Economics · Lesson 1

Basic concepts: wants, scarcity, choice & opportunity cost

JAMBWAECNECO

What the syllabus asks

JAMB: Economics as a science: wants, scarcity, choice, scale of preference, opportunity cost, rationality, production, distribution, consumption; what, how and for whom to produce; efficiency of resource use; application of the PPF

WAEC: Definition and scope of economics: scarcity and choice, scale of preference, opportunity cost, economic activities (production, distribution, consumption), primary, secondary and tertiary activities; production possibility curve

NECO: Definition and scope of economics: scarcity and choice, scale of preference, opportunity cost, economic activities (production, distribution, consumption), primary, secondary and tertiary activities; production possibility curve

What you will learn

Define economics and explain why it is called a social science.
Explain wants, scarcity, choice and the scale of preference.
Calculate and explain opportunity cost in everyday and national decisions.
State and explain the basic economic problems: what, how and for whom.
Draw and interpret a production possibility curve.
Classify economic activities into primary, secondary and tertiary.

Key points

Economics: how scarce resources are used to satisfy unlimited wants (Robbins).
Micro studies units; macro studies the whole economy; positive = testable, normative = value judgement.
Wants are unlimited, recurrent, competitive and varied.
Scarcity forces choice; a scale of preference ranks wants.
Opportunity cost = next best alternative forgone (real cost).
Basic problems: what, how, for whom to produce, and efficient use.
PPC: on = efficient, inside = unemployment, outside = unattainable; concave due to increasing opportunity cost.
Outward shift = growth; inward = loss of resources.
Production is primary (extraction), secondary (manufacturing), tertiary (services).

Start here: What is Economics?

Think about a typical school morning. Your mother has a fixed amount of money in her purse. She must pay for transport, buy bread and eggs, give you lunch money and still keep something for the electricity token. She cannot buy everything she wants, so she decides what comes first. That small daily decision is economics in action.

Economics is the study of how individuals, firms and governments use scarce resources to satisfy their unlimited wants, by making choices among alternative uses.

This modern definition is usually linked to the British economist Lionel Robbins (1932), who described economics as the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Notice three key ideas in it: ends (wants), scarce means (resources) and alternative uses (choice). WAEC and JAMB expect you to recognise this definition.

Other definitions you may meet

Adam Smith (1776), often called the father of economics, saw it as an enquiry into the nature and causes of the wealth of nations. This is the "wealth" definition.
Alfred Marshall (1890) described it as the study of mankind in the ordinary business of life, focusing on welfare, that is, material well-being.
Robbins gave the scarcity definition above, which is the one most used today.

Why economics is a social science

Economics studies human behaviour in society, so it is a social science, like Government and Geography. It is called a science because it uses a scientific method: it observes facts, forms hypotheses, tests them with data and draws general laws, such as the law of demand. But unlike Chemistry, it cannot run controlled laboratory experiments on whole countries, and people do not always behave predictably. So its laws are tendencies, true "other things being equal" (the Latin phrase ceteris paribus).

Worked example 1.1

A student says: "Economics is just about money." Explain why this is incomplete.

Economics deals with scarce resources of all kinds: land, time, labour, machines, not only money.
Money is a measure and a medium of exchange; the real issue is the choice between alternative uses of resources.
For example, a farmer deciding whether to plant maize or cassava on one plot is making an economic choice even if no money changes hands.

Economics is about choices with scarce resources, of which money is only one.

⚠️ Common mistake: writing "economics is the study of money and banking". That describes one branch only.

Try it yourself. Name the three key ideas in Robbins’s definition.

Show solution

Ends (wants), scarce means (resources), alternative uses (choice).

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Practice questions

1. Economics is best defined as the study of how

scarce resources are used to satisfy unlimited wants
money is printed and spent
governments collect taxes
firms make the highest profit

Show answer

A: scarce resources are used to satisfy unlimited wants
Robbins: scarce means with alternative uses and unlimited ends.

2. The real cost of a choice is its

money cost
fixed cost
marginal cost
opportunity cost

Show answer

D: opportunity cost
Opportunity cost is the next best alternative forgone.

3. A student has ₦1,000 and can buy either a novel or a T-shirt. She buys the novel. Her opportunity cost is

the novel
nothing
the T-shirt
₦1,000

Show answer

C: the T-shirt
The forgone alternative, not the money paid.

4. Human wants are said to be

the same for everybody
unlimited and recurrent
limited and fixed
satisfied once and for all

Show answer

B: unlimited and recurrent
Wants are unlimited, recurrent, competitive and varied.

5. A list of wants arranged in order of importance is a

scale of preference
budget
demand schedule
production possibility curve

Show answer

A: scale of preference
The scale of preference ranks wants.

Key words

Economics: The study of how people use scarce resources to satisfy unlimited wants.
Wants: Desires for goods and services.
Scarcity: Limited resources relative to wants.
Choice: Selecting which wants to satisfy.
Scale of preference: A list of wants arranged in order of importance.
Opportunity cost: The value of the best alternative forgone; also called real cost.
Money cost: The amount of money paid for something.
Free good: A good not scarce and with zero opportunity cost, e.g. air.
Economic good: A scarce good that commands a price.
Rationality: Making choices that give the greatest satisfaction from limited means.
Production: Creation of goods and services to satisfy wants.
Distribution: Moving goods from producers to consumers.

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