Nature And Significance Of Economic Science - Essay Example

Nature And Significance Of Economic Science Economics is thus the study of how we utilize our scarce resources to produce goods and services to satisfy the most pressing of our infinite wants and how we distribute these goods and services amongst ourselves. In Micro Economics we study the economic behavior of small units, viz. economic behavior of an individual, of a firm or of an industry, etc. Outline: Economics can be defined as the science which studies human behavior as a relationship between ends and scarce means which have alternative uses. Economics is based on two fundamental facts: 1. Human beings have unlimited wants. 2. The means to satisfy these wants are relatively scarce. Economics is thus the study of how we utilize our scarce resources to produce goods and services to satisfy the most pressing of our infinite wants and how we distribute these goods and services amongst ourselves. In Micro Economics we study the economic behavior of small units, viz. economic behavior of an individual, of a firm or of an industry, etc. In this paper, we would discuss what the core issues are, or the central problems studied in micro-economics, which could be classified as: 1. What to produce? 2. How to produce? 3. For whom to produce? 4. Provisions for future growth. While concluding, we would comment on how we can make use of our knowledge of micro-economics in our day-to-day life so as to make use of our scarce resources in the most optimum way. What is Economics: “Economics is the science that studies human behaviour as a relationship between ends and scarce means which have alternative uses” – (Robbins, 1945, pg 16) Let us try to clearly understand what it means. Suppose it’s your birthday. But you don’t have enough money to celebrate it the way you want. Let’s say you only have $100. So you can either give a nice party to your friends or go for a movie and eat in some restaurant or buy yourself an expensive outfit, or buy a book and save the rest of the money. Ideally you would wish you had $500 so you could do everything. But now you have to choose the best option which suits you. Economics is based on two fundamental facts: 1. Human beings have unlimited wants. 2. The means to satisfy these wants are relatively scarce. Economics is thus the study of how we utilize our scarce resources to produce goods and services to satisfy the most pressing of our infinite wants and how we distribute these goods and services amongst ourselves. Further this study can be classified as: Macro Economics and Micro Economics. In Macro Economics we study the economic behavior of large aggregates, viz. national income and output, employment and economic growth, general price level, etc. In Micro Economics we study the economic behaviour of small units, viz. economic behavior of an individual, of a firm or of an industry, etc. Central Economic Problems Studied in Micro Economics: The biggest economic issue, as already discussed, is scarcity of resources. On a micro-economic level, this issue can be further broken down into four basic problems: 1. What to Produce: Every individual or an organization has to decide which goods are to be produced and in what quantities. For example, a house-wife while cooking food for the family has to decide, depending on the other family members what is to be cooked, are all the necessary ingredients available, will everyone like it, how much quantity is to be prepared, etc. Taking a particular example of this, Honda Motors, “established in 1946” (HA, par. 1) by Mr. Soichiro Honda, used to manufacture motorcycles, which included some specifically designed for ladies. Honda tried to satisfy the needs of all types of customers. But by around 1960’s since incomes were rising, people were switching over from motorcycles to cars. So, to keep up with the market, in 1963, Honda released its “first sports car, in Japan” (HA, par. 3). The Honda Civic debuted in 1972 and was “ranked first in US fuel economy test” (HA, par. 4). Civic has been one model which they have been refining as per the needs of the society from time to time. In 2002 Civic Hybrid became “the first established mainstream, gasoline-electric hybrid engine to be sold in North America” (HA, par. 7). Since petroleum as a resource is scarce, it is the need of the society to move away from traditional fuels towards alternative fuels. This is a fine example of ‘what to produce’ depending on the needs of the society as well as availability of resources (i.e. fuel). 2. How to Produce: There can be various alternative techniques of producing a commodity. One has to choose which technique to follow so as to obtain optimum output. Again coming back to the house-wife example, suppose she has to cook fish for dinner. Now she has the option of either frying it or baking it or maybe follow some other elaborate recipe. In this case not only the fish and its ingredients but also family’s health as well as enjoyment of the food and efforts taken to prepare it are the resources. She has to choose what is best for her family and take decisions accordingly. Southern California Edison, based in Rosemead, California, is one of the largest utility companies of America. It is “serving more than 13 million people”, (EI, par.1) providing reliable electric service covering more than “50,000 square miles” (EI, par.1) of central, coastal and central southern California, “employing more than 15,500 employees”. (SCE, par.7). It is regulated by various government bodies like the California Energy Commission (CEC). One very important (and positive) ruling from CEC has been to make it mandatory to generate 20% of electricity using renewable sources by 2010 and a goal of 33% by 2020. This is in a bid to bring down ‘Green House’ gas emission helping in reducing pollution and global warming. SCE in its efforts to meet the set norms has not just encouraged people to generate their own power through small solar or wind-powered generating systems but also provides incentives and training on Photovoltaic Installers and its advantages of rebates. SCE is almost addicted to superior technology. After ‘deregulation’ SCE retained its ‘Hydro Electric’ plants of capacity around 1200 MW and 75% share in 2150 MW San Onofre Nuclear Generating Station, while sold off all of its large, ageing natural gas fired plants which actually generated most of its power. Even the 1580 MW coal-fired Mohave Generating Station in Laughlin, Nevada, was closed down in December 2005. The fact proven here is that SCE prefers cleaner technology because that is the future. Our environment is a very valuable resource and to conserve it is everyone’s duty. 3. For Whom to Produce You can never make everybody happy. But a good attempt at it can be made by identifying what would be generally acceptable. Now, if the housewife knows the likes and dislikes of everyone in the family, she would obviously take it into consideration while cooking food. Mc Donald’s is one truly global name. It is undoubtedly the largest fast-food chain in the world. But if you think you know the Mc Donald’s menu like the back of your hand, think again. Mc Donald’s menu changes from place to place as per the liking of the local people. For example, in America, you would consider their Hamburgers or Big Macs as the most popular items. (McD, par. 2) But in India, you can neither serve beef nor ham. It is “the only Country in the World, where McDonald's doesn't serve any beef or pork in any form, in ANY of their 123 outlets (and counting) across the country!” (Indiamarks, par.1) In India, where people prefer vegetarian food, most of the menu items are vegetarian, while in Germany hardly anything (except for salad) would be vegetarian. In Germany Mc Donald’s even serves beer. Coming back to economics, on a micro level, every organization has to decide its consumer group and design their products accordingly. 4. Provisions for future growth One should never utilize all of their valuable resources only for current consumption. Savings are the key to prosperity. Incomes or standard of living of people may remain stagnant or even decline if they do not save. Every individual must decide on his own how much to save (i.e. sacrifice current consumption) for future progress. For a societal point of view this is the most important job of a house-wife. If she decides to spend all of her family’s income on food or shopping without keeping anything aside as a saving, such a family can never prosper. Similarly, no organization distributes all of its profits to its share holders as dividends or to its employees as bonuses. It holds back some money by way of provisions for future liabilities as well as future growth plans. Conclusion: Scarcity of resources, though a problem should be treated as more of a reality. Human beings have unlimited needs and as such if they try to satisfy all their needs, there will never be enough of anything. Micro Economics studies human behavior on a smaller level, i.e. either as individuals or a particular organization. Every individual or organization has a limited amount of resources or finance. They have to learn to take decisions which suit them the best. In my personal opinion, the most central economic problems discussed in this paper are nothing but everyday issues we face. I think it would make a lot of sense if, before shelling out money for anything, we stop and think of what we are doing. Is it really worth? If we are paying a price for something are we getting something equivalent in return? Is it a necessary expenditure? If we don’t have a positive answer to these we might save ourselves from a lot of unnecessary expenditure, else if we have a positive answer ultimately, then we would also have the satisfaction of having spent our money wisely. Before we take up any task, we should be asking ourselves, 1. What are we doing? Is it the right thing to do? Will it benefit me? 2. How are we doing it? Is there a better way of doing it? If yes, then how should we be implementing it? 3. For whom are we doing it? Who is the target audience of our work? Is the work as per his taste and requirement? 4. Last, but not the least, how can this task help me for my future growth? In my opinion, if we think over these questions and then take decisions regarding any task, it will not just clear our mind about our intention but also create a motivation and a sense of satisfaction in what we are doing. If we think a bit more deeply, is money the only resource for which we should be doing such analysis? No! There are many other resources of which we face shortage in our day-to-day life. Time is the most precious resource. Instead of spending it on un-productive activities, we should always analyze whether we are spending it in the best possible way for the most important purpose. Money, if lost can be earned back, but time once gone, never returns. On a lighter note, since there is no scarcity of food as of now, if we treat hunger as a resource and spend it wisely on good quality food instead of just junk food, we could come over not just obesity but many other ailments as well. Works Cited Robbins, Lionel. (1945) An Essay on the Nature & Significance of Economic Science (2nd ed.). London: Macmillan and Co. Ltd. History Timeline (HA) Honda in America, 03 April 2009. Southern California Edison (EI) Edison International, 03 April 2009. Company Overview (SCE) Southern California Edison, 03 April 2009. Mc Donald’s Menu, [Data File]. McDonalds.com (McD). 03 April 2009. Retrieved from http://www.mcdonalds.com/usa/eat/mcdonalds_menu.html “There's No Beef or Pork in Any McDonald's in India...,” (Indiamarks) Indiamarks.com 03April 2009. Read More