages.com

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      Elizaberth 7 years ago

      L want to know how scarcity affect human ?

    • Chrisagbe profile image
      Author

      Chrisagbe 7 years ago

      Thank you very much DeBorrah K. Ogans for your kind observations and for passing by. Stay blessed.

    • DeBorrah K. Ogans profile image

      DeBorrah K Ogans 7 years ago

      Chrisagbe, Interesting perceptions... You have certainly given us something to think about in regards to economics, science, scarcity, decision making and opportunity...

      Thank you for sharing, Peace & Blessings

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