English L1 Section G

The study of economics


Economics is the social science that studies how people use scarce resources to satisfy unlimitedneedsandwants.Youwillnoticeitisasocialsciencebecauseitisabouthowpeopleinteractandwhy they behave in certain ways. In some respects it is a lot like psychology because we talk andmake decisions basedonourunderstandingsofwhypeopledowhattheydo.



Socialscience,whichincludeseconomics,psychology,sociology,anthropologyandpoliticalscience, consists of the disciplined and systematic study of society and its institutions, and ofhowand whypeoplebehaveastheydo,bothasindividualsandingroupswithin society.

Economicsasa socialscience


Economics is the scientific study of the ownership, use, and exchange of scarce resources – oftenshortenedtothescienceofscarcity.



Economicsisregardedasasocialsciencebecauseitusesscientificmethodstobuildtheoriesthatcan help explain the behaviour of individuals, groups and organisations. Economics attempts toexplaineconomic behaviour,whichariseswhenscarce resourcesareexchanged.



In terms of methodology, economists, like other social scientists, are not able to undertakecontrolled experiments in the way that chemists and biologists are. Hence, economists have toemploydifferentmethods,basedprimarilyonobservationanddeductionandtheconstructionofabstractmodels.


Asthesocialscienceshaveevolvedoverthelast100yearsorso,theyhavebecomeincreasinglyspecialised. This is true for economics, as witnessed by the development of many differentstrands of investigation including microeconomics and macroeconomics, pure and appliedeconomics, international economics, development economics and industrial and financialeconomics. What links them all is the attempt to understand how and why exchange takes place,andhow exchangecreatesbenefits andcosts fortheparticipants.

Social science: The scientific study of society – of human behaviour and of social interactions.Economics is one of several social sciences. Others are sociology, political science, andanthropology.Economicsisconsideredasocialsciencebecauseitseekstoexplainhowsocietydealswiththeproblemofscarcity.

Scarcity: is the situation in which available resources, or factors of production, are finite,whereas wants are infinite. There are not enough resources to produce everything that we needand want. The basic economic problem that arises because people have unlimited wants butresourcesarelimited.Becauseofscarcity,variouseconomicdecisionsmustbe madetoallocateresourcesefficiently.

Thebasisofeconomics:microeconomicsandmacroeconomics


Microeconomics :analyses basic elements in the economy, including individual agents andmarkets,theirinteractions,andtheoutcomesofinteractions.Individualagentsmayinclude,forexample, households, firms, buyers, and sellers. For example, firms sell goods to households,andhouseholds providelabour.

Macroeconomics :analyses the economy as a system where production, consumption, saving,and investmentinteract,andfactorsaffecting it:employmentoftheresourcesoflabour,capital,


and land,currencyinflation,economicgrowth,andpublicpoliciesthathave impactontheseelements.