Economic statements

Learn economics online

 Secondary economics

NORMATIVE AND POSITIVE ECONOMICS (STATEMENTS) it should be noted that in using the scientific methods to study human behaviour, economists differentiate between normative statements and positive statements.

Normative statements are matters of opinion, belief which cannot be tested or proved with facts. Thus the statement "Education should be subsidized for the poor" is a normative statement. Normative statements usually contain verbs such as should or ought.

On the other hand, positive statements which are mostly used in economies are statements that can be tested or proved with objectives factual evidence to be

correct or incorrect. The statement “A reduction in wage rate will increase the demand for labour'" is a positive one. Thus positive economics is concerned with the analysis of facts or data (“what is") for the purpose of arriving at scientific generalizations. The distinction is important since economics contains a lot of controversial topic areas.

Learn economics online for secondary school students

Mainly for waec candidates.

ECONOMICS AS A SCIENCE

By secondary economics Learn economics onlime

ECONOMICS AS A SCIENCE:

Science is defined as a body of knowledge about our physical world acquired through systematic enquiry and considerable mental efforts. Economics is regarded as a science because it adopts scientific methods or procedures in explaining its phenomena.

For example, just like the pure sciences, economics involves collection of data. After collection and classifying the data, the economist tries to discover Certain uniformity governing a particular class of phenomena. From this uniformity, generalization is made which is called law. The validity of the law or theory formulated can best be tested by applying it to real situation.

Besides, economics has its own laws. For example, the first law of demand states that “ all other things being equal” the higher the price of a commodity the smaller the quantity that is demanded and the lower the price the greater the quantity.

Economics is considered as a science because it uses scientific method in its analysis. The various steps in the scientific method employed by the economist are as follows;

i. Statement of the Problem:-

The economist just like the physical scientist approaches the study of human behaviour as related to production, distribution and consumption by stating or identifying a problem. For instance, the economist observes how human beings behave towards changes in prices of commodities that they buy.

ii. Hypothesizing on the problem:-

The economist then formulates hypothesis or forms an assumed explanation of the problem using what he was able to gather through his observation. For example, when the price of a commodity falls, say rice, more of it will be bought and when the price increases less of it will be purchased , all other things being equal.

iii. Collection of Data on the Problem:- The Economist like the physical scientist goes to the field to collect data on the problem with

the aid of questionnaires and conduct interviews. For example, the economist goes to the market and with the aid of questionnaires he is able to get information from both sellers and buyers about the changes in prices of the commodity he (i.e. the economist) is conducting his research

on.

iv. Organization / Processing of the Data:- The economist proceeds to analyse the data by removing irrelevant materials or information and

classifies them into different categories. The economist processes the data with the view to establishing a relationship between the issues at stake i.e. why consumers buy more rice when

its price reduces and less when its price increases.

v. Theorising or Generalization on the basis of the Data:-

To ascertain the validity of his (the economist) findings, he generalizes his findings by saying that “all things being equal" more of a commodity will be demanded when the price falls and less of it will be demanded when the price rises.

vi. Testing of the theory with the new Data:-

The Economist goes back to the field to collect new data on the problem and have them re- tested. If the theory is confirmed then he can make a generalize statement that if the price of rice falls consumers will buy more, assuming that prices of other related goods remain the same.

vii. Predicting on the basis of the theory formulated:—

On the basis of the theory, the Economist like the physical scientist proceeds to predict into the future by saying that a firm should expect to sell less if it should increase the price of its goods and services if prices of other goods do not change.

Limitation of Economics as a Science:-

Economics as a social science has certain problems or limitations. One is that, controlled or laboratory experiments cannot be under taken. A controlled or laboratory experiments are experiments in which a single factor affecting the result can be excluded in each experiment. Unfortunately, human beings who are the subject matter of economics cannot be subjected to controlled or laboratory experimentation. This makes it difficult for economics to link cause and effect. However, to overcome this problem, economists make certain assumptions that human beings always act rationally. Thus most economics statements are preceded by the phrase, ceteris paribus,’ that is “all other things being equal”. For instance, quantity demanded will increase when price fails, when other factors such as future changes in price are held constant. It means that economists do not make sweeping generalisation or statements which may not be

accepted universally.

Another problem is that. it is more difficult to make predictions about human behaviour than in the animal sciences. The reason is that individuals react or behave differently to identical conditions at different times and places. For instance, when the price of a good falls, quantity demanded by some consumers will rise whilst that of others decline. However, it is still possible to determine group behaviour though individual behaviour cannot be easily determined. Thus because the reaction of groups of individuals to certain conditions or events is more stable, extreme behaviours by groups cancel each other out 

Conclusions or theories are not as rigid as in the natural Sciences. Economics is then seen as a “soft” or “inexact” sciences as against the “hard” physical sciences. 

By secondary economics
Learn economics online.

definition of economics

DEFINITION OF ECONOMICS


Adam Smith (1776) who is referred to as the ‘Father of Economics’ and division of labour and specialisation defined it as “an enquiry into the nature and causes of the wealth of nations”. According to the Smithian definition of economics, the discipline deals with the study of how man uses his scarce resources to produce goods and services. This is because wealth is produced with resources. Adam Smith was mainly interested in the production of more goods and services which could generate wealth without regard to their distribution. His definition was

therefore considered not satisfactorily adequate and had to be improved upon by John Stuart Mill.

John Stuart Mills (1943) whose definition was adopted by the Oxford dictionary had it as “The practical science of production and distribution of wealth” Mill’s definition went a step further by including the problems of production and distribution.

Davenport also defined economics as “the science that treats phenomenon from the standpoint of price”. This definition implicitly talks about production and distribution because prices are yardstick for distributing scarce goods and services and scarce resources.

According to Alfred Marshall (1890), economics is “the study of mankind in the ordinary business of life". The Marshallian definition is based on also production, distribution and consumption of goods.

Secondaryeconomics.blogspot.com


All the above definitions fail to take cognizance of the concept of scarcity. Failure to emphasise the fact that economics deals with the utilisation of our scarce resources to satisfy our multiple wants. In addition, the definitions fail to acknowledge the fact that production is affected by efficient allocation of scarce resources in the face of unlimited wants.

Despite these numerous definitions, the most widely accepted and established definition of economics was the one given by Professor Lionel Robbins (1835).

Robbin’s Definition: According to Robbin’s definition, economics is “a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.

. This definition is more embracing because it incorporates the most fundamental human problems such as scarcity and choice. In case of examination, this definition should be quoted

Note: Economics is the study of the efficient use or management of relatively scarce resources in the production of goods and services to achieve the maximum satisfaction of unlimited human wants. The word “resources” is used differently at three levels.

1 At the level of the individual, resource essentially refers to money or cash.

2  At the level of an organization or firm, resources refer to land, capital, labour and  enterprise.

3 At the level of a nation or state, resources again refer to land, capital, labour and enterprise. '

Robbins’ definition lays emphasis on the basic concepts of economies which are explained below.

HUMAN BEHAVIOUR: The aspect of human behaviour that an economist studies is economic activity. It is human.

beings who undertake the economic activities like production of goods and Services (wealth) of ‘ the country, the distribution of these goods and services and the consumption of goods and ' services.

Since human beings are variable in their behaviour, economic activities are subject to variations ' and for that matter the economist studies their behaviour as well. The economist observes how ‘ the behaviour of individuals, firms and the government affect the economic system. ,

ENDS: Ends are our goals, aims, objectives, wants or needs that we have set for ourselves. One

characteristic of ends is that they are many and keep on increasing; as soon as one is provided .

another one emerges. Ends are therefore said to be unlimited.

1 An individual’s ends are unlimited and insatiable and may include purchasing a car, ' house, television set, radio, refrigerator etc.

2 The ends of firms may be to produce shoes, detergents, cars, electric cookers etc.

3 Similarly, the ends of government may be to provide hospitals, electricity, water, schools etc. for the people.

The needs or wants of consumers, producers and government are therefore difficult to satisfy because the resources to produce them in large quantities to satisfy everybody are scarce or limited in supply.

SCARCE MEANS: Means are the resources like machines, tools, land, labour, time and money etc. which help in

the production of goods and services to satisfy human wants. The more we have these means or resources, the more we are able to produce goods and services and hence, more wants can be satisfied. But this is not possible because we have only scarce or limited resources available with which to produce the goods and services we want. Since our wants are many or unlimited, but the resources to produce them are limited in supply there is the need to make a choice from the alternative resources that we have.

Scarce means therefore refer to our limited resources relative to the needs of an individual, a firm or governments to satisfy our many wants. Resources are scarce in the sense that there is a shortage but in sense that their supply is limited. There may be plenty of goods for sale but people may not have enough money to satisfy all their wants. This (i.e. money) in relation to our wants (goods) are scarce.

ALTERNATIVE USES:

Economic resources are scarce and therefore cannot satisfy all our wants. There is the need to choose from the alternative that we have. Economic resources have alternative uses because they can be used to produce many different kinds of goods and services.

If some of these resources are used for the production of one thing then people must forgo the output of the other things which might have produced. For example, if we use resources (i.e land) to plant cassava then the real cost of the cassava farm is the output of yam, plantain, or vegetables which have been sacrificed in order to produce cassava.


by secondary economics.

Learn economics online.