Economics is a field of study that has come into being because there is scarcity of resources to be solved by mankind. Had everything that man needed been abundant, there should have been no more need for Economics. It is because there is scarcity of resources, therefore, that Economics has been born to provide measures on how scarce but productive resources should be harnessed for the benefit of mankind. Economics is a social science that deals with the study of how society makes use of care but productive resources to better meet prescribed goals and objectives.
It was first recognized in 1776 when Adam Smith published his book entitled “An Inquiry Into the Nature and Causes of the Wealth of Nations” which is considered as the bible of Economics. He is today considered as the father of modern Economics. Economics is a science because like science itself, it is a systematic and orderly arrangement of knowledge on the proper utilization of scarce but productive resources. Because of scarcity, every individual can only produce something in a emitted amount, not everything in unlimited quantity.
Because of limited capacity for production, every individual has to face three (3) basic economic problems: 1) what to produce, 2) how to produce, and 3) for whom to produce. “What to produce” identifies the kind of product to be produced based on an individual’s capabilities and resources available. “How to produce” determines the ways and means how the product earlier identified to be produced should be produced at the lowest cost as much as possible to maximize efficiency.
For whom to produce” identifies the target market for the product concerned; that is; as long as they continue to patronize the product at the right price, there will always be people willing to produce it for the consumers concerned. The four (4) factors of production in Economics are: 1) land, 2) labor, 3) capital, and 4) entrepreneur. Land refers to anything productive and useful that is provided by nature in its raw state. Labor refers to the human exertion of both physical and mental effort.
These two efforts should always be together, not separate, so that something productive may result. Capital refers to any good used to produce another good. It is different from Land in that this is in its raw state while Capital is land that has already been transformed by man into another state. Money is not capital in Economics, only in banking and finance, but the tool that can be bought by money is what serves as capital of the individual concerned, like the hammer of the carpenter, Jeep unit of the Jeep driver, and whiteboard marker of the professor.
Entrepreneur raters to the individual Witt good administrative and management ability so that he turns a business into a profitable activity. He does this by combining land, labor and capital together so that their combination becomes productive. Economics has two (2) big branches, Macroeconomics and Microeconomics. Macroeconomics deals with the study of an entire economic aggregate, like national income, gross national product, and inflation. Microeconomics deals with the study of single or individual economic units.
There is a need to part these two branches cause sometimes an economic situation or reality is viewed differently from each of them. For example, it is good for an individual to save but saving may not be good for the economy when everybody does it because this will stunt the economic growth of society. Since aggregate demand being greater than aggregate supply in many cases is what serves to spur economic growth of the society, economic reality should therefore be viewed separately from such two big branches of Economics so that appropriate economic measures could be devised by the economic planners of the society.