Saturday, 11 March 2017

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What do you mean by Economics? Definition Explained. Scarcity and Economic Problems

Welcome to the very first article of the family and the world of Economics, commerce, business.. and the list continues. Starting it all with the economics. Economics is all about management of resources whether natural, financial or man-made resources. Have you ever wondered why price and demand are inter related? Why increase in price affects the demand and supply of goods? Why do nations always worry about theirs and world’s economy? And most important of all, what is economy?
You’ll gradually get answers to all these questions once you step into this discussion round – What is economics!!

Definition of Economics in simplest terms – What is Economics?

Economics is derived from two words “okoies” and “nemen”. Okoies means household and nemen means management, which means "household management" or "management of house affairs" -i.e., how people earn income and resources and how they spend them on their necessities, comforts and luxuries.

As we have read earlier, in simplest terms, economics is management of resources. Now question arises what are resources &types of resources and what’s management? Or is there really any need to manage the resources?
The answer is yes! Let’s find out answer to each of these questions one by one.

Talking about resources, they are any product or anything that can be utilized by man to satisfy their wants. They may be natural resources, capital resources i.e. financial or human resources i.e. people!!
In brief let’s understand them all. Natural resources are resources or things provided by nature to us. They can neither be created nor be destroyed. However, man can do anything!! :-P

Why Study Economics? – Need of Economics

They are land, water, air, soil, minerals etc. Man uses these natural resources to satisfy their wants. Since, these resources are limited in number, it is advised to use them judiciously. It implies that a proper management of these resources is required so that optimum utilization of these resources could take place. And here arises a need to study economics!!

Now, considering financial or capital resources. Now I suppose, we all are aware of the term funds, finance or loans. Every businessman is never self -Reliant when it comes to arrangement of funds for their business. They depend upon people, financial institutions say banks and in case lucky enough, then on relatives. Jokes apart, every business requires funds to operate. Businessmen takes loans and issues shares to procure funds for their businesses. The money, so borrowed is utilized by them to procure raw materials, machines, hire labor and paying remuneration and conversion of raw materials into finished product and so on. Thus, such resources are called financial resources.

Since, matters related to money require special consideration, therefore an effective management of funds is must. They include money and money market instruments like shares, debentures, loans and advances from banks etc.

Last but most important of all human resources. As the name suggests, human resources means people. The technical expertise and intellectual skills possessed by an individual is used in business to make it more creative and effective. How people are employed, how their skills are used in business constitutes human resource management. Coming to management, management is an ability to organise and co-ordinate different resources (natural, financial & man-made) to derive maximum output with minimum wastage.

>>Economics is management of resources.

Economics Explained by Lionel Charles Robbins- The Definition via Scarcity

 By far we have discussed, what are resources, different kinds of resources, & what is management? We have learnt that economics is management of resources. But, the question arises, is there any need to manage resources? Of course there is a high need to manage resources! Let’s understand this concept via scarcity definition given by a famous British economist Lionel Charles Robbins!!

Robbins proposed a scarcity definition in his book “an essay on the nature and significance of economic science” in 1932. He meant that “economics is a science which studies human behavior as a relationship between ends and scare means which have alternative uses.”
Phew!! Too big!!

Let’s extract its meaning in short. According to him, economics studies economic problem!

What causes Economic Problems?

Something worth discussing! Let us have a look at it!
1.   Human wants are unlimited & Recurring.

It means that human wants are unlimited and all wants cannot be satisfied. As we satisfy one want, its place is taken by others wants. Secondly, it is recurring in nature. When one want gets satisfied, it emerges again after a certain period of time. That’s why it is recurring in nature. There is one more reason because of which it is impossible to satisfy wants i.e. increase in population.

2.   Resources are limited.

Anything which adds utility or satisfies human wants is known as resource. Resources are of many types. - Natural or man-made, renewable or non-renewable, etc. because wants are unlimited and resources are limited, it creates economic problem. If resources would have been unlimited, there would not have been any economic problem. This problem of scarcity is the MOTHER OF ALL ECONOMIC PROBLEMS.

3.   Resources have alternative uses

Resources are not only limited but they can be used for different alternative uses, which makes them more scare. A limited resource is being demanded for different uses. For example- land is a limited resource. A single piece of land can be used for various purposes like agriculture, construction, industries, grazing land etc. now, one has to make a choice among so many different alternatives which leads to the best utilization of a resource.

I understand you are confused. Let’s Study What is Scarcity?

Scarcity, literally means shortage of a thing or insufficiency in supply!!
The term scarcity is used in economics in relative term and not in absolute form. In relative sense, scarcity is determined in relation to demand of a product. Economically, what is demand shall be covered separately in later articles!! In brief, demand is the amount of a thing or a good that a consumer(s) will want to purchase at a given price.

Scarcity dos not necessarily mean shortage of goods. Sometimes, a commodity may be available in small quantity but if nobody demands, it is not scare. Therefore, non-availability or shortage of a demanded good leads to scarcity, causing problems in economy!

Since We can neither create resources nor can destroy. It’s solely our responsibility whether to utilize them optimally or to waste them. Similarly, human wants are unlimited. True enough, we are never satisfied! Fulfillment of one want leads to emergence of another.

For example, if a business earns a profit of 20% on its turnover, say sales, its next target will be to increase such profit by 30%, 40% or may be a higher no; which actually means, that the business needs to increase its productivity, thereby leading to more investment in raw materials, labor, machine & equipment, marketing (promotion of a product to boost sales) and for all this it needs funds!!

Now, what conclusion can you draw from this instance?

The fact is, to satisfy these wants, a business will have to procure various resources – natural (raw materials), human (hire labor) and financial (funds) resources! And just imagine, number of business houses flourishing with such motive in one city, state, country or in the world as a whole and none producing these resources ! Obviously, nobody can!! This was my point that available resources to satisfy human wants are limited but, being humans, our wants are unlimited, which leads to problem of scarcity!! 

Technically called, problem of scarcity, problem of economizing of resources or Economic problem!!

The Last Thing for Today - Economizing of Resources

As resources are limited and wants are unlimited, it is very important to use the available resources in the best possible or optimum manner. So that there should not be any wastage of the resource. This process is known as economizing of resources.

Well that was all for today! We will continue with some further topics in our next article. Stay Tuned. And stay tuned to the Buzz.


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