Introductory background,

Nature and scope of

Economics, Science,
Engineering and Technology,
their relationship with
economic development

• Refer Dewett – page nos 1 to 22

 Definition
• LIMITED MEANS AND UNLIMITED ENDS
• Mr A is given Rs 1000/= per month to
carry out his studies
• Suppose his wants are many- tution
fees, hostel fees, books, college
canteen, dhobi, restaurants, stationery
etc etc- wants are so many
• Economics helps him in such a
condition ie maximum satisfaction
from limitted money he has
 Choosing between ends
• Economics tells us how a person tries
to satisfy his unlimited wants with his
limited means.
• He wants to buy many items with
limited amount of cash he has
• He must therefore choose what to buy
or what not to buy
• Thus, economics is a science of
choice when faced with scarce
means and unlimited ends
 Deriving maximum
satisfaction
• Economics tells us how the
scarce means at our
disposal can be put to
several alternative uses so
as to derive maximum
benefit out of them.
Income and Employment
• Economics is also
concerned with the levels
of income and employment
in a country as well as
causes of their
fluctuations.
Economic development
•Economics studies the
economic growth
Various definitions
• ECONOMICS :
• A SCIENCE OF WEALTH

• ADAM SMITH- in his book “Wealth

of Nations” defined economics as
“ an enquiry in to the Nature and
causes of the Wealth of Nations”
 Other Definitions

• French economists J.B.Say-

• “economics is a science which
treats of wealth”
• American economist F.A.Walker-
• “economics is that body of
knowledge which relates to
wealth”
 Comments
• Definition of economics as a
science of wealth cannot be
regarded as a correct one.
• Attention was exclusively given to
wealth as if wealth was
everything
• Little attention given to man for
whom the wealth is really meant.
 Comments -contd
• Writters like Carlyte and
Ruskin condemned this
worship of Mammon (the God
of wealth)
• They accused economics of
selfishness and called it a
“dismal” science.
 Science of man
• Later economists held a different view.
• They regarded economics as a science
of man rather than of wealth
• Wealth is only a means to an end, the
end being human welfare.
• Man is primary and wealth occupies
only secondary position
• ELY – “ Economics is the science
which treats of social phenomena that
are due to the wealth getting and
wealth using activities of man.
Marshal’s definition-Science
of Material Welfare
• Definition.
“Economics is a study of man’s
actions in the ordinary business of
life; it enquires how he gets his
income and how he uses it. Thus
it is on one side a study of wealth
and on the other, and more
important side, a part of the study
of man”
 Explanation
• The first place is given to man
and Wealth is given second
place.
• It is for man’s sake and for his
welfare, the wealth is studied.
• Thus economics could no longer
be considered a “dismal science”.
Rather, it acquired a great social
importance.
 Criticism
• The definition by Marshall was
challenged by Lionel Robbins in
1930s.
• It is classificatory. It classifies
economic phenomena into material
and non-material.
• The definition ignored the non
material services like those of
teachers, doctors etc., which also
make an important contribution to
economic welfare.
 Criticism-contd
• The distinction between ordinary business of
life and extraordinary life is not clear.
• The definition deals with persons living only
in society.
• If economics is made to study welfare rather
than wealth, it gives rise to anomalies.
Intoxicants come under wealth as defined in
economics but their use is not advisable to
human welfare. On the other hand, many
things like love and affection which are highly
conductive to welfare but which are not
regarded as wealth.
 Robin’s definition
• Science of Scarcity or
Science of Choice
• Robins offered a definition which he
thought was free from the defects
pointed out in Marshall’s definition
• “Economics studies human behaviour
as a relationship between ends and
scarce means which have alternate
uses”
 (a)Unlimitted ends
• Our ends or wants are unlimited
• If one want is satisfied, another crops
up.
• If our wants are limited, no economic
problem would have arisen. Like
animals, we would have been
completely satisfied as soon as our
elementary needs had been met. But
man is different from animals. Mere
filling of stomach does not satisfy him
 (a)Unlimitted ends-contd
• He seeks variety
• This applies to his wants in foods,
clothing, housing etc.
• In addition to the above, he needs
books, furniture,radio,TV,camera,
motor car etc etc !!!
• Our wants are numberless and we
cannot satisfy them all. We must
choose between urgent and less urgent
wants. Here Economics comes in.
Multiplicity of human wants is thus
foundation stone of Economics.
 (b)Limited means
• Although our wants are unlimited, the
means at disposal to satisfy these
wants are scarce or limited.
• If these means like our wants had been
unlimited, then also no economic
problem would have arisen. We will get
any quantity we need and all goods
would be free goods. But actually
goods are not free and we have to work
or pay for them to obtain them. That is
how economic problem arise.
 (b)Limited means-contd
• Scarcity of means is the foundation
stone (first being multiplicity of wants)
on which structure of economics rests.
• Scarcity is relative, it is relative to our
needs. Poison is found in small
quantity, but nobody wants it, it cannot
be called scarce. But coal and oils are
found in large quantities. But the
demand is still greater. Hence coal is
scarce in relation to the demand.
 (c) Alternative Uses of
Means
• The scarce means at our disposal have
alternate uses. They can be put into a number
of uses.
• If a commodity or a service could be put to
one or few uses only, no economic problem
would have arisen. As soon as that use had
been made of it, the commodity would have
become a free good. Since our scarce means
can be put to so many, we must choose
between these uses. We must decide what to
buy or not to buy. This is a problem of
economics
 How economic problems
arise?
• Economic problems arise
because
• (a) multiplicity of wants
• (b) scarcity of means
• &(c) the means are capable of
being put to alternate uses.
 Robbin’s definition -
Superiority
1. It is a scientific definition. It is
independent of any classification like
material or non-material.
2. Covering people not only in society,
but everyone
3. His definition has greatly widened the
scope of economics. Marshall had
restricted it only to wealth and
activities related to material welfare
of man.
 Robbin’s definition -
Superiority

• 4. According to Robbins
economics is only a
science. According to
Marshall, economics is
both a science and an art.
 Criticism

• It ignores ethical aspect. Though more

scientific, is colorless, impersonal and
neutral as regards ends.
• Robbins has reduced economics as a
valuation theory.
• It does not tell us fluctuations about
national income and employment.
• Lacks human touch
 conclusion
• we can finally define
economics as
• “ a social science concerned
with the proper uses and
allocation of resources with a
view to achieving and
maintaining growth with
stability
 NATURE AND SCOPE

• NATURE (SUBJECT MATTER)

• SCOPE(SPHERE OF STUDY)
Subject matter of economics
• Economics tells us how a man utilizes
his limited resources for the
satisfaction for the satisfaction of his
unlimited wants.
• A man has limited amount of money
and time, but his wants are unlimited.
He must so spend the money and time
he has that he derives maximum
satisfaction. This is the subject matter
of economics.
 Economic activity-purpose
• When a man is engaged in an economic
activity (farmer tilling, worker working
in a factory, a doctor attending a sick
person), he is busy in earning money.
• He needs it to purchase things which
satisfies his wants. The purpose of all
economic activity is the desire to
purchase goods to satisfy human
wants.
• A man wants food, clothes and
shelter. To get these things he
must have money. For getting
money he must work or make
effort. Effort leads to satisfaction.
Thus WANTS-EFFORTS-
SATISFACTION sums up subject
matter of economics.
The circle of economic activity

wants

efforts

satisfaction
• In a primary society, the connection between
wants, efforts and satisfaction is close and
direct. A primitive man feels hungry, he picks
up fruit, eats it and is satisfied
• But in modern society the things are not so
simple and straight.
• Here a man produces what he does not
consume and consumes that he does not
produce.
• This process selling what you do not want
and buying what you want is called
EXCHANGE
• To day the process of exchange comes in
between wants, efforts and satisfaction
• Nowadays, most of the things we need are
made in factories.
• To make them the worker gives the labor, the
landlord his land, the capitalist his capital,
while the business man organize the work of
all these. They all get a reward in money. The
worker gets wages, the landlord the rent, the
capitalist the interest.
• The entrepreneur’s reward is profit
• Economics studies how these incomes- wage,
rent, interest and profits are determined. This
process is called distribution
• Like exchange, distribution also in between
efforts and satisfaction
• Thus we can say the subject matter of
economics is
2. CONSUMPTION (satisfaction of wants)
3. PRODUCTION (ie producing things or
creating utilities or making an effort to
satisfy our wants)
4. EXCHANGE (money, credit banking etc)
5. DISTRIBUTION (sharing of all that is
produced in the country among workers,
landlords, capitalists and organizers)
6. In addition economics also studies PUBLIC
FINANCE)
 consumption
• In consumption, we study
• The nature of human wants as
well as the principles governing
their satisfaction
• The law of diminishing marginal
utility
• The law of substitution
• The nature of demand-elastic or
inelastic
 Production

• We study how the four agents of

production ie land, labor, capital
and organization co-operate and
combine in the work of
production
 Exchange

• How buying and selling are

done and how prices are
determined
 Distribution
• We study the respective
shares that go to the four
agents –
• Land
• Labor
• Capital
• And organization
 Modern approach
• The study of
economics is ECONOMICS
divided into two
parts as per
modern approach.
They are

MICRO MACRO
ECONOMICS ECONOMICS
 MICRO ECONOMICS
• In Micro economics, we study the
determination of prices.
• We no longer device economics into
consumption, production, exchange and
distribution. They are all covered under price
theory.
• Prices are determined by the interaction of
demand and supply. The theory of demand
covers consumption and supply covers
production.
• In price theory, we study both product prices
(ie exchange) and factor prices
• (ie distribution).
• Thus all four divisions of Economics are
covered in Micro-economics or Price theory
 MACRO ECONOMICS
• In macro economics, we study the
working of the economic system
as a whole.
• We study the the levels of income
in a country, its total expenditure,
total employment and general
price levels (not individual)
• We study economy as a whole.
This is an aggregative approach
 Scope

• Scope means the sphere of study –

• Whether economics is a social

science?
• Whether economics is science or art?
• If economics is a science, whether it is
a positive or a normative science?
Economics-a social science?
• We have seen that economics
studies human beings. But it does
not study them as isolated
individuals living aloof in jungles
and caves.
• It studies men living in society,
exchanging his goods for those of
others and depending mutually
one another. Economics thus is ac
social sciencw
 Positive or Normative
science?
• Positive science explains “why”/ “ what”/
wherefore ie their causes and effects.
• A normative science discusses the rightness
or wrongness of things.
• Economics is considered both a positive or
normative science.
• For example, we know that few people in the
country are rich and majority are poor.
• Economics should explain not only the
causes of this unequal distribution of wealth,
but it should also say whether this is good or
bad. It might say that wealth should be fairly
distributed.
 A science or art?
• “Knowledge is Science; action is Art”
–Prof JKMehta
• A science is a systematized body of
knowledge- explains effects and causes. In
other words when laws have been discovered
explaining facts, it becomes a science.
• In economics, facts have been collected and
carefully analyzed and “laws explaining facts
have been laid down. Thus study of
economics has become very systematic and
it is entitled to be called a “SCIENCE”
 A science or art?
• But economics is also an art?
• An “ART” lays down formulae to guide
people who want to achieve an aim?
The aim must be removal of property or
increase agricultural production ie
yield per acre. Economics does help us
in solving many practical problems of
the day. It is not a theory alone, it has
great practical use also
• Hence economics is both a science
and art.
 Economics & relation with
science

• Economics has relationship

wit social sciences like
Politics, History, Ethics
 Economics and Politics
• All political events have their
roots in economics. All
discussions in legislature are
economic in nature.
Dictatorship moulds
economics.
• Foreign rule in India was
largely responsible for Indian
poverty
 Economics and History
• “Economics without History has no root,
History without economics has no fruit”

• Economics makes use of History in

understanding the background of the
present day economic problems and
history is incomplete unless it
discusses the economic condition of a
man. It does not merely tell the tale of
kings
 Economics and Ethics
• Ethics is a science of what ought
to be. It tells us whether a thing is
right or wrong.
• The economist cannot justify
immoral activities. Now ethical or
moral considerations govern all
economic activity.
Importance of Economics
• To householders -to get maximum
return from his expenditure, plan family
budget, diverting expenditure to more
important heads.
• To businessmen – scale of production,
division of labor, enhancing efficiency
• To laborers – proper remuneration,
effects of strikes and lock outs