Man cannot get everything that he wants. This is known as
need. There is no end to this need in human life. To give an example, you are a
student. Let us suppose, you have one thousand dollars. You need shirt, pant
and good shoes. In this way you will find that you need many things. But you
have only one thousand dollars. Compared to your needs, the amount of money is
very little. In economics, this is known as 'scarcity of resources'. Because of
scarcity, man chooses or selects according to the importance. If there was no
need to choose, there would have been no need for the discipline, economics.
The main problem of humans is not to be able to get
everything in proportion to the wants. To produce any goods (e.g.- books) or
services (e.g.- medical services) resources are necessary. But "wealth is
limited." It is, thereby, possible to get limited goods and limited
services by the means of limited wealth. Therefore, with limited wealth, all
the necessities of men are not fulfilled. This is the reason of scarcity.
Scarcity would not have been created if there were lesser needs. Famous
economist professor L. Robins says, "Economics is a science that analyses
human behavior related to the combination of unlimited wants and alternatively
usable scarce resources." According to economist Samuelson, since
resources are scarce, therefore, the question of the best utilization of the
resources in the society holds such importance. The want for resources obtained
from the nature, like sunlight or wind is very high. But we do not have to
spend any money to get these. Usually there is no scarcity for these resources.
Since the wants of humans are too many and resources are limited, therefore,
with these limited resources all the wants of humans are not satisfied. Among
numerous wants, humans satisfy a few. And they fulfill these wants judging the
importance of these wants. Humans satiate the most necessary wants on priority basis.
This is known as selection of wants.
We have to face unlimited wants in the perspective of
limitation of resources in our society. Before illustrating different concepts
and ideas of economics, the
ten fundamental principles of economics are briefly discussed here.
The Important Ideas of Economics
It is important to know some significant facts about
economics to acquire a wholesome idea of Economics. The definition of resources
and products and their classification, opportunity cost and choice, income,
savings, investment, economic and non-economic activities, and above all, the
activities of the people have been discussed in this chapter. Before going to
the main discussion of economics, these concepts will be helpful to understand
economics.
Economic Resources
We all are more or less acquainted with the term,
'resource'. The word resource is included in our daily conversations in many
different ways. For example, Mr. John owns a lot of resources. To an
economist, everything is not a resource. In economics, those are considered to
be resources which are to be obtained by spending money. Briefly we also call
them economic goods. For example, houses, furniture, television, etc are
visible material resources and doctor's services, teacher's lessons are invisible
or non-material resources. To obtain these mentioned things, money has to be
spent. If any particular thing is to be referred to be a resource in economics,
it has to have four characteristics. These are:
1.
Utility:
Utility means the capability of any goods/product to fulfill the need of the
people. If any goods is to become a resource, then it must have the capability
to create utility. People do not buy anything with money that does not have any
utility.
2.
Insufficiency:
For a good to become a resource, its quantity and supply will be limited. For
example, river water, wind, the supply of these is ample. These are not
resources. On the other hand, land, gas, instruments, these are not amply
available. That means, these are the insufficient goods for us.
3. Transferable/Exchangeable:
Another characteristic of resource is its transfer-ability. Transferable means
being transferred to another hand or handed over. That means that goods can be
taken as a resource the ownership of which can be changed. The genius of the
world famous poet Rabindranath Tagore cannot be taken as resource in economic
terms. Because, there can be no exchange or change of ownership of his
brilliance. And the ownership of a television can be changed, which makes a TV
a resource.
4. External or Superficiality: Those things that stand for the internal qualities of
humans are not resources in economic terms. For example: the special experience
or knowledge of a person about computer or the qualities of someone's character
cannot be termed as resources.
Classification of Resources
Resources are of three kinds from the perspective of their
origins. And there are four kinds of resources regarding ownership. Resources
are of three kinds as per their origins. They are-
1.
Natural
Resources: Goods obtained from nature which satisfy people's needs are known
as natural resources. For example- land, forests, mineral resources, rivers,
etc.
2.
Human
Resources: The human qualities of a human are known as human resources. For
example, physical capabilities, intelligence, enterprise, skill, organizational
capacities, these are human resources. These are not transferable or
superficial; therefore, they are not termed as economic resources.
3.
Produces Resources: Resources
that are created utilizing natural and human resources are known as
man-made resources. For example- raw materials, instruments, industries,
transport and communication systems, educational institutions, health care centers,
etc. are built by humans, so they are produced resources.
On the other hand, resources can be divided into four categories
according to ownership. For example-
1. Private Property: All the
properties under the ownership of an individual are known as private properties.
Personal land, house, furniture, etc are the examples of private properties.
2. Collected Properties: Resources
that are under the combined ownership of the state and the public are
known as collected properties. Roads, park, zoo, post office, hospital, etc are
the examples of collected properties.
3. National Properties: The sum
total of the private properties and collective properties is known as
the national properties. Examples of national properties are- skill of the
people, natural gas, water resources, etc.
4. International Properties: Resources
that are not exactly under any particular country's possession, rather
all the countries can utilize them those are known as international properties.
For example Seas, oceans, international rivers are international resources/
properties.
Goods
By goods, we only understand material possessions. However, there
are many goods in reality which, though non-material (e.g. - light,
wind, etc), are goods in terms of economics. Therefore, we call all the things,
both material and non-material, those have the capability to fulfill human
needs, goods. That is, the thing that has utility is goods.
Freely Accessible Goods: The goods that can be obtained without
money are known as free-access goods. These goods are freely available
in the nature and their supply is unlimited. For example light, wind, river
water, etc.
Economic Goods: The goods for which people have to pay are
known as economic goods. Their supply is limited. For example food,
cloths, books, pen, chair, table, etc.
Permanently Consumable Goods: The goods that can be consumed over a
long period of time are termed as permanently consumable goods. For
example refrigerator, car, house, land, playground, etc.
Temporarily Consumable Goods: The goods that are to be consumed
within a short period of time and sometimes can be consumed for only
once, they are known as temporarily consumable goods. For example food, cloths,
ornaments, vegetables, etc.
Intermediate Goods: Some
produced goods that are not to be used for direct consumption, rather
used as factors of production; those are known as intermediate goods. For
example raw materials, milk and sugar used for preparing sweets, etc. are
intermediate goods.
Capital Goods: The
produced goods that are used for the production of other goods are known
as capital goods. e.g. - instruments, factories, warehouses, etc. Capital goods
can be used to produce other capital goods.
Opportunity Cost and Choice
One highly used concept in economics is 'opportunity cost'.
Suppose you are a student. Can you do everything every day? For example, you
cannot take the economics examination and watch a cricket game at the field at
the same time. If you are choosing to do one task it will obviously not be
possible for you to do the other one. Let us take another example, let us
suppose that you have 1 acre of land. If rice is cultivated here, then 20
quintals of land can be produced in this land. If you want to cultivate jute on
that land, it would be possible to produce 10 quintals of jute there. In this
case, the opportunity cost of 20 quintals of rice is 10 quintals of jute.
Briefly speaking, to obtain something, another has to be sacrificed- the
sacrificed quantity is the opportunity cost of the other good. The concept of
the opportunity cost can be shown more clearly by a picture-
 |
Opportunity cost
|
In the picture, the OX axis shows paper and the OY axis
shows pen. If I spend all of my resources to produce pen, I can produce OA
quantity of pen. On the other hand if I want to get only paper, I can produce
OB quantity of paper. The AB line that connects the two points A and B, is the
production possibility curve. I can get both the products if I want to.
Spending all of my resources, I can produce ON quantity of pen and OM quantity
of paper. The point K on the production possibility curve shows this state.
Now, if I want to produce MM1 quantity of paper more, then I will
have to sacrifice NN1 quantity of the
production of pen. The point Q shows this condition. Here, NN1
quantity of pen is the opportunity cost of the MM1 quantity of the
extra production of paper.
Now, if we think a little we can understand the concept of
choice. Can we run our lives with only one goods? Definitely we can’t. To live,
we need a lot of goods. Here, for the convenience of understanding, let us
consider only two goods. You want pen and also chocolate. Let us select a point
on the opportunity cost curve (e.g. - Q or K) where we can get both. Not only
for an individual, in our society also, we save to choose a condition where
without wasting our limited resources, the utmost benefit of the society is
ensured.
Income, Savings and Investment
Income: For using
a factor of production, the money that the factor or its owner gets in a fixed
period of time that is known as income. The income obtained for labor is known
as wage.
Savings: People
income for consumption. Thinking of the future, people do not consume the whole
of the earned income of the present. They keep a portion of that income in some
economic institution. This portion that is kept is known as savings. Say for
example, your father gets a salary of ten thousand dollars in one month. He
spends nine thousand for your family. Here, your father saves one thousand dollars.
This concept of savings can be shown by an equation. e.g.- S = Y - C (when Y
> C).
Here, S = savings, Y = income, C = consumption cost.
An individual's savings usually depends upon the quantity of
income, responsibility towards the family, farsightedness, social security and
the rate of interest.
Investment:
People save from their income. When the saved money is utilized for enhancing
production, it is known to be investment. For example, there are capital goods
of one million dollars in a factory at a particular time. To increase
production, goods valued another fifty thousand dollar are used in that
factory. This extra fifty thousand dollars is the investment. Through
investment, the quantity of production rises and economic development is
possible.
Economic and Non-Economic Activities
For survival, people perform various activities. The main
purpose of these tasks is to earn a living. For a living, some people work at
factories, some at offices, and some on lands. Apart from earning a living, people
also perform activities like playing, entertainment or rearing children. And
some others get involved in works like stealing, robbing or snatching. All of
these activities referred above are not to be termed as economic activities. We
will divide these activities into two parts. e.g.- a)economic activities,
b)non-economic activities.
Economic Activities
To earn a living, the activities taken up by people are
known as economic activities. By economic activities, people earn money and
spend that for survival. e.g. - the laborers work at the factories, farmers
work at the lands, doctors treat the patients, industrialists run the
industries, all these are economic activities. The basic inspiration of people
for their economic activities is to fulfill their need of goods.
Non-Economic Activities
The activities which do not earn money which cannot be spent
for the survival, those are known as non-economic activities. These activities,
though they fulfill some of the needs of humans, they do not play a role in
earning money. e.g. - the rearing of children by the parents, playing, the
religious practices of a pious person, etc are the examples of non-economic
activities. Besides, the activities by which there occurs some lam results in
the society or the society is harmed, those are not referred to as economic
activities. For example stealing, snatching, robbery, corruption, etc.
End
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