Nature and Scope of Economics
Wednesday, April 19, 2023
11:32 PM
NATURE AND SCOPE OF ECONOMICS
Economics is a social science that deals with the proper allocation of scarce resources to satisfy the unlimited human wants.
Economics is classified as a social science because it deals with the study of man’s life and how he lives with other men.
ECONOMICS AS A SOCIAL SCIENCE
Social science is defined as the study or discipline that aims to explain human behavior and society. It is a study of society or
parts of it that utilizes the scientific method of observation, hypothesis formulation, testing and experimentation.
Economics is a social science because it tries to understand how members of a society behave and organize themselves to
meet their individual and communal material needs and desires. It explains how the unlimited demands and desire of man or
consumer is given satisfaction by the goods and services produced using the limited economics resources available in the
country.
ECONOMICS AS AN APPLIED SCIENCE
Applied science is the discipline that utilizes scientific knowledge to develop practical solutions to society’s problems.
Economics uses theories to help come up with answers when analyzing a certain situation. When you put these theories into
action by trying things out, you are actually applying these ideas and bringing them into practice. Simply put, when economic
principles and theories are applied to real-life situations, and outcomes are predicted because of this, then economics has been
applied.
Applied economics thus, is the study or economics relative to real-life situations. This is done by observing how theories work
in practice. Applied economics usually deals with numbers on which possible outcomes being reviewed are based and
supported.
Branches of Economics
The study of Economics is divided into two branches: Microeconomics and Macroeconomics.
1. Microeconomics - It deals with the economic behavior of individual units such as the consumers, firms, and the owners of
the factors of production. Such specific economic units constitute a very small segment of the whole economy. For
example, the price of rice, the number of workers of a certain firm, the income of Mr. Cruz, the expenditures of PLDT, etc.
Microeconomics is also known as the Price Theory.
2. Macroeconomics - It deals with the economic behavior of the whole economy or its aggregates such as government,
business and households. An aggregate is composed of individual units. The operation of the various aggregates and their
interrelationship is analyzed to provide a profile of the economy as a whole. Macroeconomics is concerned with the
discussion of topics like gross national product, level of employment, national income, general level of prices, total
expenditures, etc. It is also known as employment and income analysis.
The Economic Agents/Stakeholders:
1. Consumers
• Consume goods and services /offer production factors.
• Maximize utility.
2. Producers
• Produce goods / demand productive factors.
• Maximize profit.
3. The public sectors
• Attempt to maximize the well-being of society.
WHY STUDY ECONOMICS?
I. To learn a way of thinking: It helps you understand how people make decisions.
Economics has three fundamental concepts:
• Opportunity cost: the best alternative that people forego, or give up, when making a choice or decision.
• Marginalism: the process of analyzing the additional costs or benefit arising from a choice or decision.
• Efficient Markets: a market in which profit opportunities are eliminated almost instantaneously.
II. To understand society: It helps you understand how people interact with each other.
• Trade can make everyone better off.
• Markets are usually a good way to organize economic activity.
• Governments can sometimes improve economic outcomes.
III. To understand global affairs and be an informed citizen: It helps you understand the forces and trends that affect how
the economy as a whole.
− The standard of living depends on a country’s production.
− Prices rise when the government prints too much money.
− Society faces a short-run tradeoff between inflation and unemployment.
Law of Demand and Supply Page 1