Chapter 1. Introduction to Economics as a Science FREE
Every day in South Africa, millions of decisions are made about how to use things that are limited. A family in Soweto decides whether to spend R200 on airtime or on extra bread and milk. The government in Pretoria decides whether to build a new clinic or a new road with the same R50 million. A clothing factory in Durban decides whether to hire more workers or buy a new machine. Economics is the science that studies these choices. It asks how people, businesses and governments use limited resources to satisfy their unlimited wants, and how they can do this in the best possible way.
1.1 What is Economics?
Economics is the social science that studies how a society uses its scarce resources to produce goods and services, and how these are distributed among people to satisfy their needs and wants. It is called a social science because it studies the behaviour of people in society, not the behaviour of objects in a laboratory.
Two ideas sit at the centre of the subject. The first is scarcity, which means that the resources available to us are limited while our wants are unlimited. The second is choice, because scarcity forces every person and every country to choose what to produce and what to give up. Because Economics studies how people behave when they make these choices, it uses careful observation, data and logical reasoning, which is why we call it a science.
1.2 Needs, wants and the difference between them
A need is something a person must have in order to survive, such as food, clean water, shelter and basic clothing. A want is something a person would like to have to make life more comfortable or enjoyable, such as a smartphone, a holiday in Cape Town, or branded sneakers. Needs are limited, but wants are unlimited and they keep growing as society develops.
- Needs are essential for survival; wants are not essential.
- Needs are relatively few and stable; wants are many and keep increasing.
- The same item can be a need for one person and a want for another, depending on circumstances.
1.3 Goods and services
To satisfy needs and wants, an economy produces goods and services. A good is a physical item that you can touch, such as maize meal, a textbook or a Toyota bakkie. A service is an action that one person performs for another, such as a teacher giving a lesson, a doctor at Chris Hani Baragwanath Hospital treating a patient, or a taxi driver transporting commuters.
- Economic goods are scarce and have a price, for example petrol and electricity.
- Free goods are so plentiful that they have no price, for example air and sunshine.
- Consumer goods are used directly by people, such as bread.
- Capital goods are used to produce other goods, such as a factory machine or a delivery truck.
1.4 Why economists think in terms of cost and benefit
Because resources are scarce, economists weigh the benefit of a decision against its cost. When a household, a firm or the government compares what it gains against what it gives up, it is doing economic reasoning. This careful weighing of cost against benefit is one reason Economics is treated as a science rather than as guesswork.
1.5 The two main branches of Economics
Economics is divided into two large branches. Microeconomics studies the behaviour of individual decision-makers, such as a single household, a single firm like Pick n Pay, or a single market such as the market for petrol. Macroeconomics studies the economy as a whole, looking at the total output of South Africa, total employment, and the general level of prices.
- Micro looks at the small parts: one buyer, one seller, one product.
- Macro looks at the big picture: the whole country and all its markets together.
1.6 Why we study Economics
Studying Economics helps a citizen understand the news, a budget speech, and why prices rise or fall. It helps a household manage money wisely and helps a country decide how to use taxes for the benefit of all its people. Because South Africa faces real challenges such as unemployment, poverty and inequality, understanding Economics gives learners the tools to take part in building a fairer and more productive country.