Introduction to AS Level Economics: History, Definitions, and Core Concepts

Greek Origins: The term "economics" is derived from the Greek word "Oikonomia."
- Oiko: Meaning "household."
- Nomia: Meaning "management."
- Original Definition: Primarily refers to "the science of household management."
Philosophical Perspectives:
- Xenophon: Defined economics as the "science of household management."
- Aristotle: Expanded the definition, stating economics is not only the science of household management but also the "science of exchange."

Timeline: Spanned from the end of the $18^{th}$ century through the following hundred years.
Key Economists: Popular thinkers of this era included Adam Smith, J.B. Say, T.R. Malthus, David Ricardo, J.S. Mill, and F.A. Walker.
Geographic Popularity: The classical school of thought was prominent in Germany, Italy, Sweden, France, and Spain.
Adam Smith: Known as the "Father of Economics."
- Key Publication: Authored "An enquiry into the nature and causes of wealth of nation" in $1776\,AD$ .
- Core Definition: Defined economics as a "science of wealth." In his view, economics is the study of human activities related to the production of wealth.
Theoretical Significance: Most fundamental economic theories, principles, and laws were formulated during this period.
Criticisms of the Wealth Definition:
- Critics: The definition was criticized by figures such as Ruskin, Carlyle, and Alfred Marshall.
- "Dismal Science": Critics argued that it focused on a "science of bread and butter," teaching selfishness and a love for money.

Goods: Tangible items that are produced, bought, or sold for final consumption.
Services: Intangible items arising from the output of one or more individuals. While products are tangible, services are typically intangible.
Economic Goods: Any good or service that provides a benefit (utility) to consumers or society. These are characterized by a degree of scarcity and therefore involve an opportunity cost.
Free Goods: A good with an opportunity cost of $0$ . These can be consumed in any desired quantity without reducing availability for others.
Merit Goods: Goods where people do not realize the true personal benefit (e.g., education or vaccinations). In a free market, these are typically under-consumed.
Demerit Goods: Goods that harm the consumer where the costs are often ignored (e.g., smoking or drugs).
- Impact: Consumption of demerit goods harms the user and negatively affects surrounding people. These are typically over-consumed in a free market.
Public Goods: Commodities, products, or services typically provided by a government and funded through taxation (e.g., roads, bridges, street lights).

Timeline: Encompassed the period between the late $19^{th}$ and early $20^{th}$ centuries.
Characterization: Regarded as the "most fertile period" in economic history due to the emergence of many economists who redefined and reformulated theories.
Key Economists: Alfred Marshall (leader), A.C. Pigou, Fisher, Sidgewick, Carl Menger, and Edwin Canon.
Core Focus: Shifted from wealth to the satisfaction or welfare derived from the consumption of material goods.
Alfred Marshall:
- Key Publication: Wrote "The Principles of economics" in $1890\,AD$ .
- Definition: Economics is the "study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the use of material requisites of well being."
- Shift in Emphasis: Marshall transitioned the focus from wealth back to the human being. He posited that economics is a study of wealth on one side, but more importantly, a study of the human being on the other.
Criticisms of the Welfare Definition:
- The term "welfare" is considered too broad and was not clearly defined.
- Example: Consuming a cigarette might provide satisfaction to an individual, fulfilling the criteria of a choice, yet it does not contribute to the actual well-being of the individual or society.

Timeline: The $20^{th}$ century and beyond.
Focus Shift: Modern economists moved away from Adam Smith's wealth aspect and Marshall's material welfare to focus on scarcity, choice, and human development.
Key Economists: Lionel Robbins, Barbara Wotton, William Beveridge, J.M. Keynes, and Paul Samuelson.
Lionel Robbins:
- Key Publication: Wrote "Nature and significance of economic science" in $1932$ .
- Specific Definition: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternate uses."
- Components: "Ends" refer to human needs or wants, while "Means" refer to resources.
- Criticism of Scarcity Definition: Critics argue it ignores critical issues like economic instability, unemployment, income determination, and growth. Additionally, it fails to address how economic problems can arise from abundance rather than just scarcity.
Paul Samuelson:
- Key Publication: Wrote "Economics: An introductory Analysis" in $1948$ .
- Growth Definition: Defined economics as the study of how people and society choose to employ scarce productive resources that have alternative uses to produce commodities over time and distribute them for current and future consumption.

Self-Assessment Task 1: Students are tasked with listing economic decisions made by themselves, their families, and their countries, relating them to basic economic problems.
Self-Assessment Task 2: Comparing the minimum human needs of a teenager in the UK versus a teenager in a marginalized community in Nepal.
Case Study: University Tuition in the $1990s$ :
- Context: Traditionally, the UK government paid all tuition fees and provided grants for living expenses based on parental income.
- Changes: In the $1990s$ , grants were frozen and subsidized loans were introduced.
- $1998$ Policy: Students were charged for part of their tuition for the first time, set at $\$1000$ per year.
Analysis of Opportunity Cost:
- To Parents: If parents pay the $\$1000$ fee, the opportunity cost is the benefit they would have received from the best alternative use of that money, such as family holidays, home improvements, savings/investments, paying off debts, or other household goods.
- To Students: If students borrow the $\$1000$ , the opportunity cost includes the interest payments and the future consumption/spending opportunities sacrificed to repay the debt.