Prepared by: Enrolment no. NameRoll no PALAK JADAV PATEL NIYATI SONALI PARMAR VIBHIKSHA GAJERA43

A Preliminary introduction Definition of economics Scope of economics Subject matter of economics Methodology of economics

The word Economics is derived from the Greek words “OKIOS NEMEIN” meaning household management. Man is bundle of desires. Goods and services satisfy these wants. But almost all the goods are scarce. To produce goods land, labour, capital and organization are needed. Economic problem arises because of scarcity. Economics is a study of economic problems. Wants are motive force for economic activity. Wants leads to efforts. Efforts secures satisfaction. A PRELIMINARY INTRODUCTION

What is economics…?

Satisfaction of Individual Human ‘wants’

Satisfaction of collective Society ‘wants’

Efforts satisfaction Wants

Economics Definitions 1. Wealth Definition. Adam Smith 2. Welfare Definition. Alfred Marshall 3. Scarcity Definition. Lionel Robbins 4. Growth Definition. Paul Samuelson

1.Wealth Definition. Father of Economics Adam Smith in his book “ Wealth of Nations 1776” defined economics is the study of wealth. J.B Say, J.S Mill, Walker, B.Price all agreed that Economics is concerned with wealth. In this definition wealth is given first place, man has given second place

Wealth definition criticism: Walras in his book Elements of pure economics “wealth definition is unscientific one.” Carlyle. Ruskin, Dickens criticized it as dismal science. Carlyle “ It was a Gospel of mammon and pig science. Economics criticized as bread and butter science. Economics is science of ills and not wealth.

2. Welfare definition. Alfred Marshall in his book “Principles of Economic Science-1890” defined Economics is the study of man kind in the ordinary business of life. “Economics is one side a study of wealth; and on the other side more important side a part of study of man He made economics is a science of human welfare.

Welfare definition-points 1. Mainly concerned with the study of man in relation to wealth. 2. First place to man, second place to wealth. 3. It studies man not in isolation but a member of a social group. 4. Definition considered only material welfare, ignored immaterial welfare.

Welfare definition- criticism 1. Restricted scope of economics –considered only material goods. 2. Robbins objected the word material and the idea ‘welfare’. There are some goods which do not promote human welfare. Ex. Liquors, cigarettes. 3. Welfare is subjective, it cannot be measured. 4. Economics is neutral between ends. No way concerned what is good and what is bad. 5. Economics is not a social science. Robbins regards as a human science.

3. Scarcity Definition. Lionel Robbins in his book ‘Nature and Significance of Economic Science-1932 given scarcity definition. “Economic is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

Scarcity Definition-main Points 1. Unlimited wants. 2. Scarce means. 3. Means have alternative uses.

Superiority of scarcity definition 1. Robbins included material and non material goods,widens the scope of economics. 2. He made economics a positive science. 3. His definition is universal.

Growth definition Economics Noble prize winner (1970) Paul Samuelson proposes a dynamic definition in his book Economics(1948) Economics is the study of how people and society end up choosing with or without money to employ scarce productive resources that could have alternative uses to produce various commodities and distribute them for consumption, now or in the future among various persons and groups in society. Economic analysis the cost and benefits of improving patterns of resources use.

Growth Definition-points 1. Scarcity : Unlimited wants,scarcity of resources and alternative uses. 2. Dynamism: The importance of time is brought in the definition. 3. Economic growth: His definition gave importance to economic growth 4. Wide scope: Economic choice exist not only in a monetary economy but also in a barter economy. 5. Problem of choice: Definition explains problem of choice in present and future in dynamic conditions.

SCOPE OF ECONOMICS Scope means province or field of study. (i)Economics – A Science and an Art (ii)Economics - Positive and Normative

(a) Economics is a science: By applying the characteristics of science, we find that economics is a branch of knowledge where the various facts relevant to it have been systematically collected, classified and analyzed. (b) Economics is a art: An Art is a system of rules for the attainment of a given end. “A science teaches us to know; an art teaches us to do”. Science and art are complementary to each other and economics is both a science and an art.

(ii) Positive and normative economics (a) Positive science: it only describes what it is and normative science prescribes what it ought to be. positive science does not indicate what is good or what is bed to the society. it will simply provide results of economic analysis of a problem. (b) Normative science : it makes distinction between good and bed. it prescribes what should be done to promote human welfare and it also suggest how it can be rectified. Therefore, economics is a positive as well as normative science

SUBJECT MATTER OF ECONOMICS Economics can be studied throgh: (A) Traditional approach (B) Modern approach

(A) Traditional approach Economics is studied under five major divisions: 1. Consumption: Extracting utility from goods and services. 2. Production: Production of goods and services which posses utility. 3. Exchange: means buying and selling of goods and services. It is link between consumer and producer. 4. Distribution: Sharing of income by the four factors of production. 5. Public finance : it studies how the government gets money and how it spends it. Thus in public finance, we study about public revenue and public expenditure.

 It divided into : (i) Micro-economics (ii) Macro-economics The terms micro and macro derived from Greek. Mikros (small) and makros (large). Micro means individualistic and macro aggregative.

(i)Micro Economics. Micro economics is the study of particular firms, households, individual prices and particular commodity. Micro economics is based on the assumption of full employment and ‘ceteris paribus’ (other things remain constant). Micro economics was popularized by David Ricardo, Marshall, J.B Say and J.S Mill. Micro economics called as ‘ Price Theory.’

(ii)Macro Economics: Macro economics is the study of economic system as a whole. Macro economics studies aggregates values like National Income, National output, general price level, total consumption, saving and investment of a country. Macro economics is called ‘ Income and Employment theory.’ J.M Keynes popularized macro Economics Where micro economics explain a tree in the forest, macro economics explains all the trees in the forest.

Methodology of economics To study economics, two methods are there. 1.Deductive method 2. Inductive method. Deduction proceeds from general to particular while induction proceeds from particular to general.

Deduction method 1. This method deduces conclusions from the truths established by other methods. 2. It involves the process of reasoning from certain laws or principles which are assumed to be true, to analysis of facts. 3. “Deduction as a descending process” in which we proceed from a general to principle to particular. 4. It as ‘a priori’ method and also called it abstract and analytical method 5. Ricardo regarded as the first economist who applied this method. 6. Ex; the law of diminishing returns.

Deduction method -merits 1. It is intellectual method, near to reality. 2. This method is simple. 3. The use of mathematics brings exactness. 4. Universal validity.

Deduction method – demerits 1. This method based on assumptions. 2. Inadequate data. 3. Lerner criticised this method is simply armchair analysis.

Inductive method This method involves the process of reasoning from particular to general. It as an ‘ascending process’. This method involves four stages: 1.observation; 2. formation of hypothesis 3.generalisation; 4. verification. This method was introduced by German historical school Roscher, Hillbrand, and Fedric List.

Inductive method-Merits 1. This method proceeds from particular to general, it is thus realistic. 2. Helps in future enquiries. 3. Statistical method. 4. Dynamic.

Inductive method-Demerits 1. Statistical numbers can be misused and misinterpreted. 2. Probable. 3. Time consuming and costly method. 4. Differ from investigator to investigator for the same problem.

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