What is Economics?

Economics is the social science studying the production, distribution and consumption of goods and services. Economics is a complex social science spans from mathematics to psychology.

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Definitions of Economics

Adams Smith-Wealth Definition (1776)

Adam Smith known as the father of economic science wrote his book Wealth of Nations in 1776.

Features

• Economics is the study of wealth only.
  
  
• It is a nature or meaning of wealth.
  
  
• It deals with the causes of wealth.
  
  
• It takes in to consideration the economic man.
  

Criticisms

• More emphasis on wealth
  
  
• Narrow meaning of wealth
  
  
• Concept concerned only with economic wealth
  
  
• Neglect of welfare
  
  
• Neglect of the problem of scarcity and choice
  
  
• Neglect of means to attain wealth

Marshall-Welfare Definition (1890)

However, with Marshall‘s definition of economics, the scope of economics becomes limited. Economics is more than what Marshall’s definition includes. Economics covers all activities – whether material or otherwise of humanity in earning and spending problems.

Features

• Importance to the study of man
  
  
• Study of social man
  
  
• Ordinary business of life
  
  
• Study of real man
  
  
• Material requisites
  
  
• Welfare
  
  
• Science and art
  
  
• Classificatory
  
  
• Money is the measure of material welfare

Criticisms

• Regarding ordinary business of life
  
  
• Limited scope
  
  
• Uncertain concept of welfare
  
  
• Economics is a human science
  
  
• Economics is only a positive science
  
  
• Impractical

Robbins-Scarcity Definition (1939)

Features

• Unlimited wants or ends
  
  
• Limited or scarce means
  
  
• Alternative uses of means
  
  
• Wants differ in urgency
  
  
• Economic problem
  
  
• Opportunity cost

Criticisms

• Ignores social aspect of economic activities
  
  
• Economics is not as neutral with respect to ends
  
  
• Concealed concept of welfare
  
  
• Very wide scope of economics
  
  
• Not only a positive science
  
  
• Division of personality

Samuelson-Growth Oriented Definition (1970)

Nobel Prize winner Prof. Samuelson defines economics as follows:

Features

• Economic resources
• Efficient allocation of resources
• Full utilization of resources
• Increase in resources

Merits

• Realistic explanation of economic problem
• Science and art
• Not neutral with respect to ends
• Practical
• Dynamic

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Scope of Economics

Modern economics is now divided into two major branches: microeconomics and macroeconomics.

Microeconomics

Microeconomics is the study of the economic behaviour of individual consumer and producer and of individual economic variables i.e. production and pricing of individual goods and services.

Microeconomics studies how consumers and producers make their choices and how their decisions and choices affect the market demand and supply conditions. It takes in to consideration how consumers and producers interact to settle the prices of goods and services in the market and how prices are determined in different market settings.

It also analyses how total output is distributed among those who contribute to production, i.e., between landlords, labour, capital supplier and the entrepreneurs.

Read more about Microeconomics.

Macroeconomics

Macroeconomics studies the working and performance of the economy as a whole. it analyses behaviour of the national aggregates including national income, aggregate consumption, savings, investment, total employment, the general price level and country‘s balance of payments.

Macroeconomics is deals not with individual quantities, as such, but aggregates of these quantities—not with individual incomes, but with the national income, not with individual prices but with price levels, not with individual output but with the national output.

More importantly, macroeconomics analyses the relationship between national aggregate variables. it also studies how aggregate variables interact with one another to determine one another. it studies also the impact of public revenue and public expenditure, government‘s economic activities and policies on the economy

Read more about Macroeconomics.

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Specialized Branches of Economic Studies

Many specialised branches of economics have come up over time because of the growing need for intensive and extensive study of certain aspects of microeconomics or macroeconomics.Some of the major specialised fields of economic studies are listed below with a brief description of their subject matter.

Economics of Development

the causes of underdevelopment, unemployment and poverty in less developed countries, problems faced in accelerating the pace of development and suggests policy measures to achieve a sustainable high growth rate of the economy and employment.

Public Economics

It examines economic role of the government, sources of government revenue, government‘s fiscal policy, effects of taxation and public expenditure, causes and consequences of budgetary and fiscal deficits, if any, rationale for and consequences of public sector economic activities.

Monetary Economics

It studies the monetary affairs of the country including demand for and supply of money, working of the money market, credit and financial system and management of the monetary sector.

International Economics

It studies the causes and consequences of international trade in goods and services, international flow of capital, international monetary and financial institutions, balance of payments and international payment system.

Industrial Economics

It is concerned with the working, growth and structures of the industrial sector (firms and industries) of the country, management and organisation of the industries and problems and prospects of industrial growth.

Labour Economics

It examines the problems faced by labour as an economic class and problems associated with labour organisations, labour productivity and wages, exploitation of labour, labour welfare schemes and labour laws and their effects.

Econometrics

It is the study of statistical and mathematical techniques applied to economic data with a view to testing a hypothesis, to quantify the relationship, if any, between the dependent and independent economic variables and to measure the effects of economic policies.

Economic History

It studies past economic record of a country or group of countries and of big historical economic events, e.g. industrial revolution and the Great Depression, often with the objective of bringing out the unknown facts to the light and also to know how past experience can be used to promote economic growth in future,History of Economic Thought: it is the study of evolution and development of economic thoughts and ideas, their background, their logic and flaws.

Regional Economics

It studies development of various regions of a country; it looks into the causes of imbalance in regional development, it examines why growth of urban economy is faster that of the rural economy.

Industrial Finance

It is concerned with the development and working of financial sector, especially the financial institutions that cater to the financial requirement of the industries and of the capital market and it studies how fluctuations in the financial sector affects the working and growth of the industrial sector.

Environmental Economics

It examines how industrial growth affects, rather destroys natural environment of the country, the global environment, causes global warming and affects climatic conditions.

Managerial Economics

It studies how economic theories, concepts and tools of analysis can be applied to business decision-making. it aids the understanding of the business environment of the country.

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Nature of Economics

By using macroeconomic tools and the technique of economic analysis, one can understand the working of the economic system in a better way.acIn order to study the nature of economics, we have to answer certain questions.

• Economics a science
  
  
• If it is a science then, what kind of science it is

Economics a science

According to Marshall, economics is a social science while according to Robbins economics is a human science. Here, we shall define science. Science is systematic presentation of any subject. With the help of science, certain theories and principles are presented and the problems in the life of man are solved.

For example, Marshall formulated the law of demand for the formulation of these laws. Marshall observed the behavior of people concerning the changes in prices and quantity demand He also tried to identify economic problems through his definition.

What Kind of science is economics

Economics is a social science. There are different social sciences for e.g. history, politics, psychology, ethics, etc. The subject matter of social science is the study the human behavior Different aspects of human behavior are studied in social science, we have to study the economic behavior of an individual it‘s relates to the satisfaction of unlimited wants with the help of scarce resources, which have alternative uses.

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Nature of Economic Laws

Meaning of Economic Laws

Economic laws are like the laws of science both these law a establish the relationship between the cause‘ and the effect‘. Economic Laws are those laws or statements, which indicate the general tendency of economic behavior of man.

According to Prof. Marshall, Economic laws or statements of economic tendencies are those social laws which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by a money price.

According to Prof. Robbins, Economic Laws are the statement of uniformities about human behaviour concerning the disposal of scarce means with alternative uses for the achievement of ends that are unlimited.

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Characteristics of Economics Laws

The main characteristics of economic laws are as under:

Statements of Economic Tendencies

Economic laws are only statements of economic tendencies of man. in other words, they deal with what is economic behavior of man in practical life.

Economic Laws are less exact than the Laws of Physical Science

The laws of economics are less exact than the laws of physical sciences because the subject matter of economics is man ‘while the subject matter of physical sciences is matter a human.

Laws of economics are more exact than the laws of other social sciences

The laws of economics are more exact than the laws of other social sciences such history, sociology, philosophy etc. Economics has money’ for measuring the behavior of man while other social sciences do not have any such measuring rod by which we can measure the behavior of man.

Economic laws are hypothetical

According to Prof. Seligman, Economic Laws are essentially hypothetical. it means that the laws of economics operatein certain conditions only. if the conditions change, the laws of economics do not operate. Defining any law of economics, we use the words ‘other things being equal.

Man is not bound to follow economic laws

It is not compulsory for man to follow economic laws because there is no punishment for breaking economic laws.

Some economic laws are universal while some economic laws are relative

Some economic laws are universal. it means that they are the same for all persons, at all times and at all places. For example, the law of diminishing utility; on the other hand, there are some economic laws, which differ from person to person, from time to time and from place to place. For example, the laws of banking, the laws of insurance, the laws of trade, etc.

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Problems of Economy

What is an economic problem?

The economic problem lies in making the best use of our resources. With the limited amount of money that a consumer has, he must try to get the maximum satisfaction. That is his problem. Similarly, a producer must try to maximize his profit from the limited resources at his disposal.

Hence, economic problem lies in making decisions regarding the ends to be pursued or the wants to be satisfied and the goods to be produced and as regards the means to be used for the achievement of those ends.

It follows from Robbins‘s definition of economics that wherever the ends are many, the means are scarce and the means are capable of alternative uses, economic problems must arise.

Thus, economic problems arise because

(a) the ends are many or unlimited,

(b) the ends are of varying importance or the wants are of different urgency,

(c) the means or resources are scarce or limited in quantity and

(d) the scarce means are capable of alternative uses or can be put to any of a number of uses.These are the four conditions, which must exist, before an economic problem can arise.

That is there can be no economic problem if either the wants are limited and/or the resources are unlimited. Similarly, no economic problem can arise if the wants are of uniform intensity, if the means are specific and cannot be put to any other use.

The idea of communism argues that major economic choices should be made through central planning by the government. By constructing a cohesive plan that takes the good of everyone into account can the best allocation of resources be achieved.

The idea of communism argues that major economic choices should be made through central planning by the government. By constructing a cohesive plan that takes the good of everyone into account can the best allocation of resources be achieved.

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