page . page 2 4. introductory economics (hme 100) 2(2+0) nature and scope of economics, definition...
Post on 13-Apr-2018
Embed Size (px)
www.anilrana13014.webbly.com Page 1
www.anilrana13014.webbly.com Page 2
4. Introductory Economics (HME 100) 2(2+0)
Nature and scope of economics, definition and concepts, divisions of economics, economic systems, approaches to the study of economics. Consumption theory of consumer behaviour, laws of consumption, classification of goods. Wants their characteristics and classification, utility and its measurement, cardinal and ordinal, law of diminishing marginal utility, law of equi-marginal utility, indifference curve and its properties, consumer equilibrium. Theory of demand, demand schedule and curve, market demand. Price, income and cross elasticities, Engils law of family expenditure consumers surplus. Theory of firm, factors of production land and its characteristics, labour and division of labour, theories of population. Capital and its characteristics classification and capital formation. Enterprises forms of business organization merits and demerits. Laws or return law of diminishing marginal return cost concepts. Law of supply supply schedule and curve elasticities. Market equilibrium, distribution theories of rent, wage, interest and profit. Price determination and forecasting under various market structures.
1 All rights are reserved with Dr. YSPUH&F Solan @ 2012.
Learning Objective: Introduction to the economics, Different definitions, Scope, and subject matter
Introduction to Economics
As a beginner, before understanding the nature and scope of economics one has to clearly understand what economics is? Or what is the basic thing which necessitated the study of
The basic problem of scarcity of resources and unlimited human wants is the starting point of the study of economics.
An economy exists because of two facts. Firstly the human wants for goods and services are unlimited, and secondly productive resources with which to produce goods and services are scare.
So economics the analysis of how to allocate scarce resources among competing uses.
Economics is the study of how individual and societies choose to use the scarce resources. It is the behavioral science studying individual choices and more broadly societal choices added up
from them. Either you are planning the coming holiday against limited time or slicing a gigantic
watermelon with several of your siblings, you are doing economics.
The definitions of economics can be broadly discussed under the following subheads.
(a) Wealth definition- Adam smith (b) Welfare definition - Alfred Marshall (c) Scarcity definition - Lionel Robbins (d) Growth definition - Paul Samuelson
Adam Smith, commonly known as the father of modern economics, defined economics as "An enquiry into the nature and causes of wealth of nations." This definition laid more emphasis
on wealth. As wealth is not everything, it only leads to achieve welfare of human. Therefore it is
human which is the aim all of the economic activities.
Professor Dr. Alfred Marshall was the first economist who gave a logical definition of economics. He defined economics as: "A study of mankind in ordinary business of life, it examine
that part of individual and social actions which is closely related with attainment and use of
It is a subject that is concerned with the people living in society. According to Marshall, as the behavior of human beings is not same all the time therefore principles of economics cannot be
formulated like the laws of sciences. Further laws of economics are not as exact as the laws of
natural sciences. For this reason it is a social science.
Economics is related to man; therefore it is living subject. It discusses economic problems and behavior of man. According to Marshall it studies the behavior of man in ordinary business of
life. According to Marshall, wealth is not the ultimate objective of human activities and therefore
we do not study wealth, for the sake of wealth. Therefore according to this definition we study
wealth as a source of attainment of material welfare. This definition makes economics welfare
oriented subject. We are concerned only with those economic activities which do not promote
material welfare of human beings are out of the scope of economics. However, Lionel Robbins
and other many economists severely criticized this definition on following grounds."
Limited to Material Welfare: In reality both material and non material aspects of wellbeing are studies in economics.
2 All rights are reserved with Dr. YSPUH&F Solan @ 2012.
Vague Concept of Welfare: The welfare of human beings is not limited to the attainment of material requisites. There are many other factors which affect the human welfare. Further the
word "welfare" has different meaning for different persons and different societies. Therefore we
cannot define economics using an unclear concept of welfare.
Limited Scope: This definition has made the scope of economics limited. Only those activities are studied in economics which are aimed at the attainment of material requisites of well being.
Further it ignores the economic activities of a person not living in society. Attainment of non
material requisites of human well being fall out of the scope of economics. This
Economics and Welfare: According to Robbins the study of economic activities on the basis of welfare is not good. It is not the duty of an economist to pass verdict that what is conducive to
welfare and what is not. Thus according to Robbins "Whatever Economics is concerned with, it is
not concerned with causes of material welfare as such.
Moral Judgment: In this definition Marshall makes economics a subject which considers the right and wrong aspect of economic activities. According to Robbins economics in neutral as
regards ends and it is not the function of an economist to pass moral judgments and say what is
good and what is bad.
Unrealistic: This definition appears to be unrealistic as we analyze it critically. The unclear concept of welfare, the division of ends into material and non material, the stress on good and
bad, the concept of man living in society etc. all these concepts put unnecessary restrictions and
make the scope of economics limited. These ideas make the definition unrealistic.
According to Robbins, economics is a science that studies human behavior as a relationship between ends and means which has alternative uses. This definition was criticized by economist
like Durbin, Fraser Ely etc. In their opinion Robbins has reduced the economics to simply a
theory of value determination or a science of choice making. It has nothing to do with the welfare
of the man.
According to Paul Samuelson,the study of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to
produce various commodities over time, and distribute them for consumption, now and in the
future among various people and groups of society. In this definition, element of time, the
problem of scarcity of means in relation to unlimited ends and alternative uses and various aspects
like production, distribution and consumption were considered.
These definitions have one or the other short coming, however, their systematic synthesis leads to the
conclusion that it is the science that studies, for the purpose of achieving maximum satisfaction of wants
and increasing of welfare as well as economic growth those activities which are concerned with the
efficient consumption, production, exchange and distribution of scarce means having alternative uses.
The following illustration makes the definition of economics more clear.
3 All rights are reserved with Dr. YSPUH&F Solan @ 2012.
Finaly, Economics is rightly considered as the study of allocation of scarce resources (in relation to
unlimited ends) and of determinants of income, output, employment and economic growth
Scope of Economics:
The scope of economics is the area or boundary of the study of economics. In scope of economics we
answer and analyze the following three main questions.
(i) What is the subject matter of economics?
(ii) What is the nature of economics?
(iii) What are the limitations of economic?
Subject matter of Economics: There is a difference of opinion among economists regarding the subject-
matter of Economics.
Adam smith, the father of modern Economic Theory, defined Economics as a subject, which is mainly concerned with the study of nature and causes of generation of wealth of nation.
Impressed by the condemnation of the l9th century writers, like Carlyle and Ruskin, Marshall introduced the concept of welfare in the study of Economics. Marshall has shifted the emphasis
from wealth to man. He gives primary importance to man and secondary importance to wealth.
The Robbinss concept of the subject-matter of Economics is that Economics is a science which studies human behavior as a relationship between ends and scarce means which have
alternative uses. According to Robbins (1) human wants are unlimited (2) means at his disposal
to satisfy the