ECONOMICS As LEVEL(FORM FIVE) NOTES – THE SUBJECT MATTER OF ECONOMICS

Is the process of using goods and services to satisfy wants.

Are things that are produced by the factors of production like land, labor, capital e.t.c. and are consumed by man to satisfy his wants. It involves goods and services.

Production:Is a creation of goods and services for personal consumption or use.
OR
Is a process of making goods and provision of services to satisfy people’s needs or wants e.g. Giving crops for food, building houses.

Wealth

Refers to the country’s stock of resources and goods that can be used to satisfy wants.

A country’s wealth consists of stock of resources and goods that can be used to satisfy wants. It includes; machines, buildings, and human skills.

In economics, wealth refers to all goods which possess the following qualities;

They must have satisfaction (utility).
They must be scarce.
They must have value.
They are capable of being transferred or exchanged.

Refers to the tangible things which satisfy human wants. Goods are categorized in the following ways;

Free goods and Economic goods. Those free goods are provided free by the nature Eg Air, rain, ocean water.
Private goods and public goods.
Intermediate goods and final goods.

Welfare

Refers to the level of satisfaction that a person or group of people derives from the consumption of goods and services.

WELFARE ECONOMICS:The study of the impact of the pattern of resources allocation on society’s well being(or welfare)

Economist are able to judge whether the existing arrangement about

(a)the methods of production
(b)the type and quantity of goods and services produced and consumed
(c)the relative share of goods and service going to each household,are satisfactory.

EFFICIENCY: Pareto efficiency–a situation in which it is not possible to make someone better off without making someone else worse off.

EQUITY:Equity is concerned with the treatment of different individuals or groups in society.

MARKET EQUILIBRIUM:Exist when the price and quantity of a commodity match both consumers and producers.
In this case the quantity demanded and supplied are equal and the market clear.

MARKET DISEQUILIBRIUM:Exist when the price and quantity of commodity fail to match consumers and producers expectation.

Goods: – These are things which can satisfy human wants like clothes, cars, houses etc.

Goods are classified as follows;

Free goods:

These are goods which are provided freely by nature. E.g. Air, sunshine, rainfall, ocean water and forest.

Features of free goods

They are not scarce i.e. they are abundant.
They are not produced by human effort, hence are provided freely by nature.
They are not transferable in terms of its ownership.
They lack exchange value.
They possess utility

ECONOMIC GOODS

These are the goods produced by human efforts and posses the following qualities;

Quality of Economic Goods

They have utility, i.e. ability to satisfy wants/needs.
They have exchange value, i.e. they can be bought
or sold.

(iii)They are transferable in terms of ownership from one person to another person.

Thus Economics is concerned with economic goods and not free goods because production in Economics is for exchange for which the economic goods possess value.

Consumer Goods– These are goods produced for final consumption or use such as food, radio, clothes, furniture etc.
Producer Goods-These are goods which are produced to assist in the production of other goods. They are also known as capital goods. Producer goods include; machinery, raw material, workshop, building etc.

Perishable Goods : These are goods which can easily be destroyed or spoil like food stuffs e.g., milk, meal, fruits, vegetable etc.

Durable Goods: These are goods which can last or stay for a long period of time without being destroyed or damaged such as buildings, machines, furniture etc.

Private goods: Are goods owned by individuals for example private car, clothes, houses etc.

Public goods: Are goods owned and enjoyed by all individuals in the country. For example roads, defense etc.

Feature of Public Goods:-Non divisibility i.e., provided in totality to the public.

Non rivalry i.e., ther
e is no competition of consumption. One person can consume extra units without reducing consumption of others.

Intermediate goods:– Are goods in progress e.g. raw material.

Final goods:- Are goods ready for consumption.

Normal Goods:- Are the goods for which their demand increases when the real income of the consumers increases while their demand decreases when income of consumers decreases.

Inferior Goods:- Are goods which the demand of the goods by the consumers decreases when real income increases.

PRODUCTION

Is a creation of goods and services for personal consumption or use.

Economists define production as a process of creating goods and services for exchange i.e for sale in order to satisfy people’s needs.

Is a creation of utility. Utility means the level of satisfaction a consumer derives from consuming a certain unit of goods and services.

Economics Activities:

Prof. Marshall defined all activities concerning with the earning and spending income (wealth) such as-; the activities of farmers, labor, shopkeeper, teachers, doctors and advocates. Thus all activities which are done with view to earn income are called Economic activities.
NON ECONOMIC ACTIVITIES:

Refers to all activities which do not have the earning of wealth as their nature. E.g. .playing football for health reasons, singing by mothers, teachings by a teacher to his own children, etc.

SCARCITY

Means limited in supply or less than that what is required or needed.

CAUSES OF SCARCITY.

Limited stock of resources.

Resources are limited in number therefore it is not possible to produce enough goods and services to satisfy all wants.

Unlimited wants.

Wants are unlimited in number therefore resources available cannot produce enough goods and services to satisfy all wants.

Alternative uses of the available resources.

E.g, same land can be used to grow beans, rice or other uses such as land for construction of buildings.

Resources are normally scarce and therefore you have to choose from the few alternatives to satisfy the needs.

Producers – chooses what goods to produce.

Consumers – Decides which wants/needs they require.

SCALE OF PREFERENCE:

Is a list of all wants in an order to their importance such that that the most important wants are kept first on the list followed by the less important wants.

OPPORTUNITY COST.

The true cost of producing an additional of goods or services in their value of goods or services that must be given up to obtain. E.g. A student may have two alternatives of her/his evening time to do homework and the alternative is to play football.
If he/she chooses to play football, the opportunity cost of playing football is the homework.

EXCHANGE

Refers to the process of selling or buying of goods and services to government to guarantee wealth (income).

MORE IMPORTANCE TO WEALTH DEFINITION

The definition gave too much importance of wealth and ignored human welfare and moral values. Because of these weaknesses, Adam smith’s definition of economics could not be accepted.

2. WELFARE DEFINITION:

According to Marshall in his book titled “principle of Economics”. Defined economics is the study of man in ordinary business of life. It examines that part of individual and social actions which is closely connected with the attainment and the use of material requisites for well being.

The main features of Marshall’s definitions are:

CRITICISM

Strongest attack on Marshall’s Definition comes from Prof. Robbins. The main criticisms of Marshall’s definition are;

i. The concept of welfare cannot be defined exactly.

ii. In economics we study a number of such activities which cannot be regarded goods from welfare point of view E.g. war, production of home etc.

iii. Economics do not have appropriate scale of measurement by which welfare can be measured.