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Chapter 1 Introduction to economics: scarcity, choice, and opportunity cost 1.0 Introduction A lot of statements have been said about economics as a subject. The following are some of the statements. a. 'Economics is the painful elaboration of the obvious.' b. 'Economics is everything we know in a language we don't understand' c. A Swedish contribution: "Economics is like red whine - you shouldn't smell it but drink it, but if you drink too much on one occasion, there is a risk for dizziness" This introductory chapter will define economics and discuss the central economic problem which is a problem of scarcity. 1.1 Defining economics It is quite difficult to define economics as such. According to one standard definition, economics is concerned with the way in which resources are allocated among alternative uses to satisfy human wants. Economics therefore can be defined as a social science that studies how society allocates its scarce resources amongst competing alternatives. From the above definition, economics is described as a 'social science'. 'Social' in that the subject matter is the human being. 'Science' because the approach used has much in common with that of the natural sciences because economics use scientific methodologies in its formulation of policies. 1.2 Microeconomics and macroeconomics It is customary to divide economics into two parts: microeconomics, and macroeconomics. Microeconomics deals with the economic behaviour of individual units such as consumers, firms and households; while macroeconomics deals with the behaviour of economic aggregates such as national income and the level of employment. In simple words, it is like in microeconomics, we examine the trees not the forest while in macroeconomics we examine the forest and not the trees. 1.3 Positive and normative economics Positive economics refers to that part of economic analysis based on established facts. Positive economics states 'what is in existence' and hence it is descriptive. It seeks to explain real economic events. For example, it explains that if the price of a normal good increase, the quantity demanded for that good decrease. Normative economics refers to that part of economic analysis which deals with opinions or value judgments about what economic events should be like. Normative economics goes beyond the descriptions of particular economic situations and pass judgment. As a result, normative economics is prescriptive. An example of normative economics is …