Meaning Of Economic Concepts II SS1 Economics Lesson Note

BASIC CONCEPTS OF ECONOMICS

1. CONCEPT OF HUMAN WANTS

Wants refers to numerous goods and services which are desired for consumption.

In economics, wants are what we are interested in having but without money or willing to part with money to have it then. 

They could be in the form of tangible goods or services. Tangible goods include goods, houses, television etc; or services such as a driver, cobbler, actor, legal or medical services.

Human wants are insatiable, because the means of satisfying them are limited. i.e. scarce 

Wants are also called ends, desires, aims or objectives.

2. SCARCITY

In economics, Scarcity is defined as Limited in Supply, that is to say, all things being scarce or limited in supply about the demand for them.

This means that before we say something is scarce, we must compare the available quantity with the present level of demand for it based on the available resources.

Goods and services for sale may be plenty but these in an economic sense are still scarce as long as people do not have enough money to satisfy all their wants.

So, Scarcity does not mean a shortage of resources. Therefore, things can still be regarded as scarce even when it is readily available.

The issue of scarcity is central and fundamental to the study of economics and it may be said that without scarcity there will be no need for the study of economics.

3. CHOICE

Since human wants are unlimited and resources available to satisfy them are limited, hence choice has to be made.

Choice is therefore the selection among different alternatives.

The decision to have one thing instead of the other implies choice. Such economic decisions are made by individuals, firms and the government. So every economic decision is a choice. The three aspects of choice are:

Deciding the resources to be produced and utilized;

Deciding how to get the resources;

Deciding when to use the resources.

4. SCALE OF PREFERENCE

This is the list of consumers want in order of their importance. It has to do with the ranking of a person’s wants in order of their importance. The wants at the top are supposed to be satisfied before other wants.

IMPORTANCE OF SCALE OF PREFERENCE

1. It is a tool for arranging human wants.
2. It helps in choice makings
3. It ensures the optimum allocation of resources.
4. It shows human wants at a glance.
5. It helps consumers to utilize their resources.s  

5. OPPORTUNITY COST

This can be defined as an alternative. This concept is also called the real cost or true cost.

For example, if Mr. Audu decides to buy a television set instead of a radio set then the opportunity cost of the television set bought is the radio set forgone. 

The concept of opportunity cost helps in our daily decisions and applies to individual firms and governments. It helps an individual to make the right choice among their many needs by allocating his services and resources in the best-known way.

It helps firms allocate more resources to the production of goods and services, which will give them the highest contribution margin (profit). To the government, it helps them to make the right choice as regards what project it slowly spends its resources on. For example, the Lagos State government with its limited revenue may decide to provide free education and medical care.

IMPORTANCE OF OPPORTUNITY COST TO INDIVIDUAL

1. It helps individuals to make decisions.
2. It helps individuals to allocate scarce resources.
3. Judicious use of resources.
4. Prioritizing our wants.
5. It helps an individual to make wise choices.

IMPORTANCE OF OPPORTUNITY COST TO FIRMS

1. Decision making.
2. Helps to decide the method of production.
3.  Helps in project execution.
4. Guides policy formulation and implementation.

Importance of Opportunity Cost to the Government

1. Resources allocation.
2. Decision making.
3.  Preparation of budget.
4. Helps in project execution.