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BASICS OF ECONOMICS:

Economic activities are those activities, which are concerned with the efficient use of such scarce means
as can satisfy the wants of man. Human wants are unlimited, in the sense, that as soon as one want
is satisfied another crops up. Most of the means of satisfying these wants are limited, because
their supply is less than demand. These means have alternative uses; there emerge a problem of choice.
Everybody has to make a choice r e g a r d t o t h e u s e o f h i s s c a r c e m e a n s s o t h a t h e m a y
g e t m a x i m u m s a t i s f a c t i o n f r o m them. In short, Economics is the study of those
activities of human beings, which are concerned, with the satisfaction of unlimited wants by
utilizing limited resources.
Evolution of Economics: The term Economics is derived from two words of Greek
language, namely, Oikos (Household) and Nemein (to manage), Means Household management.
Definition of Economics:
Definitions of Economics have been broadly divided into four parts:
Wea l t h D e f i n i t i o n Ad a m S m i t h
Wel f a r e D e f i n i t i o n Al f r e d M a r s h a l l
Scarcity Definition Lionel Robbins
Growth Oriented Definition Paul Samuelson
Adam Smith Definition of Economics as Science of Wealth: According to classical
Economists like Adam Smith, J.B. Say, Walker, J.S. Mill etc. economics is a subject
that studies nature of wealth and its production, consumption, exchange and
distribution etc.
Definitions:
Adam Smith, Economics is an enquiry into the nature and causes of wealth of nations.
J.B. Say, Economics is the science which treats Wealth.
J.S. Mill, Economics is the practical science of production and distribution of wealth.
Features:
Economics is the study of wealth only: It deals with consumption, production, exchange and
distribution. It gives primary place to wealth and secondary place to study of man.
Nature or Meaning of Wealth: Only such material commodities constitute wealth
are scarce and useful. Material goods are those goods which can be seen or touched, for example
cloth, furniture etc. Non material goods like services and free goods like air and water are not
wealth.
Causes of Wealth: Economics seeks to examine the causes that lead to increase of wealth. There
are two ways of increasing wealth:
o By increasing the supply of goods through large scale production
m a d e possible by saving the commodity.
o By increasing the demand for goods through extension of market.
Economic man: The supporters and followers of wealth definition of economics have
imagined such a man who is fully aware of his self interest and who makes constant efforts to
achieve his selfish ends to the maximum. Such a man is called economic man.

Criticisms:
More emphasis on wealth: This definition has given more importance to wealth t h a n t o
m a n . Wea l t h t a k e s p r i o r i t y o v e r m a n . I n f a c t , w e a l t h i s a m e a n s t o satisfy
mans wants. Man, not wealth should have been given greater importance.
Concept of Economic Wealth: Wealth definition of economics is based on the concept
of economic man. But according to Marshall and his followers such as economic
man who works for his selfish motives alone is not found in real life. Economics is
therefore is a study of real social human being and not of economic man.
Neglect of welfare: This d e f i n i t i o n a t t a c h e s n o s i g n i f i c a n c e t o t h e s t u d y o f
economic welfare of society. It lays too much emphasis on the study of wealth getting
activities alone. It pays no attention to the economic wellbeing of the society by
proper use and equitable distribution of wealth.
Neglect of the problem of scarcity and Choice: This definition completely ignores
the study of two main features of economic activities, namely: Scarcity and Choice.
Wants being unlimited and economic goods having several uses being limited, there
arises the problem of choice.
Neglect of means to attain wealth: This definition chooses attainment of wealth as the sole
purpose of economics, but it does not specify the means, which should b e a d o p t e d t o
acquire wealth. This definition gives no clear indication as to whether
w e a l t h o b t a i n e d t h r o u g h l e g a l o r i l l e g a l m e a n s . As a m a t t e r o f f a c t ,
economics studies exclusively those means of wealthgetting which are lawful and
just.
Marshalls Welfare Definition: Neo classical economists like Alfred Marshall, J.S. Mill,
Pigou, Cannan etc. have included in the scope of economics those activities of man which are
undertaken to acquire material goods which promote the welfare of mankind.
Definitions:
In the words of Marshall, Economics is a study of mankind in the ordinary business of
life; it examines the part of individual and social action which is most closely connected with the
attainment and with use of material requisites of well being.
According to Penson, Economics is the science of material welfare
Features:
I m p o r t a n c e t o t h e s t u d y o f M a n : These definitions have accorded
m o r e i m p o r t a n c e t o t h e s t u d y o f m a n t h a n t o w e a l t h . Wea l t h i s p u r e l y a
m e a n s t o satisfy wants of the man.
Study of Social Man: In economics, one studies the economic activities of those men who live
in the society. Individual and collective activities of such men that are part and parcel of the
society are studied in economics.
Study of real man: Economics studies real man, who possesses several
qualities, believes in social welfare and is influenced by economic and non
economic motives.
Material requisites: E c o n o m i c s s t u d i e s t h o s e a c t i v i t i e s o f t h e m a n w h i c h a r e
closely connected with material necessary of well being.

Welfare: Economics studies those material means which promote human welfare. Economics is
a subject of mans material well being. It is most closely connected with attainment and the use
of the material necessary of well being.
Money is the measure of Material Welfare: According to Pigou, material
or economic welfare is that part of social welfare which can be measured directly or indirectly
with the measuring rod of money.

Criticisms:
Regarding Ordinary business of life: T h e m e a n i n g o f t h e t e r m i s n o t c l e a r.
Marshall has use this term to signify economic activities, i.e., activities
concerned with wealth earning and wealth spending.
Limited Scope: This definition had narrowed the scope of economics. Economics need not
confine itself exclusively to the study of attainment of material goods.
Uncertain concept of welfare: The concept of welfare is vague, uncertain a n d
t e m p o r a r y. S t u d y o f m a t e r i a l w e l f a r e m a k e s e c o n o m i c s a s a n u n c e r t a i n
science. The concept of welfare belongs to the sphere of psychology. It varies with time, place,
conditions and persons.
Economics is a Human Science: It studies the economic activities of those men who live in
society, is also wrong. It studies economic activities of all human beings whether they
are members of society or not.
Economics is only a Positive Science: Economics is the function of Ethics. Economics
does not give any clue to solve economic problems. It is neutral between ends. It is wrong to
call it normative science or an art.
Impractical: Its assumption that those activities of man are studied in it which is concerned with
his wellbeing is wrong. It is not so form practical point of view. Economics studies all those
activities which are related to income spending by man, whether they promote his well
being or not.
Robbins Scarcity Definition: With regard to Scarcity definition of economics, Austrian
economists Menger, Petter and English economists Stigler had expressed his views but
it was examined in details by P r o f . L i o n e l R o b b i n s i n h i s b o o k A n E s s a y o n
t h e N a t u r e a n d S i g n i f i c a n c e o f E c o n o m i c s Science published in 1932.
Definitions:
According to Lord Robbins, E c o n o m i c s i s a s c i e n c e t h a t s t u d i e s
behavior as a relationship between ends and scarce means which have alternative uses.

human

In the words of Harvey, E c o n o m i c s i s t h e s t u d y o f h o w m e n a l l o c a t e t h e i r limited


resources to provide for their wants.
Features:
Unlimited Wants or Ends: By Ends, Robbins means wants. In economics, wants of
man are concerned with goods and services. These are called economic wants. There
are no limits of these wants. As one is satisfied another one crops up. This chain of
wants is endless. Economics is concerned with the satisfaction of economic wants
irrespective of their being virtuous or otherwise.

Limited or scarce Means: Wants are greater than means. As the Demand is more than the
supply.
W>M
Where, W = Wants
M = Means
> = Greater Than.
Alternative Uses of Means: These Scarce means have alternative uses. E.g. Milk we know
means, is a means. It can use for preparing Butter, curd, cheese etc.
Wants Differ in Urgency: Man has several wants, but at any given time one of these
wants may be more urgent and important than other wants. As such wants differs in
urgency. A person wants for his sick child, medicine, milk and fruit.
Economic Problem: W h e n a l l f o u r c h a r a c t e r i s t i c s o f h u m a n l i f e ;
n a m e l y , unlimited wants, scarce means, alternative uses of means and different urgency
of wants become operative, there arises the problem of choice. One has to make a
choice as to which want to be satisfied first and by what means. Problem
o f choice making is called economic problem.
Opportunity Cost: Definition tells us that it is due to the problem of choice that in o r d e r t o
f u l f i l l o n e w a n t w e h a v e t o f o r e g o a n o t h e r. We c a n n o t f u l f i l l a l l o u r wants
(ends) simultaneously. The opportunity cost of a thing is always expressed in terms of the next
best alternative foregone.

Merits:
Positive Science: As the Definition explains the nature of economic activities. It is neutral with
regard to welfare. It is silent about value judgment. It is neither a normative science
nor art. It is simply a positive science.
Analytical: Economic problems arise because ends (wants) of man are unlimited but the
means to satisfy them are not only scarce but also have alternative uses. Man has to
make a choice with regard to ends and scarce means. This definition is a scientific analysis of the
origin of economic problems and their solution.
Wider Scope: Economics encompasses all sorts of economic activities whether they
are related to material goods or non material services; whether they are conducive
to well being or not.
Universal: This definition is concerned with the problem of unlimited ends (wants) a n d
scarce means. This problem is found at any place and in any type
o f economy, that is capitalism, socialism etc.
More Logical Explanation of Economic Problem: This definition has offered a m o r e
logical and precise explanation of the nature of economics. Economic
problem does not arise due to material wellbeing. It arises mainly due to the
scarcity of means in relation to their demand. Problem of choice or Valuation, which
is the main problem of economics, arises because of scarcity of means and tier alternative uses.
Criticisms:
Ignores Social Aspect of Economic Activities: Robbins definition ignores the social aspect
of economic activities. Robbins is wrong when he holds that the a c t i v i t i e s o f
t h o s e w h o l i v e o u t s i d e t h e s o c i e t y a l s o f o r m p a r t o f t h e s t u d y o f economics.
Need of the study of economics is felt only when economic problems assume social significance.

Economics is not neutral as regards Ends: Economics is social science. Economists have to
state their judgment as to which ends are noble and w h i c h o n e s a r e b a s e a n d s o
n e e d b e u n n e c e s s a r y. I n t h e w o r d s o f T h o m a s , T h e function of an economist
is not only to explore and explain, but also to advocate and criticize.
Concealed Concept of Welfare: This definition refers to maximization of satisfaction or welfare
as relates to the study of economics to allocating the scarce means into alternative uses in such
manner as to get maximum satisfaction.
Very Wide scope of Economics: It has unnecessarily widened the scope of economics. If
economics is to be considered as the study of choice of all sorts of scarce means, then it would
become difficult to decide which action of man is to be studied and which is to be left out.
Not only a Positive Science: Definition state that economics is a positive science that
concerns itself with mere choice making valuation and that it has nothing to do with
ethics or welfare of man.
Impractical: This definition has provided economic as impractical subject. It is known to all
of us that want are unlimited and means are scarce. Economic cannot give any advice
in this respect. If it is so, then economics has no practical utility.
Scarcity is not the cause of Economic Problem: This definition is based o n w r o n g
assumption
that
scarcity
is
the
main
cause
of
arousal
of
e c o n o m i c problems. Many important problems such as the problem of
unemployment and depression are economic problem but they arise not due to scarcity.
Use of Words Means and Ends: The difference between the words e n d s a n d
m e a n s i s n o t c l e a r. A t h i n g m a y b e a m e a n a t o n e t i m e a n d a n e n d a t another
time. In short, Robbins definition is a scientific and analytical definition of economics. Its main
defect is it has treated economics as a simple theoretical study. It has ignored the practical or
welfare aspect of economics. In fact, economics cannot be separated from its welfare content.

Growth Oriented Definitions: According to modern economists like noble prize


winner Prof. Samuelson, Benham Lipsey, Steiner, Ferguson etc. both the problems
concerning nature of scarce means and their proper use are the subject of study of
economics.
Definitions:
In the words of Nobel Prize winner Prof. Paul Samuelson, Economics is the study of how people
and society end up choosing with or without the use of money, to
employ scarce productive resources that could have alternative uses, it produces various
commodities over time and distributes them for consumption, now or in the future, among
various persons and groups in society. It analyses costs and benefits of improving patterns of
resources allocation.
C.E. Ferguson has defined economics in these terms, Economics is a study of the e c o n o m i c
a l l o c a t i o n o f s c a r c e p h y s i c a l a n d h u m a n m e a n s ( r e s o u r c e s ) a m o n g competing ends,
an allocation that achieves a stipulated optimizing or maximizing objective.
Features:
Economic Resources: These definitions underline the point that economics is a study
of economic resources. These economic resources refer to natural, human

and physical resources which satisf y human wants but are scarce and have
alternative uses.
Efficient Allocation of Resources: C h o i c e m a k i n g i s t h e m a i n p r o b l e m o f
economics. Efficient allocation and use are the chief objectives of choice
making.
Full Utilization of Resources: According to growth oriented definitions,
economics is not concerned with the allocation of resources only but also with their
full use and employment.
Increase in Productivity: This definition also underlines the fact that the objective of economics
is to increase the quantum and productivity of resources in future. This results in an increase in
the growth rate of economy, more employment and higher standard of living.

Merits:
Realistic Explanation of economic problem: T h i s d e f i n i t i o n o f f e r r e a l i s t i c
explanation of economic problems. Economic problems arise because wants are
unlimited but means to satisfy those wants are limited.
Science and Art: According to Samuelson, economics is oldest among arts and newest
among the group of science. In fact it is the queen of social sciences.
Not Neutral as regards Ends: As per these definitions, economics welfare forms apart of the
study of economics. Economic welfare is that part of general welfare which is measured in terms
of money. Economies studies both material and non material means of economic welfare.
Practical: These definitions have rendered economics a more practical and useful subject.
Economics does not analyses economic problem only rather it suggests measures to
solve them.
Dynamic: T h e s e d e f i n i t i o n s h a v e i m p a r t e d d y n a m i s m t o e c o n o m i c s . S t u d y
o f economics
is not
restricted to
the present day
problems
relating to
consumption, production, distribution, etc. of economic resources, but it studies
their future problems as well.
Universal: T h e s e d e f i n i t i o n s a r e u n i v e r s a l . T h e s e a r e c o n c e r n e d w i t h
t h e economic problems of all types of economies, developed or underdeveloped.
Analysis of Economic Quantities: Boulding holds that according to growth oriented
definitions of economics, a major part of the economic analysis relates to the investigation of
the forces determining the form of economic quantities and their mutual relations.
In short, the above definitions of economics are superior and comprehensive. Growthoriented definitions of economics include the merits of the definitions as given
b y Marshall and Robbins. These definitions have given a more quantitative, dynamic
and practical form of study of economics.
SCOPE OF ECONOMICS:
The scope of a subject refers to the fields they actually cover. The scope of economics can be finely
understood if we classify it into heads viz:
Subject matter
Nature
Limitations
Subject Matter:- It can be further studied as:

According to Adam Smith: The classical economist Adam Smith considered wealth as the
subject matter of economics. According to him economics deals with the activities of man in
earning his income me and spending it among different objects in order to obtain the
maximum benefit for satisfaction of his wants.
According to Marshal: The neo classical economist Alfred Marshal regarded material
welfare it be the subject matter of economics. According to him the activities of mankind as a
social being and in the ordinary business of life which are related to the attainment of
economic well being through the use of the material requisite are considered to be the subject
matter of economics.
According to Robbins: According to Robbins those activities, which originate because of
the imbalance relation between human wants and available resources constitute the subject
matter of economics.
According to Keynes: Keynes is of the view that economics problems constitute the subject
matter of economics.

Nature of Economics: The nature of economics includes study or discussion that weather
economics is arts or science?
Economics as a Science: Most of the economists regard economics as a science because it is
a body of knowledge, which deals facts and rules and studies their cause with their effect.
Now economics as a science generally studied two heads:
o Economics as a Positive Science: Most of the English economists regard
economics as a positive science because it examines the relationship between
causes and effect. It studies economic problems, which are existing and effect
directly human life.
o Economics as a Normative Science: Some economists think that economics is a
normative science. It tells that weather a particular thing is describable or not. The
aim of economics is to promote human welfare so it studies the factors relating to
what out to be.
Economics is an Art: Economics not only studies how economic problems arise but it also
recommends positive measures to end these problems. The purpose of economics is to
promote welfare and satisfaction and thus it outlines the guidelines to achieve these
objectives.
Limitations of Economics:
Economics does not study all human activities. It is limited only to those activities, which are
related to wealth.
Economics studies only the human activities. It does not study the activities of other creatures.
Economics studies the activities of normal real and social man. The activities of insane,
drunkards etc are not studied under economics.