CHAPTER ONE1

BASIC CONCEPTS IN ECONOMICS

1.1 Definition of Economics

Basically, there is no consensus among economists about a precise definition of economics.

Hence, regardless of the various ways people understand economics, and the many ways scholars
define economics, one can easily understand the concept in one of the following ways.
1. Economics is a branch of social science that deals with the production, distribution and
consumption of goods and services and their management.

2. Economics is the management of scarce resources such as land, labor, and capital to
produce, distribute, and sell tangible objects or to provide services in order to satisfy
apparently unlimited human wants.
3. Economics is the study of choice making by individuals, institutions, societies, nations
and the world, under conditions of scarcity and surplus, towards maximizing benefits and
satisfying the unlimited present and future needs.

Given the above three different, but closely related, definitions, one can easily understand
economics in a very simple and concise language, as a science dealing with the efficient
allocation and wise use of scarce resources to satisfy unlimited wants.

Efficiency refers to doing things right. It does mean also producing the same level of
output with the required quality with a less cost (effort) than alternative ways.
Allocation refers to distribution of resources for alternative activities.
Scarcity- refers to the limited availability of economic resources in a way less than what
people actual y want Scarcity limits us both as individuals and as a society.
Unlimited Human Wants - this refers to the ever increasing and escalating interest of
human beings to have a command over resources and various opportunities over its life
cycle.
1.2 Types of Economic Resources
Resources in economics are conventional y classified into the following four broad
categories:

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ADU / 2013 . Hailay T. and Teame B.
 1. Land (Natural Resource) land refers total resources that are freely gifted by nature.
Natural resources are also classified in to three broad categories