BASIC ECONOMICS (AFD –

06109):
SUBJECT MATTER/SCOPE OF
ECONOMICS

Lugano A. Mwamakimbula,
Asst. Lecturer – Economics.
Institute of Accountancy Arusha
Email: Lmwamakimbula@iaa.ac.tz
Lmwaikonge@gmail.com

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What is Economics
Economic is a very wide subject, this because it deals with a wide range of issues such as people & production; markets and
institutions; scarcity and choice; individual behavior & social relations; etc. It is because of this fact that various scholars have
attempted to define economics form their view points.
Adam Smith (1723 – 1790): study of inquiry into the nature and causes of nations wealth.
John Start Mill (1806 – 1873): practical science of the production and distribution of wealth
Alfred Marshal (1842-1924): study of mankind in the ordinary business of life.
Marshal believed that Economics examined that part of individual and social action which is closely connected with the
attainment and us of materials requisites of well being. (wealth and man)
Lionel Robbins (1898 – 1984): science which studies human behavior as a relationship between ends/needs and scarce
resources which have alternative use.
Why Robbins Definition is Widely Acceptable:
1. Scarcity
2. Unlimited human wants
3. Alternative use of economic resources

QN: WHY STUDY ECONOMICS?

: WHY IS ECONOMICS AN INDEPENDENT STUDY; A SCIENCE AND SOCIAL SCIENCE?

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Scope of Economics
• Micro Economics
The study of how individual economics agents (firms, households) make decisions and
how they interact in markets.
• Macro Economics
The study of economy wide phenomena (aggregates) such as inflation, unemployment,
economic growth and etc.
Method of Economics
• Positive Economics/statements
Concern itself with what was, is, will be, it use/depend in facts. Cause and effect
relationships can also be observed here.
- It establishes scientific statements about economic behavior .
• Normative Economics/statements
Concerns itself with what ought to be; depends on value judgements on what is
considered to be bad or good.
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• Economic Theory
A statement or set of related statements about cause and effect, action and
reaction, for instance the law of demand as put forward by Alfred Marshall
“When the price of product rises, people tend to buy less of it; when the
price of product falls, they tend to buy more.
Theories do not always arise from out of formal numerical data, at times
they can arise from observation of peoples behavior.
• Models
A formal statement of a theory, it is usually a mathematical statement of a
presumed relationship between two or more variables. Models are usually a
simplification of reality.
• Variable
A measure that can change from time to time depending on an observation.
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Central Economic Problems
• What: goods should be produced using the scarce resources.
• How: the limited resources of land, labour and capital what mix of the
factors should be employed to bring about the required output (goods
and services).
• For Whom: after the production process is complete we then have to
ask ourselves to who are we going to allocate these produces (goods
and services); how to distribute them among the people in the society.
All the central economic problems are brought into being by the key
Economic problem which is “Scarcity”.
QN: Elaborate using proper economics references, what is economic
good and services; wealth and welfare; money and wealth?

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Scarcity and Choice
• Scarce means limited in supply/ shortage in what is actually needed or required/
not in abundance/ insufficient. All economics goods and services are scarce, it of
importance to understand that the goods and services are considered to be scarce
relative to people’s desire for them.
• If all goods are scarce relative to human wants and people have unlimited wants
while having the means to satisfy only some of those unlimited wants since they
cannot satisfy all of them. They therefore have to ultimately make a decision over
what can be satisfied and what cannot, they have to make a choice. In order to
enjoy some things it is necessary to do without others.
• If all human beings are rational (make choice that result in optimum
benefit/utility) everyone will satisfy his most pressing wants first, going with the
things that he desires most while leaving out those that he considered less
desirable.
• Scales of Preference: Basing on the assumption that people act rationally, it is a list
of unsatisfied wants arranged from the most to the least pressing wants.
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• Opportunity Cost
The next best alternative foregone in obtaining a particular
good/service. Since an individual cannot satisfy all his wants and thus
must choose between one thing and another, the satisfaction of one
want involves going without something else.
The real cost of obtaining any want therefore is the alternative that has
to be foregone in order to do so.

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• LITERATURES
• Baumol, W.J. & Blinder A.S. (1991). Economics Principles and Policy (5th Ed). Florida, USA:
Harcourt Brace Jovanovich Inc.
• Beardshaw, J. Et Al (2001). Economics A Student's Guide. Essex, England: Pearson Education
Limited.
• Case, K.E. & Fair, R.C. (2002). Principles of Economics (6th Ed.). New Jersey, USA: Prentice
Hall
• Clark, J.R. & Veseth, M. (1987). Economics Cost and Choice. San Diego, USA: Harcourt Brace
Jovanovich Inc.
• Clayton, G.E (1995). Economics Principles and Practice. Ohio, USA: Glencoe/Mcgraw-Hill.
• Hanson, J.L. (1986). A Text Book of Economics (7th Ed.). London, UK: Pitman Publishing.
• Mankiw, G.N. (2007). Principles of Economics (4th Ed). Ohio, USA: Thomson South-Western.
• Mankiw, G.N. (2008). Principles of Microeconomics (5th Ed). Ohio, USA: South-Western
Cengage Learning.
• McConnell, C.R. & Brue, S.L. (2005). Economics (16th Ed.). Boston, USA: Mcgraw-Hill
Company/Irwin.

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