Why economics? Scarcity and choice

Marshall called economics 'the study of man in the ordinary business of life'. Each day, people buy and sell, produce and work: farmers in their fields, workers in factories, shopkeepers in their shops. These are economic activities: activities undertaken for a monetary gain, to earn a living. Helping a neighbour or donating blood, done without any thought of money, are non-economic activities.

Why do we need to choose at all? Because our wants are unlimited, but the resources to satisfy them (money, time, land, water, labour) are limited. Think of your own pocket money: there is always something more you would like to buy than you can afford. And resources have alternative uses: a piece of land can grow wheat or hold a factory, but not both at once. So we must choose.

This scarcity is the root of all economic problems. Every person, firm and country must decide how best to use what it has.

Economics is usually studied in three parts:

• Consumption: how a consumer, with a given income, chooses what to buy at known prices.
• Production: how producers decide what to produce and how to produce it.
• Distribution: how the national income (GDP) of a country is shared out as wages (to labour), profits, rent (to land owners) and interest (to those who lend capital).

Putting it together: economics is the study of how people and society choose to use scarce resources that have alternative uses, to produce goods and services and distribute them among people.