If there were enough of everything we wanted we should not need to bother how each of us gets a share, we don't for instance, count the number of times we breathe, because there is enough air for everybody. But most of the things we want are not free for us as air and we have to find some way of deciding how much each of us can have.
Scarcity is a permanent characteristic of all human society and is the basis of the problem that faces, and always has faced, the human race whatever its form of organization. It springs from the fact that material resources of the world are limited and that our ability to make use of these resources is even more limited by our ignorance. Everything that we need to satisfy our wants has to be derived finally from two sources — the natural resources that are available and the human ability to make use of them. As our knowledge grows and we increase our skill, we can exploit more and more of opportunities that nature offers to us. The increase in communications, for example, has brought within our reach the resources of vast areas that were closed for us before; the development in scientific knowledge has made accessible many valuable minerals from depths below the earth's surface that could not be reached by earlier generations. But whatever the rate of development may be there is, at any one time, a limit to the total of what can be produced.
Very early in our childhood we are taught that you can't have your cake and eat it, and this is only putting in another way the fact that you can't use the same resources to produce two separate things at the same time. If you want to grow cabbages on a bit of land you cannot also use it for a tennis court; if you spend a couple of hours in a cinema yon can't also use them for digging the garden or painting a picture. You have to choose which of the many possible uses to which you could put the same materials or the same time is the one you prefer, in the knowledge that the price you pay consists of all the other alternatives you have thereby given up. This inescapable fact has nothing to do with any particular form of economic and social organization; it is part of human experience. As far as we can judge, there is no limit to wants; in fact, the growth of civilization is largely the development of new wants or new kinds and, varieties of old wants — physical, intellectual, emotional, esthetic, spiritual.
1. Read the text for general comprehension.
What do economists do? What are their goals? What procedures do they employ? Economists derive economic principles which are useful in the formulation of policies designed to solve economic problems. The procedure employed by the economist is summarized in Figure 1-1. The economist must first ascertain and gather the facts which are relevant to consideration of a specific economic problem. This task is sometimes called descriptive economics. The economist then puts this collection of facts in order and summarizes them by "distilling out" a principle, that is, by generalizing about the way individuals and institutions actually behave. Deriving principles from facts is called economic theory or "economic analysis." Finally, the general knowledge of economic behavior which economic principles provide can then be used in formulating policies, that is, remedies or solutions, for correcting or avoiding the problem under scrutiny. This final aspect of the field is sometimes called "applied economics" or policy economics.
Policy economics is concerned with controlling or Influencing economic behavior or its consequence.
| PRINCIPLES OR THEORIES
Theoretical economics involves generalizing about economics behavior.
Descriptive economics is concerned with gathering The facts relevant to a specific problem or aspect of the economy.
The relationship between facts, principles, and policies in economics. In studying any problem or segment of the economy, the economist must first gather the relevant facts. These facts must then be systematically arranged, interpreted, and generalized upon. These generalizations are useful not only in explaining economic behavior, but also in predicting and therefore controlling future events.Continuing to use Figure 1-1 as a point of reference, let us now examine this three-step procedure in more detail.
All sciences are empirical. All sciences are based upon facts, that is, upon observable and verifiable behavior of certain data or subject matter. In the physical sciences the factual data are inorganic. As a social science, economics is concerned with the behavior of individuals and institutions engaged in the production, exchange, and consumption of goods and services.
The first major step, then, in investigating a given problem or a specific segment of the economy is to gather the facts. This can be an infinitely complex task. The world of reality is cluttered with a myriad of interrelated facts. The economist therefore must use discretion in fact gathering. One must distinguish economic from noneconomic facts and then determine which economic facts are relevant and which are irrelevant for the particular problem under consideration. But even when this sorting process has been completed, the relevant economic facts may appear diverse and unrelated.
A conglomeration of facts is relatively useless; mere description is not enough. To be meaningful, facts must be systematically arranged, interpreted, and generalized upon. This is the task of economic theory or analysis. Principles and theories — the end result of economic analysis - bring order and meaning to a number of facts, by tying these facts together, putting them in correct relationship to one another, and generalizing upon them: "Theories without facts may be barren, but facts without theories are meaningless."
The interplay between the levels of fact and theory is more complex than Figure 1-1 indicates. Principles and theories are meaningful statements drawn from facts but facts, in turn, serve as a constant check on the validity of principles already established. Facts - how individuals and institutions actually behave in producing exchanging, and consuming goods and services change with time. This makes it essential that economists continuously check existing principles and theories against the changing economic environment. The history of economic ideas is strewn with once valid generalizations about economic behavior which were rendered obsolete by the changing course of events.