3.

Very Short Questions

a. State the Robbins definition of economics. Ans- Robbins define economics as a science of scarcity and choices. He said that economics is the science which studies human behaviour as a relationship between unlimited ends and scarce means which have alternative uses.

b. Why Smiths definition of economics is called the wealth definition of economics? Ans-In his definition he gave first and foremost priority to wealth and second priority to mankind. He further said that wealth can fulfil all the desires of human being in society and the entire effort of human society is found to be directed towards earning more and more wealth so his definition of economics is called the wealth definition of economics.

c. What is the source of wealth in classical definiton? Ans- The source of wealth in classical ecomomics is only the wages earned by active human resource, or employed labour in a nation.

d. What do you mean by material welfare? Ans- Material welfare is the satisfaction or utility obtained from the consumption of physical goods or it refers to the economic prosperity and well being which is achieve through earning and spending wealth.

e. Why is the Marshallian definition of economics purely a social science? Ans- Marshallian definition of economics is purely a social science because according to him economics only studies the economic behaviour of the people living in a society influencing othere people and being influenced by them and does not study about an isolated person not belonging to a society such as beggars, hermits ,saints,sages, priests,monks etc.

f.

What is the nature of market in classical definition? Ans- The nature of market was capitalist or unplanned according to classical definition.The government intervention in this nature of market or economy is minimum.scarce resources are

allocated through the market or price mechanism i.e. through the market forces of demand and supply.

2. Short Questions a. what are the limitations of wealth definition of economics? Ans- the limitations of wealth definiton of economics are mentioned below1. Narrow definition-: Adam Smith considered that economics is the science which deals only with wealth and material goods.contrary to this concept, the critics pointed out that economics studies not only these but also some non-material things such as service of doctors, lawers,barbers,teachers,engineers which also fulful human wants and needs and so also constitue important aspect of wealth. 2. Unnecessary importance to wealth-: Adam smith gave first and primary importance to wealth and only secondary role to mankind. On the contrary, the critics pointed out that wealth is only a means of satisfying human needs so economy must emphasize the study of man much more than the study of wealth. 3. Single source of wealth-: In Adam smiths view the amount of wages that is earned by employed (active) labourers could only be the only one source of wealth of a nation.but critics pointed out that natural , human , capital, and physical resources also are sources of wealth of a nation. 4. Wrong assumption of economic man-: According to him every human being who is involved in earning wealth by hook or crook is known as an economic man who earns only for his self interest and social interest is completely ignored.But the critics stressed that no man can be limited only with earning wealth because man is equally influenced by moral and spiritual thoughts like love, respect, self-esteem , sympathy.friendship,co-operation,trust etc.

b.

Explain the wealth definition of economics.

Ans- classical economists Adam smith defined economics as a science which studies about the nature and causes of wealth of nations. He said that economics is the study of the activities of people involved in the production of wealth. The meaning of wealth as used by him refers to abundance of money. The main points of the wealth definition are as follows-: 1) Significance of wealth

Adam smith assumed that wealth is the only important factor of human society as it can fulfill all the desires of human being in society so the the entire effort of human society is found to be directed towards earning more and more wealth. 2) Role of economic man He claims that economics studies behaviour of those human being, whom he mentioned as economic man, who have only one objective of earning more and more wealth at any cost and by any means. 3) Priority given to the wealth Adam smith gave first and primary importance to wealth and only secondary role to mankind.he believed that human involvement in several economic activites is just for accumulating more wealth and argued that wealth and only wealth can give higher satisfaction to all mankind. 4) Source of wealth The source of wealth in classical ecomomics is only the wages earned by active human resource, or employed labour in a nation.

c)

Explain the welfare definition of economics.

Ans- the welfare definition of Marshall state that economics is the study of mankind and its material welfare in ordinary business of life. It inquires how a man earns income and how he uses it to achieve maximum satisfation.. His definition of economics has been explained below1) Primary concern to mankind-: He suggested that primary importance should be given to mankind and secondary importance to wealth as in his thought wealth is for benefit of mankiind but mankind is not for wealth. 2) Study of ordianry human beings-: Marshall definition of economics has highly stressed on the study of ordinary man rather than economic man of Adam Smith. Ordinary human beings in his view are those who get involved not only in accumulating more and more wealth but also try to experience love, sympathy, goodwill, respect, prestige and cooperation to make their social life meaningful. 3) material welfare He also stressed on material welfare i.e., satisfaction or utility obtained from the consumption of physical goods rather than human welfare as a whole. He stressed that the aim of a mans life is to attain the welfare, which is possible through wealth

4) Social science He explained that economics only studies about those people and their behaviour who live in a society so it is called a social science.

d) Explain the scarcity definition of economics. Ans- Robbins in his scarcity definitions define economics as a science of scarcity and choices. He said that economics is the science which studies human behaviour as a relationship between unlimited ends and scarce means which have alternative uses. The main points of the scarcity definition are as follows1) Unlimited ends or wantsRobbins stated that human wants are unlimited and are not possible to satisfy at a time. Also these wants can never be fulfilled during ones lifetime. 2) Scarce means or resourcesThough human wants are unlimited but the means or resources to satisfy them are limited.we call such a resource as limited whose supply is less than its demand eg. Time, money,land etc. 3) Alternative uses of scarce resources-: These scarce means or resources have alternative uses. E.g. money can be used to buy books or to go see a movie. So human being should rank their necessities on the basis of urgency or needs and their ability to pay and hence should make a proper and careful choice. 4) Human science Robbins believed that economics is the study of human behaviour as a whole both within and outside the society so according to him economics is a human science.

e) Ans-

what are the limitations of welfare definition? The limitations of welfare definition of Marshall are as given-

1) ClassificatoryMarshall classified human activities into material and non-material welfare, economic and non economic good but could not distinguish the differnces between these terms clearly.it is criticized that a single mans action can be material like a doctor which gives him income and wealth from his job as well as non-material like satisfaction and self-pride from a free

service like advice and counselling given by him for free. So his definition is classificatory rather than analytical. 2) NARrow scopeHis definition confined itself only to material welfare and thus uncecessarily narrowed the field of the study of economics by ignoring non-material aspect like service of a doctor,professor, barber , lawer etc which also make an important contribution to economic welfare. 3) Excludes human scienceaccording to him economics only studies the economic behaviour of the people living in a society but the critics view that the man who lives outside the society may also be engaged in economic activities and may also be facing differenct types of economic problems. So the critics stressed that economics is not only a social science but also a human science. 4) All material goods may not provide material welfare-: According to marshall , material goods provide welfare for people. But some of the goods like cigarette, alchoholic drinks etc, are not able to promote welfare for the user. 5) Welfare is a vague conceptThe critics pointed out that welfare is a vague concept in economics as it is subjective and cannot be quantitatively measured. It varies from person to person,from place to place and from time to time.

g. Explain the criticisms on the scarcity definition. Ans- The criticism on the scarcity defintion of Robbins are as under1) neglect burning issues of modern economy-: the critics pointed out that Robbins was unable to address the macroeconomic and hot issue of modern economy such as unemployement, economic growth , economic development,national income etc. 2) incomplete definition-: Robbins mentioned that economic problems arise due to the scarcity of resources. But the critics pointed out that economic problems such as inflation, unemployment ,overproduction, boom etc. arise due to abundance of resources . so robbins definition of economics is incomplete. 3) Wrong assumption-: Robbins assumed that economics is a pure science , which can be tested with the help of statistical tools,equipments and methods. But the critics argued that some issues of

economics like poverty, utility, inequality,welfare and honesty cannot be measured in quantitative terms. 4) Similar to marshalls defintionRobbins definition concluded that scarce means or resources should be allocated to fulfill multiple wants of mankind. Similarly, marshall explained that wealth should be utilized to secure maximum satisfac tion or material welfare from limited quantity of wealth. Therefore, both defenitions have common conclusion about resource or wealth utilization for material welfare or satisfaction of mankind 5) Limited to allocation of resourcesThe critics pointed out that economics should study not only the allocation of resources but also production, distribution, exchange,consumption and reutilization of resources.

explain the subject matter of economics.

Ans-subject matter of economics means what we study in economics or what is the main focus of economics. Economics study the socio-economic behaviors of human beings. As human behavior goes on changing according to time, need and situations, the subject matter of economics also goes on changing. Subject matter of economics can be divided on the following three bases. 1) On the basis of representative definitions Different economists like Adam smith, Marshall and Robbins have give different views regarding the subject matter of economics. hence Subject matter of economics can be divided On the basis of representative definitions. 2) On the basis of economic activities In order to fulfill various wants ,human beings make efforts and efforts lead to satisfaction. So, economic activities of human beings include the cycle of wants,efforts and satisfaction as the subject matter of economics In economics, the study of wants ,efforts and satisfaction involves consumption, production, exchange, distribution and public finance. 3) On the basis of modern analysis Modern economists have divided the subject matter of economics into two types. They area) Microeconomics b) Macroeconomics

a) Microeconomics microeconomics deals with the study of individual and small economic units and analyses their economic behaviour .the individual economic units could be a consumer,individual firm , a producer, a seller etc.it also sudies small aggregates like the group of consumers in a particular area, number of firms producing a particular commodity, market demand for a specific product etc.it

b) Macroeconomics So Macroeconomics studies and analyses the behaviour of the economy as a whole.it refers to the large aggregates like total national output,natonal income, inflation ,deflation, unemployment, trade cycle ,general price level and eonomic policies of the government like monetary policy and fiscal policy

1. Long Questions

a) Critically explain the Marshallian definition of economics. Ans-Marshall was the first economist to take out economics from disrepute or disregard.He said that man earns money to get material welfare . the objective of economics is to increase the material welfare of mankind and wealth is only the means to achieve this objective.wealth is not the end but it is only the means . the welfare definition of Marshall state that economics is the study of mankind and its material welfare in ordinary business of life. It inquires how a man earns income and how he uses it to achieve maximum satisfation.. his definition enlarged the scope of economic science by emphasizing on the study of wealth and humanity together, rather than wealth alone.He shifted the focus of economics from wealth to welfare and mankind. His definition of economics has been explained below1) Primary concern to mankind-: He suggested that primary importance should be given to mankind and social welfare and secondary importance to wealth as in his thought wealth is for benefit of mankiind but mankind is not for wealth.

2) Study of ordianry human beings-: Marshall definition of economics has highly stressed on the study of ordinary man rather than economic man of Adam Smith. Ordinary human beings in his view are those who get involved not only in accumulating more and more wealth but also try to experience love, sympathy, goodwill, respect, prestige and cooperation to make their social life meaningful. 3) material welfare He also stressed on material welfare i.e., satisfaction or utility obtained from the consumption of physical goods rather than human welfare as a whole. He stressed that the aim of a mans life is to attain the welfare, which is possible through wealth 4) Social science He explained that economics only studies about those people and their behaviour who live in a society so it is called a social science.

h) critically explain Robbins definition of economics. How far is it superior to that of Marshall? Ans- Ans- Robbins in his scarcity definitions define economics as a science of scarcity and choices. He said that economics is the science which studies human behaviour as a relationship between unlimited ends and scarce means which have alternative uses. The main points of the scarcity definition are as follows1) Unlimited ends or wantsRobbins stated that human wants are unlimited and are not possible to satisfy at a time. Also these wants can never be fulfilled during ones lifetime. 2) Scarce means or resourcesThough human wants are unlimited but the means or resources to satisfy them are limited.we call such a resource as limited whose supply is less than its demand eg. Time, money,land etc. 3) Alternative uses of scarce resources-: These scarce means or resources have alternative uses. E.g. money can be used to buy books or to go see a movie. So human being should rank their necessities on the basis of urgency or needs and their ability to pay and hence should make a proper and careful choice. 4) Human science Robbins believed that economics is the study of human behaviour as a whole both within and outside the society so according to him economics is a human science.

Robbins definition of economics is superior to the Marshallian definition on the following grounds: 1) Scientific definition Robbins definition of economics is considered as more scientific and analytical than Marshalls definition because it is far from classificatory. 2) Universal applicationThe concept of scarcity and choice is widely applicable in any form of economy such as planned and unplanned economies, capitalist ,socialist and mixed economies. Therefore Robbins definition of economics is more broad ,logical and have universal application. 3) Science of choiceHis definition very clearly brings out the root cause of economic problems, i.e. scarcity and choice. 4) Wider scope Robbins explained that human wants, whether material or non-material come under the study of economics. In other words, in his definition , we study about non-material activities of human being like service of doctor, lawers whwhich we are not studying in Marshalls definition of economics. 5) Positive scienceTo Robbins economics is neutral regarding the choice of wants. Thus economics is a positive science. 6) Human science To Robbins , economics studies the economic activities of all people not just those of social people. Thus economics has been given the status of human science.

c. Distinguish between micro and macroeconomics. Explain the importance of microeconomics. Ans- the differences between micro and macroeconomics are as followsMicroeconomics It is a study of individual economic variables like demand,supply,price etc. Macroeconomics Is is a study of aggregate economic variables like aggregate demand, aggregate supply, price level etc.

It has a very narrow scope i.e. study about individual firm, person ,industry etc

It has a very wider scope i.e. study about aggregate variables of a country like national income, employment etc. Market equilibrium is determined by aggregate demand and supply. Laws and principles are far from assumption.

Market equilibrium is determined by individual demand and supply, Laws and principles are based on assumption. The main objective of microeconomics is how to allocate scarce resources It does not analyse the present day problems and does not provide solutions to problems in the economy i.e. inflation ,deflation, unemployment Microeconomics assumes full employment of all factors of production in an economy.

The main objective of macroeconomics is how to achieve full employment. It does not analyse the present day problems and does not provide solutions to problems in the economy i.e. inflation ,deflation,unemployment Macroeconomics considers how the factors of production should be allocated to achieve full employment It is also called income and employment theory

It is also called Price theory or Value theory.

Microeconomics is a very useful tool in economic analysis of various fields of economic activities.it is applied to solve the various economic problems .Mainly ,it plays an important role in formulation of those economic policies which promote the welfare of the people.It has both theoretical and practical importance which can be explained with the help of following points. 1) TO understand the function of an economy. Microeconomics gives us knowledge of the working of a free enterrprise economy.in such economy there is no agency to plan and coordinate the working of the economic system 2) Useful in business decision making It helps business executives in different business decisions in demand analysis,cost analysis and method of calculating prices and predictions of economic events of variables. 3) Helpful in efficient allocation of resources Microeconomics studies how the limited resources can be allocated to various sectors economicall and also suggests means to correct the inefficient allocation of resources 4) To make factor payments

It has become a very useful tool to study about and make decisions on factor payment of land, labour, capital and organisation in terms of rent, wage, interest and profit,respectively. 5) Price determination The concept of microeconomics guides the entrepreneurs when determining price of goods and services and marketing. It also guides them in analyzing the cost of factors of production during the process of producing goods and services.

i)

critically explain wealth definition of economics. Compare it with the material welfare definition of economics.

Ans- classical economists Adam smith defined economics as a science which studies about the nature and causes of wealth of nations. He said that economics is the study of the activities of people involved in the production of wealth. The meaning of wealth as used by him refers to abundance of money. The main points of the wealth definition are as follows-: 1) Significance of wealth Adam smith assumed that wealth is the only important factor of human society as it can fulfill all the desires of human being in society so the the entire effort of human society is found to be directed towards earning more and more wealth. 2) Role of economic man He claims that economics studies behaviour of those human being, whom he mentioned as economic man, who have only one objective of earning more and more wealth at any cost and by any means. 3) Priority given to the wealth Adam smith gave first and primary importance to wealth and only secondary role to mankind.he believed that human involvement in several economic activites is just for accumulating more wealth and argued that wealth and only wealth can give higher satisfaction to all mankind. 4) Source of wealth The source of wealth in classical ecomomics is only the wages earned by active human resource, or employed labour in a nation.

Comparison between wealth and welfare defintion of economics Adam smiith said that the economics is the science of wealth ; whereas Marshall stated that it is the study of mankind as well as the study of wealth.

Some major points of differences between the two definitions of economics have been presented below

Wealth Centered Definition Economics is a science of wealth Based on the concept of economic man It assigns primary place to importance of wealth Labour as a single source of wealth of a nation

Welfare Centred Definition Economics is a science of material welafare Based on the concept of ordianry human beings It assigns primary importance to mankind Both labour and other resources as the source of wealth of wealth of a nation

h. Define micro and macroeconomics. Discuss the importance of economic analysis in policy formulation. Ans= Microeconomics the word mikros means small .microeconomics deals with the study of individual and small economic units and analyses their economic behaviour .the individual economic units could be a consumer,individual firm , a producer, a seller etc.it also sudies small aggregates like the group of consumers in a particular area, number of firms producing a particular commodity, market demand for a specific product etc.it is concerned with the analysis of various cells of the economic organism. It is called the microscopic looking at the economy because it do not constitute the total aggregates relating to the whole economy.microeconomics is the study of decision making behaviour at the micro level.it is the study of each particular tree of whole forest. Microeconomic theory is often called the price theory or value theory because it is primarily concerned with the determination of price of different commodities and factor prices of different factors of production. Macroeconomics The word makros means large.So Macroeconomics studies and analyses the behaviour of the economy as a whole.it refers to the large aggregates like total national output,natonal income, inflation ,deflation, unemployment, trade cycle ,general price level and eonomic policies of the government like monetary policy and fiscal policy.Macroeconomics comprises of theories that study and explain about the aggregates of the economy, national level economic problems and policies aimed at solving those problems.It is the study of the whole jungle , not of an individual tree.

In macroeconomics, the determination of national income and employment are studied therefore it is called the theory of income and employment. Economic analysis includes both microeconomic and macroeconomic analysis. The importance of economic analysis in policy formulation can be explained by analyzing the importance of microeconomics and macroeconomics. Importance of Microeconomics Microeconomics is a very useful tool in economic alalysis of various fields of economic activities.it is applied to solve the various economic problems .Maily ,it plays an important role in formulation of those economic poliecies which promote the welfare of the people.It has both theoretical and practical importance which can be explained with the help of following points. 1 TO understand the function of an economy. Microeconomics gives us knowledge of the working of a free enterrprise economy.in such economy there is no agency to plan and coordinate the working of the economic system 2 Useful in business decision making It helps business executives in different business decisions in demand analysis,cost analysis and method of calculating prices and predictions of economic events of variables. 3 Helpful in efficient allocation of resources Microeconomics studies how the limited resources can be allocated to various sectors economically and also suggests means to correct the inefficient allocation of resources 4 To make factor payments It has become a very useful tool to study about and make decisions on factor payment of land, labour, capital and organisation in terms of rent, wage, interest and profit,respectively. 5 Price determination The concept of microeconomics guides the entrepreneurs when determining price of goods and services and marketing. It also guides them in analyzing the cost of factors of production during the process of producing goods and services. Importance of macroeconomics Macroeconomics provides the information of aggregate parts of the economy. Modern government solves many economic problems with the help of macroeconomics. Macroeconomics is also an equally useful tool in economic alalysis of various fields of economic

activities.iIt has both theoretical and practical importance which can be explained with the help of following points. 1) Formulation of macro economic policy It is useful to formulate aggregate price policy, aggregate tax policy,aggregate trady policy, aggregate investment policy, monetary policy which are required for rapid and smooth economic development of a nation. 2) Solving various social problems It is also useful to study about various problems of the society such as unemployment, povery, inequality, regional imbalance, and make necessary arrangements to solve those problems. 3) Measurement of national income It is also useful to calculate and measure the value of national income annually. It is also necessary to make analysis on components of national income such as GDP,GNP , per capita income of a nation, 4) Economic and monetary stability Macroeconomics helps to formulate economic and monetary policy to accelerate the rate of economic growth and to control inflation and deflation in the country 5) Helpful in international comparison. Study of national income, economic growth and nature of economy help to make comparison between a country with other countries of the world. In such comparison, macroeconomics is used.

b.Compare the Marshallian defintiion of economics with that of Robbins. Ans- Economics according to Marshall is a Science of Material Welfare This definition has focussed on the role of mankind as well as wealth in economic life. But Robbins Definition considers economics as a Science of scarcity and choice There are many similarities as well as differences between the two definitions which are presented belowlSimilarities Welfare centered Definition Economics as the study of human action Scarcity Centred Definition Economics as the study of human behaviour

Study of wealth in relation to mankind Aims to utilize wealth to achieve maximum material welfare Related with use of limited quality of wealth

Study of scarce resources to meet human wants Aims to utilize scarce resources to achieve maximum satisfaction Related with alternative use of limited reources

Differences
Welfare centered Definition The science of material welfare Aims to promote material welfare to mankind Economics is a social science Classificatory as material ,non-material welfare and economic, non-economic activities Based on concept of normative science Study about only material activities of humanbeing The concept of welfare in this definition is subjective and qualitative phenomenon so cannot be measured Scarcity Centred Definition The science of scarcity and choice Neutral in between wants and resource utilization Economics is a human science Based on subject of economic analysis

Based on concept of positive science Study about both material and non-material activities of human being The concept of scarcity in this definition is objective is quantitative phenomenon and can be measured

Robbins definition of economics is superior to the Marshallian definition on the following grounds: 1) Scientific definition Robbins definition of economics is considered as more scientific and analytical than Marshalls definition because it is far from classificatory. 2) Universal application-

The concept of scarcity and choice is widely applicable in any form of economy such as planned and unplanned economies, capitalist ,socialist and mixed economies. Therefore Robbins definition of economics is more broad ,logical and have universal application. 3) Science of choiceHis definition very clearly brings out the root cause of economic problems, i.e. scarcity and choice. 4) Wider scope Robbins explained that human wants, whether material or non-material come under the study of economics. In other words, in his definition , we study about non-material activities of human being like service of doctor, lawers whwhich we are not studying in Marshalls definition of economics. 5) Positive scienceTo Robbins economics is neutral regarding the choice of wants. Thus economics is a positive science. 6) Human science To Robbins , economics studies the economic activities of all people not just those of social people. Thus economics has been given the status of human science.

Q. Explain positive and normative economics. Distinguish between the two. Positive economics Classical economists like Adam Smith and Modern economists like Robbins describe economics as a positive science The study of what is or what exists is called positive econmics.it analyze every issues of economics positively, i.e without personal bias.it studies the things as they happen in reality.it stands far from personal judgements while analysing and making economic decisions.it is not related to rightness or wrongness of things.its laws are derived from scientific analysisl. The results obtained from positive analysis can be accepted or rejected after considering empirical evidences.it tries to identify relationship between two or more economic variables. Such relationships can be measured and quantified . Positive economics deals with explanation and prediction For example, A reduction in income tax will increase the demand for goods and services.

Normative economics Neo- classical economist like Marshall describe economics as a normative science. The normative economics studies the things as they should be.the result obtained from normative study may not be applicable in all situations. It gives judgement about rightness or wrongness . Normative analysis may be influenced by personal bias in some cases.it never tries to make a detailed study on the cause and effects of any economic issue or problem.it does not make any assumption because its results are obtained without analysis. The results of normative economics cannot be tested. For example, The level of duty on petrol is too unfair and unfairly penalizes motorists. The differences between the two are given under-

Positive Economics

Normative Economics

It studies about what is Statements can be empirically verified. It is universal and value does not differ from person to person It depends upon scientific logics or facts. It is objective and quantitative in nature It establishes principles and theories It studies the cause and effect relationship.

It studies about what should be Statements may or may not be verified. It is related to personal belief and value judgement may differ from person to person It depends upon ethical logics or values. It is subjective and descriptive in nature. It formulates policies It studies the outcome which is right or wrong and it suggests what should be. It deals with how an economic problem should be solved It is used as an objective It deals with idealistic situation It is like ethical science.

It deals with how an economic problem is solved

It is used as a tool or means of analysis. It deals with actual or realistic situation It is like physics,chemistry etc.