What economics is: definitions and subject matter: WASSCE Economics

Why does a bag of rice cost more this year? Why do some school leavers find jobs and others not? Why does the leone lose value? Economics asks these questions about everyday life in Sierra Leone, and this lesson starts with what the subject is.

Learning objectives

By the end of this lesson you should be able to:

give at least two definitions of economics and name the economists behind them
explain why Lionel Robbins's scarcity definition is the one most widely used
describe economics as a social science and say what it studies
distinguish the deductive and inductive methods of economic reasoning

Why economics matters to you

Every morning, a trader at Bo market decides how many bags of rice to buy, a family in Kenema decides whether to spend its money on school fees or a new roof, and the government in Freetown decides how much to spend on roads and how much on hospitals. Each of them has limited money but many things they would like to do with it.

Economics is the subject that studies how people, businesses and governments make these choices.

Definitions of economics

Economists have defined the subject in different ways over the years. WAEC expects you to know the main ones and the person behind each.

The wealth definition: Adam Smith

Adam Smith, often called the father of economics, wrote An Inquiry into the Nature and Causes of the Wealth of Nations (1776). He saw economics as the study of how nations produce and increase their wealth.

Weakness: it puts wealth at the centre and says little about people's welfare or how wealth is shared.

The welfare definition: Alfred Marshall

Alfred Marshall described economics as the study of mankind in the ordinary business of life: how people earn an income and how they use it to improve their material well-being.

Weakness: it covers only material welfare, yet people also pay for services such as teaching and medical care, which are not material goods.

The scarcity definition: Lionel Robbins

Definition

Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. (Lionel Robbins, 1932)

Robbins's definition is the one most textbooks and examiners use, because it applies to every society and every kind of choice. It has three key ideas:

Idea in the definition	What it means	Example
Ends	Human wants, which are unlimited	Food, clothing, a phone, school fees
Scarce means	The resources used to satisfy wants are limited	Money, land, time, labour
Alternative uses	Each resource can be used in more than one way	Land can grow rice or be sold for building

Because wants are unlimited and means are scarce, people must choose. Economics studies how those choices are made.

Common mistake

Do not write that economics is "the study of money". Money is only one of the scarce means. Economics studies choice in the use of all scarce resources, including time and land.

Economics as a social science

Economics is a social science because it studies human behaviour in society, as sociology and political science do. It is called a science because economists:

collect facts (data) about prices, output and incomes
form theories and test them against what actually happens
make general statements, called economic laws, such as the law of demand

Economic laws are less exact than the laws of physics. People do not always behave the same way, so economists add the phrase ceteris paribus, meaning "other things being equal". The law of demand, for example, says that when price rises, quantity demanded falls, if nothing else changes.

In Sierra Leone

If the price of a cup of rice at the market rises, most families buy less of it. But if the harvest has failed everywhere and there is nothing else to eat, they may still buy the same amount. That is why the law of demand only holds ceteris paribus.

How economists reason: deductive and inductive methods

	Deductive method	Inductive method
Starts from	General assumptions or principles	Particular facts and observations
Moves to	Particular conclusions, by logic	A general law, by collecting and studying many cases
Example	"Consumers try to get the most satisfaction from their money, so they buy less of a good when its price rises"	Recording prices and sales in many markets and finding that sales fall whenever prices rise
Strength	Quick and clear; does not need large data	Grounded in real evidence
Weakness	Conclusions are only as good as the assumptions	Collecting data is slow and costly; the cases may not be typical

In practice economists use both: theories built by deduction are tested with facts gathered by induction.

What economics studies

The subject matter of economics includes:

production: how goods and services are made
distribution: how income is shared among the people who help to produce
exchange: how goods and services are bought and sold in markets
consumption: how people use goods and services to satisfy their wants
the role of government: taxes, spending, money and banking

Key points

Adam Smith: economics as the study of wealth.
Alfred Marshall: economics as the study of material welfare.
Lionel Robbins: economics as the study of choice between unlimited ends and scarce means with alternative uses. This is the most widely accepted definition.
Economics is a social science; its laws hold ceteris paribus.

WASSCE examination focus

WAEC tests this

Questions often ask you to define economics and explain the key ideas in a definition. Name the economist, quote or paraphrase the definition accurately, then explain ends, scarce means and alternative uses with an example of your own. Two or three clear sentences per idea earn more marks than a long, vague paragraph.

Quick check

Which economist defined economics in terms of scarcity and choice?
Why is Marshall's welfare definition criticised?
What does ceteris paribus mean, and why do economists use it?

Answers: 1. Lionel Robbins. 2. It covers only material welfare and leaves out services such as teaching and health care. 3. "Other things being equal"; economic laws hold only if other influences do not change at the same time.

What economics is: definitions and subject matter