A Brief Overview of Economics

The word ‘Economy’ is derived from the Greek word ‘okinomous’ which means one who manages a household. Economics is the study of how society manages to run its scarce resources. Scarcity means that society has limited or finite resources and therefore cannot produce all of the goods and services people desire to have. God has created man with innumerable desires and wants. So, unlimited wants surround man throughout his life without having an end till the death of his life. But if the human wants were limited, he would have been able to satisfy them easily and the society would be getting optimal benefits from its scarce resources which is called ‘Efficiency’ in economics. Economics also assumes that normally people are rational and they weigh their costs and benefits before doing any action. But to know how people preferences and decisions change, economists give them incentives. An incentive is something that persuades a person to react. So in economics scarcity, efficiency and incentives play a very important role in making conclusions and decisions.

If we talk about scarcity it means that man’s resources like his income and wealth are very less as compared to his wants. To get one thing that we like, we usually give up another thing that we like and this is exactly what the scarcity principle says in economics that “having more of one good necessarily requires having less of another good” (lecture slides, Chapter 1). For example: Consider a student Julie, who must decide how to allot her most precious resource ‘time’. She can spend all her time studying chemistry or spend all her time studying economics. For every hour she studies chemistry, she gives up an hour in which she could have studied the other subject. And fo...

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...f that palm print and put it as a screen saver on every computer on the hospital so that no doctor could do his or her work without being confronted with it. None of the ideas were working, but this was the only one which changed behavior of the people working in the hospital and they started hand washing before doing anything. So incentives do work and in this way we can easily predict different people’s behaviors.

In conclusion, it can be said that whether it is scarcity, cost-benefit or incentive principle, all of these help the economists, people as well as markets to allocate resources in a proper way. In other words, people weigh their own costs and benefits to maximize their profits and help the whole economy in one way or the other. So all of these principles play a very vital role and create a better place to live in this world with scarce resources.