Fundamental Scarcity and Rational Choice | Economics SHS 1 SEM 1 WEEK 1 (WASSCE & NaCCA Aligned)

The Fundamental Problem: Scarcity and Choice

The universe of wants is infinite, but the pool of resources is tragically finite. This core conflict, inherent to human existence, is the starting point of our discipline. It is the concept of **scarcity**—the idea that our desires (wants) exceed what we currently have (resources) to satisfy them. This principle applies universally, whether you are a street vendor selling plantain chips in Tema or the Minister of Finance setting the national budget. Even if Ghana were to discover ten new oil fields, the resources would still be scarce relative to the unlimited needs for infrastructure, education, healthcare, and security.

Whenever scarcity exists, **choice** becomes mandatory. We are forced to make decisions about how to allocate our limited time, money (cedis), and labour. If a learner has 5 cedis, they must choose between buying ‘koko’ (porridge) or ‘bofrot’ (doughnut). They cannot have both if both cost 5 cedis. The act of choosing what to take, and what to give up, is what we study.

Defining the Economic Framework

We define the discipline as the social science that studies how individuals, firms, governments, and other organizations make choices on allocating scarce resources to satisfy unlimited wants. To understand this allocation, we must first classify what is being used and consumed:

• Goods: These are tangible items that satisfy wants, such as a physical textbook, a new house, or a bowl of jollof rice.
• Services: These are intangible actions or activities that satisfy wants, such as a teacher instructing a class, a doctor performing surgery, or a mechanic fixing a trotro.
• Resources (Factors of Production): These are the inputs used to produce goods and services: Land (natural resources), Labour (human effort), Capital (machinery and infrastructure), and Entrepreneurship (the skill to combine the others).

In Ghana, understanding resource allocation means asking questions like: Should the government invest in expanding road networks (Capital) or training more teachers (Labour)? The answer lies in economic analysis.

Microeconomics vs. Macroeconomics

The field is traditionally divided into two main branches, depending on the scope of analysis:

• Microeconomics: This branch focuses on the individual units of the economy—the household, the firm, and specific markets. It is concerned with “the small picture.” Microeconomists study topics like why the price of yam fluctuates at Makola Market, how a single bank decides its loan interest rate, or how a specific household maximizes its utility given its income constraints.
• Macroeconomics: This branch focuses on the economy as a whole, dealing with aggregate variables. It is concerned with “the big picture.” Macroeconomists study national issues like the overall unemployment rate of Ghana, the annual rate of inflation (the general increase in prices), and Gross Domestic Product (GDP)—the total value of goods and services produced in the country.

It is important to remember that micro and macro issues are interconnected. For example, the micro-level decisions of millions of consumers (households) influence the overall national inflation rate (a macro variable).

Positive and Normative Statements

Economists must be careful about separating objective reality from personal opinion when offering analysis. This leads to the distinction between two types of statements:

• Positive Economics: This focuses on objective analysis and factual claims—”what is.” These statements can be tested, proven, or disproven using data and empirical evidence. Example: “If the government increases the import tariff on rice, the domestic price of rice will rise.” This statement describes a cause-and-effect relationship based on existing theory.
• Normative Economics: This focuses on subjective value judgments and opinions—”what ought to be.” These statements reflect beliefs about fairness, ethics, or desirable outcomes, and cannot be scientifically proven or disproven. Example: “The government should increase subsidies for local maize farmers to ensure food security.” This statement reflects a policy recommendation based on a value judgment (the importance of food security).

A strong economist must first master positive analysis (understanding how the economy works) before venturing into normative advice (suggesting how the economy *should* work).

The Path of the Economist in Ghana

An economist is a professional who applies these theories, models, and data analysis tools to understand and predict human economic behavior, assisting in the crucial allocation of scarce resources.

Economists are essential across all sectors in Ghana:

• Public Sector (Government): Economists work in ministries (e.g., Ministry of Finance, Bank of Ghana) analyzing fiscal and monetary policy, setting inflation targets, and designing poverty reduction programs. They are the ‘Policy Makers’.
• Private Sector (Firms): They work in banking, insurance, and consultancy. They conduct market research, forecast demand for new products, and analyze investment risks for corporations. They are the ‘Financial Analysts’.
• Academia and Research: They teach the next generation and conduct critical research at universities and think tanks, developing new theories tailored to the Ghanaian context.

The study of this discipline equips citizens to make rational choices, analyze public policy critically, and contribute meaningfully to sustainable development by understanding the relentless trade-offs demanded by scarcity.

NaCCA ALIGNED
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