INTRODUCTION TO ECONOMICS

 

THE MEANING OF ECONOMICS

What is Economics?

The infamous word "Economics" has largely been used to describe situation where money is limited and wants are many. Some of its users refer to it as the quality of being able to use the available resources to get the best from the situation.

There is an economic aspect to almost any topic we care to mention – education, employment, housing, transport, defence etc. Economics is a comprehensive theory of how the society works. But as such, it is difficult to define.

The great classical economist Alfred Marshal defined economics as the "Study of man in the ordinary business of life". This, however, this definition is necessary but not sufficient. This is because any definition should take account of the guiding idea in economics which is scarcity.

American economist Paul Samuelson thus defined it as: "The study of how people and society choose to employ scarce resources that could have alternative uses in order to produce various commodities and to distribute them for consumption, now or in future amongst various persons and groups in society.

Since everything is scarce; the word scarcity as used in economics means that; all resources are scarce in the sense that there are not enough to fill everyone's wants to the point of satiety. The economist’s job is to evaluate the choices that exist for the use of these resources. Thus we have another characteristic of economics; it is concerned with choice.

Another aspect of the economics is human; this is due the fact that human wants are infinite. By want we mean; "A materialistic desire for an activity or an item. We have now assembled the three vital ingredients in our definition, human wants, Scarcity and choice.

 Thus for our purpose we could define economics as: A science which is concerned with the allocation of scarce resources to provide goods and services which meet the needs and wants of the consumers"

The meaning of key terms

Economics: The study of how individuals and societies choose to use their limited, or scarce, resources to satisfy their unlimited wants.

Resources: The inputs used to produce goods and services. They are also known as the "factors of production" and are categorized as land, labor, capital, and entrepreneurship.

Wants: The desires of individuals or society for goods and services. Wants are considered to be infinite.

Goods and Services: Goods are physical items that can be purchased, such as food or clothing. Services are intangible activities provided to consumers, such as medical care or haircuts

Kenya operates a mixed, market-based economy. While private enterprise and supply and demand largely drive economic activity, the government also plays a significant role in providing infrastructure, public services, and regulating the market

Key aspects of economics in Kenya

Economic system

Kenya operates a mixed, market-based economy. While private enterprise and supply and demand largely drive economic activity, the government also plays a significant role in providing infrastructure, public services, and regulating the market. 

Key sectors

·         Agriculture: It is the backbone of the economy, providing livelihoods for most of the population and accounting for a significant portion of the country's GDP. However, the sector is vulnerable to weather shocks, such as recurrent droughts, which directly impact food security and growth.

·         Services: This is the largest and fastest-growing sector, driven by industries like financial services, tourism, and Information and Communication Technology (ICT).

·         ICT ("Silicon Savannah"): Kenya has emerged as a regional leader in technology and innovation, notably through mobile money services like M-Pesa, which has revolutionized financial inclusion.

·         Manufacturing: The sector primarily consists of agro-processing and a growing informal economy. The government has prioritized industrialization to boost its contribution to GDP. 

Major economic challenges

·         High public debt: Extensive borrowing to finance infrastructure projects and other public services has resulted in a high debt-to-GDP ratio. The cost of servicing this debt can constrain the government's ability to fund other essential services.

·         Inclusive growth and inequality: While the economy has grown, the benefits have not been shared equally. High levels of poverty persist, particularly in arid and semi-arid regions. The benefits of high-paying service sector jobs are more accessible to skilled urban workers, leaving many low-skilled workers behind.

·         Youth unemployment: A rapidly growing young population and slow job creation, especially in the formal sector, have resulted in high rates of youth unemployment.

·         Corruption: This remains a significant barrier to investment and efficient resource allocation, undermining governance and development efforts.

·         Climate change: As a heavily agricultural economy, Kenya is highly vulnerable to climate shocks like droughts, which hurt agricultural productivity and exacerbate poverty. 

Economic policies and development plans

·         Vision 2030: A long-term development strategy aimed at transforming Kenya into a newly industrialized, middle-income country.

·         The Big Four Agenda: A past administration's focus on four priority areas: food security, affordable housing, manufacturing, and universal health coverage.

·         Bottom-Up Economic Transformation Agenda (BETA): A more recent initiative focused on lifting Kenyans at the bottom of the economic pyramid.

·         Fiscal and monetary policy: The Central Bank of Kenya uses monetary policy, and the government uses fiscal policy, to manage inflation, stabilize the currency, and promote growth.