BASIC CONCEPTS OF ECONOMICS AND MEANING, students should be able to understand the scale of preference. importance of opportunity cost, concepts of economics, definitions of economics as put forward by the fathers of economics Explain the meaning of economics Explain the basic concepts, Relate the basic concepts to their day-to-day experiences, Explain the branches of economics and reasons why we study economics

meaning of economics


The subject Economics has no specific definition. It has been defined in many ways by various economics as a social science which studies human beings and their behavior. Some of the definition given by the experts in the subjects is:

Alfred Marshal defined economics as “A study of mankind in ordinary business of life. This definition simply emphasizes that economics have something to do with the study of human beings in relations to their daily economic activities

Adam Smith saw it as “an inquiry into the nature and causes of wealth of the nations.” To him economic is all about making wealth. Adam Smith was the first to put a work together on economics by writing a treatise, “Wealth of nation” he is popularly regarded of the Father of Economics.

John Stuart Mill viewed it as “The practical science of wealth distribution.” To this man, economics is concerned with how people produce and distribute various goods and services that are required for the maintenance of human existence.

H.J. Davenport looked at economics as the science that treats phenomena from the stand point of price. This definition stressed the importance of exchange and seeks to explain that economics deals with things that have a price value, which implies that for any goods or service to be of any economics importance, it must have a price attached to it.

A.C Pigou defined economics as the science of materials welfare. To him economics is all about acquiring material wealth which improves or eases the welfare of human beings. From the above explanations, it is very clear that there are many definitions of economics. In fact, it is often said that there are as many definition of economics as there are economists.

However, the most generally accepted definition of economics is the one put forward by Professor (Lord) Lionel C. Ribbions. He defined economics as “The Science which studies human behavior as a relationship between ends and scarce means which have alternative uses”. This definition is all embracing because it covers some major aspects of economics such as scarcity, wants, human behavior and choice. The ends in the definition refer to human wants, desires or needs. Human wants are numerous or many relative to available resources required to satisfy them.

The scarce means refers to the limited available resources used in satisfying the numerous human wants. In other words, the resources required to satisfy human wants which are referred to as the ‘means’ are scarce or not many, relative to their demand. The alternative uses in the definition means that these scarce resources can be used for different purposes. In other words, the more pressing needs have to be satisfied first, leaving others that are less important.

In summary, human wants or ends are usually many, relative to available resources or means of satisfying them. Therefore, choice has to be made in order to maximize or get the best out of the available scarce resources to meet the various economic ends. As a result of scarce resources, human wants can be arranged in order of preference. These scarce means or resources can be used in different or alternative ways to satisfy human wants. 


Economics belongs to a group of subject called social sciences. Other social science subjects are sociology, geography, psychology, government, political science, religious studies, anthropology and philosophy.

Economics is regarded as a social science because it studies human behavior. For example, is the price of a commodity rises, people will buy more, all things being equal?

Economics is also concerned with human behavior, such as how people in the process of buying and selling. Economics as a social science subject is also concerned with the study of firm or companies and the government which is responsible for the provision of goods and services for its people in order to satisfy their wants.

Economics is also regarded as a science because it adopts the scientific method. The scientific method involves the following:

  • Observation
  • Formulating a hypothesis
  • Collection of data
  • Organizing or analyzing the data
  • Formulating laws
  • Testing the laws
  • here is a post on principles of science
  • Prediction on the basic of the laws

Even though economics is often regarded as a science subject, it does not assume the same level of precision and accuracy as any of the natural pure or physical and biology. This is because economics deals with human behavior, which is very complex and changes from time to time depending on the circumstances. 


The basic concepts or elements of economics are wants, scarcity, scale of preference, choice and opportunity cost.

  1. WANTS, Definition: Wants may be defined as insatiable desire or need by human beings to own goods or service that give satisfaction. The basic needs of man include: food, housing and clothing. Human needs are many. They include tangible goods like houses, cars, chairs, television set and radio, while the others are in form of services, e.g. tailoring, carpentry, and medical. Human wants or needs are usually described as insatiable because the means of satisfying them are limited or scarce. SCARCITY

Definition of scarcity in economics as a concepts of economics:

Scarcity is defined as the limited supply of resources which are used for the satisfaction of unlimited wants. In other words, scarcity is inability of human being to provide themselves with all the things they desire or want. These resources are scarce relative to their demand.

As a student, you will need to buy school materials, e.g. exercise book worth #100.00 but you have only #50.00.It can be seen that the money you have (#50.00), which is your resources, will not be sufficient to buy all you need the available resources within the environment can never at any time be in abundance to satisfy all humans wants. Since wants are numerous and insatiable relative to the available resources, human being have to choose the most important ones and leave others that are less important. There would be no economic problem if resources were not scarce; hence economics is sometimes defined as the study of scarce, hence economics is sometimes defined as the study of scarcity

Why is Scarcity a Fundamental Problem in Economics?

Economics seeks to study the relationship between ends and means. Ends are unlimited while the means are limited. Scarcity simply means resources are limited in relation to the ends. Economics is therefore concerned with allocating limited resources among the competing and unlimited wants.

How do governments solve the problems of Scarcity?

Governments are faced with the problem of allocating scarce resources among competing unlimited wants. In doing this, government draws a scale of preference which helps them to choose or select the most important want to be satisfied. In making choices, you forgo some other wants. The forgone wants are the opportunity cost or real cost of the selected alternative.     


Definition: Scale of preference is defined as a list of unsatisfied wants arranged in the order of their relative importance. In other words, it is a list showing the order in which we want to satisfy your wants arranged in order of priority. In the scale of preference, the most pressing wants come first and the least pressing ones come last. It is after the first in the list has been satisfied that there will be room for the satisfaction of the next. Choice therefore arises because human wants are unlimited or numerous, while the resources for satisfying them are limited or scarce. For example, Mr. Babatunde, a trader who has only N10,000.00 wants to buy a pair of shoes , shirt, cap, fan , stove and pressing iron as shown below

The table above represents Mr. Babatunde’s scale of preference; he has carefully arranged all numerous wants in order of priority. Since Mr. Babatunde has only 610,000.00, he can only purchase a pair of shoes, shirt, cap and fan. Because his resources (610,000.00) is limited, he has afford based on his resources.. read purchasing power here

Importance of Scale of Preference as a concepts of economics

scale of preference is important in the following ways to economic activities and planning

Ranking of needs:  Scale of preference helps us to rank our needs or wants in order of their relative importance.

Financial prudence: Scale of preference does assist in managing our finances properly

Identification of highest priority: Scales of preference assists individuals to identity quickly the most importance needs among others.

Rational choice: Scale of preference assists individuals, firms and governments to make rational choices in the list of wants.

Efficient utilization of limited resources: Scale of preference also helps individuals to make efficient utilization of available resources

Optimum allocation of resources: Scale of preference facilities optimum allocation of resources

Maximization of satisfaction: Scales of preference enables economics agents to maximize their satisfaction


Definition: Choice can be defined as a system of selecting or choosing one out of a number of alternatives.

Human wants are many and we cannot satisfy all of them because of our limed resources. We, therefore, decide which o the wants we can satisfy first. Choice arises as a result of numerous human wants and the scarcity of the resources used in satisfying these wants. Choice therefore arises as a result of scarcity of resources. Since it is extremely difficult to produce everything one wants, choice has to be made by accepting or taking up the most pressing wants for satisfaction based on the available resources.  


Definition of opportunity cost: Opportunity cost is defined as an expression of cost in times of forgone alternatives. It is the satisfaction of one’s want at the expenses of another want. It refers to the wants that are left unsatisfied in order to satisfy another more pressing need. Human wants are many, while the means of satisfying them are scarce or limited. We are therefore; faced with a problem where we have to choose one form a whole set of human wants; to choose one means to forgo the other,

a farmer who has only two hundred dollars (200.00) and want to buy a cutlass and a hoe may discover that he cannot get both materials and item for two hundred dollars. He would therefore have to choose which one to buy with the money he has. If he decides to buy a cutlass

it means he has decided to forgo the hoe. The hoe is thus what he has sacrificed is the forgone alternative and this is what is referred to as opportunity cost should not be confused with Money cost refers to the total amount of money that is spent in order to acquire a set of goods and service.

For example, a customer who spent 6,200.00 to buy a pair of trousers has dispensed with cash. The 6,200.00 spent is the money cost.  

Importance of Opportunity Cost as a concepts of economics

Opportunity cost is very important to individuals firms and governments. importance of opportunity cost To individuals Wise choice: Opportunity cost enables individual to make wise choice between competing wants.

Efficient use of scarce resources: It also assists individual to make maximum use of scarce resources relative to their unlimited wants.

To the firms

Rational decision: It assists the firm to make rational decisions about production process.

Techniques of production: It also helps manufacturing industries in deciding the techniques of production, i.e. whether to adopt capital or labour intensive method of production.

To the government

Preparation of budget: Opportunity cost helps the government in the preparation of budget, since it assists in efficient allocation of scarce resources to certain sectors of the economy.

Decision making process: It helps the government in making certain decisions, e.g. the priority areas that may require immediate attention, such as medical and education


We study the subject Economics for the following reasons:

  1. Allocation of resources: The study of economics enables the government to allocate scarce resources to various sectors of the economy.
  2. Development of programmes: It also enables the government to develop certain programmes that are beneficial to the people.
  3. Rational decision: Economics enables the individuals to choose certain wants among the numerous needs using their scarce resources.
  4. Preparation of budget: Economics assists the government to determine the expected income and expenditure of a country.
  5. Solutions to economic problems: Economics also enables individuals, firms and governments to solve their problems using various principles of the subject.
  6. Production: The study of economics assists us to determine what to produce, when to produce, factors of production and how to produce goods and services required to satisfy human wants.
  7. Provision of basic tools: The study of economics provides basic tools for analyzing economic problem among individuals, firms and governments.
  8. Maximization of profits: Economics enables traders and businessmen to maximize their profits using economic principles in their business.
  9. Consumption of commodities: Economics also assists us to determine the pattern of consumption of goods and services in our local environment.
  10. Satisfaction of wants: The study of economics helps us to utilize the principles of choice, opportunity cost, scale of preference, etc. in order to satisfy human wants.
  11. Participation in government: The understanding of the subject economics does help individuals to participate actively in the art of governance.

  2. loans for businesses
  3. how to establish enterprises
  4. what is a firm
  5. price equilibrium
  6. scale of preference
  7. concept of economics
  8. economic tools for nation building
  9. budgeting


  1. Scarcity as a basic economy problem can only be solve if human being as an element of economics study can efficiently allocate scarce resources.