Dr.Nimisha Beri

MEANING AND DEFINITION OF

ECONOMICS

Dr.Nimisha Beri

Asst.Prof.

LFEH

The word Economics is derived from the Greek words “OKIOS NEMEIN” meaning

household management .

IntroductionIntroductionIntroductionIntroduction

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.

Economic Activities Economic Activities Economic Activities Economic Activities

� Consumption: Extracting utility from goods and services.

� Production: Production of goods and services which posses utility.

� Exchange: means buying and selling of goods and � Exchange: means buying and selling of goods and services. It is link between consumer and producer.

� Distribution: Sharing of income by the four factors of production.

Economics Definitions Economics Definitions Economics Definitions Economics Definitions

�Wealth Definition. Adam Smith

�Welfare Definition. Alfred Marshall

�Scarcity Definition. Lionel Robbins �Scarcity Definition. Lionel Robbins

�Growth Definition. Paul Samuelson

Wealth DefinitionWealth DefinitionWealth DefinitionWealth 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 �. 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 criticismWealth definition criticismWealth definition criticismWealth definition criticism

�Walras in his book Elements of pure economics “wealth definition is unscientific one.”

� Carlyle. Ruskin, Dickens criticized it as dismal science.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.

Welfare definitionWelfare definitionWelfare definitionWelfare 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; � “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 definitionWelfare definitionWelfare definitionWelfare definition----pointspointspointspoints

�Mainly concerned with the study of man in relation to wealth.

�First place to man, second place to wealth.

� It studies man not in isolation but a member � It studies man not in isolation but a member of a social group.

�Definition considered only material welfare, ignored immaterial welfare.

Welfare definitionWelfare definitionWelfare definitionWelfare definition---- criticismcriticismcriticismcriticism� Restricted scope of economics –considered only material goods.

� Robbins objected the word material and the idea ‘welfare’. There are some goods which do not promote human welfare. Ex. Liquors, cigarettes. human welfare. Ex. Liquors, cigarettes.

� Welfare is subjective, it cannot be measured. � Economics is neutral between ends. No way concerned what is good and what is bad.

� Economics is not a social science. Robbins regards as a human science.

Scarcity DefinitionScarcity DefinitionScarcity DefinitionScarcity Definition�Lionel Robbins in his book ‘Nature and Significance of Economic Science-1932 given scarcity definition.

�“Economic is the science which studies “Economic is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

Main points of scarcity definition

� Unlimited wants. �Scarce means. �Means have alternative uses. �Means have alternative uses.

Superiority of scarcity definition Superiority of scarcity definition Superiority of scarcity definition Superiority of scarcity definition

�Robbins included material and non material goods ,widens the scope of economics.economics.

� He made economics a positive science.

�His definition is universal.

Criticism of scarcity definition

� It fails to explain why labor despite being scarce remains

unemployed / underemployed

� It also fails to explain situations of abundance

� Ignores welfare� Ignores welfare

� Scope of Economics is wider than allocation of resources

� Does not cover economic growth

� Considered economics as valuation theory and ignored man

Wantlessness definition� J.K.Mehta an Indian economist describes economics as science of human activities considered as an endeavor to reach the state of wantlessness.

� Main Points� Chief objective of life is to obtain happiness or prosperity� Chief objective of life is to obtain happiness or prosperity

� Real happiness and prosperity lies in wantlessness

� Stage of wantlessness is reached gradually

� Stage of wantlessness is a stage of bliss

Criticism of Wantlessness definition

� Unnecessary association of economics with ethics, philosophy and religion

� It is impossible to reach a stage of wantlessness

� Economics loses its significance when man reaches the stage of wantlessnessof wantlessness

Growth definition Growth definition Growth definition 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 alternative uses to produce various commodities and distribute them for consumption, now or in the future among various persons and groups in society.

� Economic analyses the cost and benefits of improving patterns of resources use.

Growth DefinitionGrowth DefinitionGrowth DefinitionGrowth Definition----pointspointspointspoints� The importance of time is brought in the definition.

� His definition gave importance to economic growth

� Economic choice exist not only in a monetary � Economic choice exist not only in a monetary economy but also in a barter economy.

� Definition explains problem of choice in present and future in dynamic conditions.

� It is concerned with production as well as its distribution

Evaluation of Growth definition

� This definition has found more acceptability as all the important elements of economics-determination and distribution of national income and output, employment and theory of economic growth are incorporated in ittheory of economic growth are incorporated in it

MicroMicroMicroMicro---- Macro Economics Macro Economics Macro Economics Macro Economics

�Economics noble prize winner (1969), Ragner Frisch was the first to use the terms micro and macro in economics in 1933.

�The terms micro and macro derived from �The terms micro and macro derived from Greek. Mikros (small) and makros (large).

�Micro means individualistic and macro aggregative.

Micro EconomicsMicro EconomicsMicro EconomicsMicro Economics

�Micro economics is the study of particular firms, households, individual prices and particular commodity.

�Micro economics is based on the assumption of full �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.’

Macro EconomicsMacro EconomicsMacro EconomicsMacro 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. 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.