Economics is the study of how scarce resources are allocated amongst competing wants. Or so the standard definition goes.

There is more that can be said, however, and the standard definition begs the key question: by which process or theory of a process are inanimate resources distributed by the actions of human beings, to solve the fundamental economic problem of  scarcity?

In this introductory section we explore four fundamental concepts that occur throughout economics and which help define how we answer this basic question of how to generate and share wealth.

1. Scarcity – the simple truth that there is never enough to go round to satisfy every desire of every human being, irrespective of cost. (Handout, Core concept 1)
2. Opportunity cost – every decision of any of us has an opportunity cost – an amount of time or money or something we could have bought instead, which we gave up in order to fulfil our choice. (Handout, Core Concept 2)
3. Rationality – we make choices according to principles of reason. But there isn’t one model of how to reason, unfortunately. To the traditional (neoclassical) school of economics, supposedly deriving from Adam Smith (Extract 1),we are all self-interested utility (satisfaction) maximisers. But we are also, according to the Darwinists like Richard Dawkins, genetically programmed for co-operation. Isn’t it equally reasonable to co-operate and sometimes to sacrifice self-interest? (Handout, Core Concept 3, and Advanced Article 1)
4. Marginality – the basic insight of all economists is that decisions are made ‘at the margin’ – in other words, I choose to consume a little bit more of something instead of a little bit of something else. We explore this key idea in a handout and also an extract from an American blogger. (Handout, Core Concept 4, also Extract 4)

Economics has been attacked particularly since the 2007-8 banking crisis, for encouraging greed (a moral attack) and for failing to forecast accurately (a practical attack). Some of these attacks are contained in articles we have reproduced here (Article 1,2 and 3). But are they valid?

Many economists, Adam Smith and John Maynard Keynes for example, were also moral philosophers (see Extract 1,2,3 and Advanced Article 2). They didn’t quite see their subject as the enemy of right and wrong. Perhaps we need to reconnect the subject matter of positive (value-free) economics and normative (value filled) economics. And arguably the biggest economic, moral and political crisis we face is increasing inequality, both global and domestic (Advanced Article 2).

In the end economics is a discipline which studies human behaviour in all its complexity. For this reason it must include a study of how expectations, feelings or other influences guide economic decision-making.

It is not an arid, quasi-scientific discipline but rather the fascinating study of how human beings attempt to create social progress through the generation and spending of wealth – and a subject whose laws have an eternal quality – as the principle of opportunity cost, for instance, has to apply everywhere, in every decision, and for all time.