1.1 THE SCOPE AND METHOD OF ECONOMICS STUDIES

Since the beginning of the social system, individuals have interacted with one another in order to satisfy their respective needs. Society also interacts with nature to obtain natural resources as the necessities of life. Economy is related to the daily activities of society and individuals who interact with one another.

Economy is commonly defined as a research on how a society utilises limited resources to satisfy their unlimited wants. The basic question of economy arises from the problem of resource scarcity.

The economic field exists as a result of limited resources and unlimited human wants. Both must exist simultaneously. For example, if human wants are limited and resources are limited too, hence there will be no problem of choice and the economic field will not exist and vice-versa.

1.1.1 Economic Method

A method is a systematic and orderly way of generating new facts which may not be explained before.

Economics is considered as a science because in economic research we apply scientific methods. As an economic researcher, we will attempt to establish a relationship between a variable or incident with another variable or other incidents by developing theories.

A theory is the conclusion we make through general observations.

We will then verify the validity of a particular theory by using data we have collected. If the data analysed verify the validity of the theory, then our economic theory will become an economic law. This economic law will be embraced until there is a competing theory that states otherwise. Figure 1.1 shows the process of forming an economic theory.

Figure 1.1: The process of forming an economic theory

1.1.2 Microeconomics and Macroeconomics

Economics research is commonly divided into two general categories –microeconomics and macroeconomics. Now, let us see what these mean.

Microeconomics focuses on the operations and choices made by decision-making units; namely household, firm and industry.

Macroeconomics involves study on sectors and variables with wider scopes such as national production and income, aggregate demand and supply, movement of general price level, and problems such as unemployment and inflation.

Figure 1.2: Categories of economic research

For example, based on the particular definition, we know that the research on demand for and price of chicken in the market is a microeconomics research. Likewise, the decision you make to further your studies is an outcome of a microeconomic research on cost and benefits gained from you completing the studies, even though it is made in an indirect way.
However, microeconomics research is not necessarily separated from macroeconomics research since both involve social behaviour in making decisions. For example, in the case of making decision to further studies, the decision may involve an individual, but when making judgments, macroeconomic problems, such as unemployment will also be considered. You make a decision to further your studies because it was reported that the rate of unemployment for non-graduates is high.