Economics | Economics as a social science

Chapter 1: Economics as a Social Science

Hello everyone! Welcome to your first chapter in Economics. Don't worry if you think economics is all about complicated graphs and big numbers. At its heart, it's actually the study of something we all do every single day: making choices! In this chapter, we'll explore what economics really is and why it's called a 'social science'. This is a super important foundation for everything else you'll learn.

What is Economics? The Study of Choices

At its core, Economics is the study of human behaviour. Specifically, it's about how we, as individuals and as a society, make decisions about how to use the limited things we have to satisfy our unlimited desires.

Think about your daily life:

• Should I spend my money on bubble tea or save it for a concert ticket?
• Should I spend the next hour studying Economics or watching a video?
• Should the government spend more on building hospitals or on building new MTR lines?

All of these are economic questions because they are all about making choices. Economics provides a framework to understand why people make the choices they do.

The Fundamental Economic Problem: Scarcity

The reason we have to make choices is because of a problem called scarcity. This is probably the single most important concept in all of economics!

Scarcity is the condition where our wants are unlimited, but the resources available to satisfy them are limited.

• Unlimited Wants: Humans always want more or better things. Once you get the latest smartphone, you might start wanting new apps, a better camera lens, or the next model. Our desires are endless!


• Limited Resources: The resources we use to get what we want are finite. This includes your personal resources (like time and money) and society's resources (like workers, machines, and land).

Analogy Time! Imagine you're at a buffet. You have unlimited wants (you want to try every single dish!), but you have a limited resource (the size of your stomach). You can't eat everything. You have to make choices about which dishes will make you the happiest. That's scarcity in action!

The Main Assumption: Constrained Maximization

This sounds very technical, but I promise it's a simple idea that you already understand! To study human behaviour, economists start with one basic assumption about how people make choices. This is called the postulate of constrained maximization.

Let's break down the name:

• Postulate: This is just a fancy word for a starting assumption or a basic belief.


• Maximization: This means people try to get the most out of something or make themselves as well-off as possible. They want to maximize their satisfaction, happiness, or profit.


• Constrained: This means people face limits or restrictions. These limits are caused by scarcity (e.g., a limited budget, limited time).

So, the postulate of constrained maximization is the assumption that people will try to make the best possible choice for themselves (maximization), given the limits or restrictions they face (constraints).

Real-World Examples of Constrained Maximization

You use this principle all the time without even thinking about it!

Example 1: Choosing Lunch
You want the most delicious lunch possible (maximization), but you only have $50 in your wallet and 15 minutes before your next class (constraints). You won't choose a fancy restaurant because it breaks your constraints (too expensive, takes too long). You'll choose the best option available that fits your budget and time. That's constrained maximization!

Example 2: A Company Hiring Workers
A company wants to produce as many goods as it can to earn the highest profit (maximization). But it has a limited budget for paying wages and can only find a certain number of skilled workers (constraints). The company will hire the best combination of workers it can afford to achieve its goal.

Example 3: A Student Planning their Evening
A student wants to get the highest possible grade on their test (maximization). But they only have three hours to study and are also feeling very tired (constraints). They might decide to study the most important topics for two hours and then rest for an hour, which is the best strategy given their constraints.

Why is Economics a "Social Science"?

This brings us back to our main topic. A social science is a field of study that focuses on human society and social relationships. It's different from a natural science (like Physics or Biology), which studies the physical world.

• In Physics, an apple will always fall from a tree due to gravity. The laws are predictable and universal.


• In Economics, we are studying people. People are complex! If the price of a concert ticket goes up, will people buy fewer tickets? Probably, but we can't be 100% certain. Human behaviour isn't a fixed law of nature.

Economics is considered a social science because:

1. It studies human behaviour: Its main focus is on how individuals and groups of people (societies) behave when faced with scarcity.

2. It uses a scientific approach (with assumptions): While we can't predict behaviour perfectly, we use assumptions like constrained maximization to build theories and models that help us understand and predict human actions in a systematic way.

3. It examines how people interact: Economics looks at how the choices of one person (like buying a product) affect another person (the person who sells it). It studies markets, firms, and governments, which are all social structures.