ECO 406- Economics

THE BASIC MEANING AND DEFINITION OF THE ECONOMY

Generally, our focus in this course is to understand the study of comparative economic system. Firstly, let us examine an economy. The word "economy" is derived from the Greek word: "oikos", meaning household. Economy means "management of the household" (ecology, also derived from Greek word, means "study of the household"). The "household" here refers to the entire society. It is pertinent that for society to exist, people in such society would have their own desires. However, we are not concerned with psychological desires such as love, power, or respect. Hence any product that satisfies people's desires is called a "good" or a "service".

Economists make three assumptions about human being desires for material goods and services. Firstly, human being are insatiable. No matter how many goods and services people have, they still want more. Today, even the poorest Nigerians have more goods and services they desire for consumption even if they cannot afford it. Yet, we still desire more and more. Secondly, human being are rational in nature. People's desires are not to be questioned. I desire the things i desire for my own reasons, you desire the things you desire for your own reasons, I also know what is best for me and you know what is best for you. Thirdly, human being act as maximizer. Consumers attempt to maximize the satisfaction they get from their purchases, given their limited incomes. Likewise, business firms attempt to maximize their profits, workers also attempt to maximize their wages/salary or other benefits of a job. Therefore, such a person who acts as a rational, self-interested, maximizer is known as "Economic Man". The economy therefore is a society which allow the co-relationship of all the economic agent which are the household, business firm and the government. The economy comprises of decision makers or economic agents which are the following.

1. The individual or Household

2. The business firm

3. The Government.

The above listed decision makers makes up the unit that co-relate and exist in the economy. The contribution of each of this unit cannot be over looked in the economy. Economic transactions which involved the interplay of demand and supply between these economic agents are facilitated to allow for circular flow of resources, factors of production, income, tax, transfer payments etc to mention but few to be determined as a result of these transactions. What we are talking about is that, each of this economic agent or decision makers depends on one another for survival in the economy.