Unit – I

Topic: IV Economic Laws & their nature

Like all other sciences, economics also collects facts and undertakes their systematic
study. The fats are analyzed and conclusions drawn. These conclusions establish causal
relationship between the concerned facts. These conclusions are called as economic laws.

DEFINITION OF LAW:
Law means “rule of conduct”.
“A law expresses the casual relationship between two sets of phenomenon”.
“The term law means nothing more than the general proposition or statement of
tendencies, more or less certain, more or less definite.” By Marshall.

TYPES:

Statutory Laws Moral Laws Scientific Laws

Social Laws Procedural Laws

a) Statutory Laws These laws are framed and enforced by the government with the
national boundaries. Citizens violating these laws are liable to be punished.

b) Social Laws These laws are framed by different societies in order to regulate the
social life of their members, for instance, laws relating to marriages, festivals etc.
Those violating social laws are liable to be boycotted by the society.

c) Moral Laws These laws are framed to regulate the life of a man form the moral
point of view. These laws enjoin on the people “what they should do” and “what
they should not do”.

d) Procedural Laws Under these laws, procedures are laid down to perform
different functions smoothly. For example, rules of games, rule of examinations
etc.

e) Scientific Law These laws establish a relationship between cause and effects.
These laws can also be referred to as generalization. These laws state, if such a
cause takes place such an effect is likely to follow.

ECONOMIC LAW:
These are the scientific laws as they establish relationship between economic causes and
their effects. For example, Law of Demand states: “when the price of a commodity rises
its demand is likely to contract.” It is a scientific law because it seeks relationship
between the cause and the effect.

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DEFINITION OF ECONOMIC LAW:
1. “Economic laws or statements of economic tendencies are those social laws
which relate to branches of conduct in which the strength of motives chiefly
concerned can be measured by a money price.” By Marshall.
The above stated definition has the following components:
• Economic Laws are mere statements of economic tendencies.
• These laws are concerned with such ends of man as can be measured by
money.

2. “Economic laws are statements of uniformities which govern hymen behavior

concerning the utilization of limited resources for the attainment of unlimited
ends.” By Robbins.

NATURE OF ECONOMIC LAW:

1. Economic Laws are Human Laws: They are concerned with human behavior.
These laws tell us about the expected behavior of such economic units as
consumer, producer, employer, employee, debtor, creditor etc. under given
circumstances.

2. Statement of tendencies: Economic Laws express tendencies. They are not exact
laws. For example, law of supply states that with fall in price, supply is likely to
fall but it does not claim categorically that fall in price must be followed by fall in
supply. This law simply refers to the tendencies found in the relationship between
price and supply.

3. Generalization: Economic Laws do not explain any particular phenomenon;

rather they refer to the general features found in all phenomenons. For example
law of demand applies to all the products and not to any single product or
category of products.

4. Economic Laws are positive: These laws are positive, they state how men will
behave under given circumstances or how they are likely to behave rather than
stating how they must behave.

5. Economic Laws are Hypothetical: Hypothetical proposition is the proposition,

which becomes valid only if certain conditions are fulfilled. Economic laws are
also valid only if certain assumptions hold good. They are hypothetical because
they too assume the ceteris paribus clause (i.e. other things being equal)

6. Economic Laws are Abstract: As economic laws do not depict reality fully, they
depict only some important variables. These laws study the causal relationship
between some important variables and assume other less important variables to be
constant.

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 7. Economic Laws are relative: They are relative because they are valid only under
some given conditions. When these conditions undergo change, there is a change
in economic laws as well.

8. Economic Laws are uncertain: Unlike scientific laws these laws express
probabilities. In the words of E H Brown, “ Economic laws are inexact because
they deal not with a constant, uniform and inert matter but with the changing and
thinking human being.”

9. Economic Laws are Axiomatic: There are some economic laws, which do not
require any proof to establish their veracity. For example, higher profits are
preferred to lower profits.

10. Some Economic Laws are universal: Some economic laws have universal
validity. For example, law of diminishing returns and laws of demand and supply
are universal laws as they apply everywhere.

11. More exact than the Laws of other Social Science: As compared to the other
social sciences, laws of economics are more exact, true and perfect. It is so,
because economics have a measuring-rod, in form of money, to measure
economic activities of the man. Other social sciences lack such a measure.

12. Economic Laws are qualitative: These laws do not express the phenomenon in
quantitative terms, rather they tell about the direction of their change.

DIFFERENCE BETWEEN ECONOMIC LAWS AND THE LAWS OF

PHYSICAL SCIENCE:

1. Economic Laws are less exact: According to Peterson, “Economic Laws are less
exact than the laws of physics and biology.” For instance, there is a law of
chemistry explaining that when two parts of hydrogen and one part of oxygen are
mixed at a certain pressure and temperature, the result will be water. Economic
laws are not so exact. For example, law of demand cannot assert categorically that
if price of commodity is doubled its demand must contract by one half.

2. Economic Laws are not so permanent Economic laws change with change in
time and conditions. Most economic laws are fickle. In short, we can say that
laws of economics are not as exact as that of natural sciences. But it must be
accepted that laws of economics are as much scientific as the laws of natural
sciences. These laws are more exact than the laws of other social sciences.

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