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Economic Theory

items? You do not produce them yourself. You buy them. How do you
afford the things you buy? You work for pay. On the other hand, if you do
not, someone else does on your behalf. Yet most of us never have enough
to buy all the things we want. This is because of scarcity. So how do we

solve it?
Every society, at every level, must make choices about how to use its

resources. Families must decide whether to spend their money on a new
car or a fancy vacation. Towns must choose whether to put more of the
budget into police and fire protection or into the school system. Nations
must decide whether to devote more funds to national defense or to

protecting the environment. In most cases, there just is not enough money
in the budget to do everything. So why do we not each just produce all of
the things we consume? The simple answer is most of us do not know

how, but that is not the main reason. (When you study economics, you will
discover that the obvious choice is not always the right answer – or at least
the complete answer. Studying economics teaches you to think in a
different of way.) Now that we have gotten an overview on what

economics studies, let us quickly discuss why you are right to study it.
Economics is not primarily a collection of facts to be memorized, though
there are plenty of important concepts to be learned. Instead, economics is

better thought of as a collection of questions to be answered or puzzles to
be worked out. Most important, economics provides the tools to work out
those puzzles. If you have yet to be been bitten by the economics “bug”,
there are other reasons why you should study economics.

Economics as a subject came into being with the publication of very
popular book in 1776, “An Enquiry into the Nature and Causes of Wealth

of Nations”, written by Prof. Adam Smith. At that time, it was called
Political economy, which remained operational at least up to the middle
part of the 19th century. It is since then that the economists developed
tools and principles using inductive and deductive reasoning. In fact, the

‘Wealth of Nations’ is a landmark in the history of economic thought that
separated economics from other social sciences. Examples of social
sciences include not only economics, but also psychology, sociology and

political science. The social sciences focus on the study of the behavior of
human beings, not physical things, plants or animals.
The word ‘Economics’ was derived from the Greek words ‘Oikos’ (a
house) and ‘Nemein’ (to manage), which meant managing a household,

using the limited money or resources a household has.

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