Economic Background

Abstract

Classical economic theory offers us the proposition that we live in a world in which resources (that is, the ‘land’, ‘labour’ and ‘capital’ used for production of goods and services) are scarce and wants are without limit, and that the purpose of economic activity is to reconcile those wants and resources. Upon this proposition a whole science of economic theory and application has been built to explain the principles, purposes and mechanisms which govern economic activity in the world. Of course, it is a little rash to describe as a science a subject in which human behaviour is the most important element, just as it is extremely risky to use economic theory to predict outcome when economic activity is so full of unpredictable variables. Fortunately, although it is appropriate to begin the treatment of subjects in the book with this first proposition of scarcity and wants, it is not necessary to explore the whole of economic theory, or to depend on it for valid conclusions. It is sufficient to start with some general principles and to add a few reasonable assumptions.