economics class 11 unit 1 _ basic-concept-of-economic

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Basic concept of EconomicsDefinition of Economics

Economics is a social science. It studies economic activities of man, living in an

organized society. It is a dynamic science. Therefore, there is no universally acceptabledefinition of economics. Some modern ecomist have said that it is not easy to define

economics definitely. According to Barbara Wotton : Whenever Six economists are

gathered there are seven opinions. Similarly, according to Jacob Viner, Economics is

what economists do. However, for systematic study of any science we need itsdefinition. The definition of economics can be classified into three groups i.e.

I. Wealth definition of economics (Classical)II. Welfare definition of economics (neo classical)III. Scarcity definition of economics (Modern)

Wealth definition of economics :

This is the oldest definition of economics. This definition is related with classicalschool of economics. Adam Smith is regarded as a leader of classical economists. He is

regarded as a leader of classical economists. He is well known as the father of economic

science because he made economics as an independent science. In 1776 AD, Adam Smithwrote a famous book Wealth of Nations. In that book he defined economics as

Economics is an enquiry into the nature and causes of wealth of Nations. In other words,according to Adam Smith , economics is a science of wealth.

Criticisms of wealth definition :The wealth definition of economics has been criticized on the following grounds:

Narrow definition :This definition has narrowed the scope of economics. According to this

definition, economics studies only those human beings who are engaged in

production and consumption of wealth. Those who are not engaged in such

activities such as retired man cannot fall within the scope of economics. But it is

quite wrong.

Emphasis on wealth :This definition has given more emphasis on wealth and it ignores theimportance of man. But in reality wealth is only a means to satisfy human wants.

Wealth is produced for man but not man for wealth. Therefore, man is a primary

and wealth is only for secondary importance.

Incomplete and inadequate :This definition is incomplete and inadequate. It lacks analytical approach.

It does not explain the nature of economic problems.

According to Adam Smith the ultimate objective of man is to earn wealth. Butaccording to critics, the ultimate objective of man is to get satisfaction rather thanto earn wealth.

Welfare definition of economics:

This definition is related with neo-classical school of economics. Dr. Alfred Marshall isregarded as a leader of neo-classical economists. He was a professor of economics at

Cambridge University. In 1890 AD, Marshall published a book Principles of

Economics. In that book he defined economics as Economics is a study of mankind in


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ordinary business of life. It enquires how a man earns income and how he uses it. Thus,it is the study of wealth in other hand and on the other hand, it is the study of mankind.

Features of Welfare definition: Economics is the study of economic aspect of mankind. Economics studies economic welfare of mankind. It does not study the whole

human welfare.

Economics is a social science. It is concerned with the economic aspect of sociallife.

Criticisms of Welfare definition:The welfare definition of economics has been criticized on several grounds. The main

criticisms were made by Robbins. The criticisms are as follows:

Classificatory :The welfare definition is classificatory rather than analytical. It classifies

economic phenomena into material and non material. Similarly, human

activities are divided into economic and non economic activities. Butaccording to Robbins, such type of classification is unscientific and illogical.

Narrow scope :This definition has narrowed the scope of economics because this

definition includes only material things and excludes non material things

from the scope of economics. But it is difficult to separate material and non

material things.

Connection between economics and welfare :This definition has tried to establish connection between economics and

welfare. But according to Robbins economics has nothing to do with welfare.

Pure social science :The welfare definition takes economics as purely a social science. It

means that economics doesnt study the man living outside society. But this is

not true.

Measurement of Welfare :According to Marshall, welfare can be measured quantitatively. Themeasuring rod is money but according to critics, welfare cannot be measured

quantitatively because it is a mental feeling. It varies from individual toindividual.

Scarcity definition of economics :This definition is related with modern school of economics. Lionel Robbins is

regarded as a leader of modern economists. In 1932 AD, he published a book, The

Nature and Significance of Economic Science. In that book he has given a newdefinition of economics called Scarcity definition. According to Robbins, Economics is

the science which studies human behavior as a well as relationship between unlimitedends (wants) and scarce means which have alternative uses.

Features of Scarcity definition :

Unlimited wants or ends :According to Robbins, human wants are unlimited. If one want is satisfied

another wants crop up. Therefore, it is difficult to satisfy all these wants at the

same time.


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Scarce means or resources :Means to satisfy human wants are limited and scarce. The economic

problems arise due to the scarcity of resources. These resources are scarce inrelation to their demands.

Alternative uses :The scarce means have alternative uses. For example : Money can be put

to several uses ether for buying food, buying books or going to cinema, etc.

Problem of choice :Due to the scarce and alternative uses of means there arise the problems of

choice. We have to choose between most urgent want to less urgent want.

Criticisms of scarcity definition:Though the scarcity definition of economics is regarded superior than other definitions

but still this definition is not free from criticism. Therefore, this definition has beencriticized on the following grounds:

Inclusion of material welfare :Robbins critcised the welfare definition given by Marshall but the materialwelfare enters in his definition through back door.

Ignores present day problems :According to critics, this definition is unable to address the hot issues of

modern economy like unemployment, povertiy, economic growth, economic

development, etc.

Incomplete definition :The critics objected that the Robbins definition of economics has given

unnecessary emphasis to scarcity problem. But according to them economicproblems arise not only from scarcity but it also may arise form abundance.

For Eg : During depression of 1930s economic problems had arosed due to

over production or abundance.

It doesnot cover macro economics :The scarcity definition of economics does not cover macro economics

but macro economics is an important parts of economics.

Pure Science :Robbins definition converse economics in a pure science. As a pure

science, economics is concerned with the formulation of economic lawshaving nothing to do with practice. But it is quite wrong because economistsare not only tool makers but also tool users.

Social aspect :Robbins definition of economics ignored the social aspect of human life.

But economics is a social science. It is concerned with the study of economic

activities of man living in a society.


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Comparison of Robbins and Marshalls definition :

Marshalls Robbins

1. Classificatory:Marshalls definition of economics is

classificatory because it classifies goodsinto material and non material goods and

includes only material goods in the scopeof economics.

1. Analytical:Robbins definition of economics is

analytical. It deals all types of goods andall kinds of human activities.

2. Social science:

According to Marshall economics is a

social science. It studies only those humanbeings who are living in an organized

society.

2. Human science:

According to Robbins economics is a

human science. It studies all human beingswhether they are in society or out of

society.

3. Normative Science:

Marshalls definition is based on the

concept of Normative economics.Normative science give value judgement. It

shows rightness or wrongness of things.

3. Positive Science:

Robbins definition is based on the concept

of positive science. It explains facts as theyare. It doesnt give value judgement.

4. Non neutral:

According to Marshall economics is non

neutral. It helps to solve practicalproblems. It is concerned for improving

human life.

4. Neutral:

According to Robbins economis is neutral.

It is neutral between wants and resourceutilization.

5. Narrow scope:

Marshalls definition of economics hasnarrowed the scope of economics.

5. Broad Scope :Robbins definition of economics hasbroaden the scope of economics.

Superiority of Robbins definition of economics:

Robbins definition of economis is regarded superior definition than others on thefollowing grounds:

Scientific definition:Robbins definition of economics is regarded as more scientific and

analytical. It is not classificatory. Marshalls definition of economics isclassificatory. Therefore, Robbins definition is regarded more scientific and

satisfactory.

Universal application:Robbins definition of economics has universal application. It is applicable

to both planned and unplanned economy. Similarly, it is applicable to alleconomic system i.e. capitalist, socialist and mixed economy.

Positive Science:Robbins regarded economics as a positive science whereas Marshall

regarded economics as a normative science. Positive science describes the

things as they are and does not say what is good and what is bad. On the other


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hand, normative science says what is good or what is bad. Robbins definitionis regarded superior to Marshalls definition on these grounds as well.

Science of choice:The best part of the Robbins definition is that it regards economics is a

science of choice. Choice is necessary to solve economic problems. This is the

realistic situation since means are always limited in relation to wants. An

individual has to make choice to get maximum satisfaction from the limitedmeans.

Wider scope:Robbins definition has widened the scope of economics because Robbins

says that all types of human wants material and non material come withinthe sphere of economics.

Subject Matter of Economics:

There are two approaches regarding the subject matter of economics i.e.

Traditional approach Modern approach

According to Traditional approach the subject matter of economics are Consumption,production, exchange, distribution and public finance.

Consumption:Consumption is one of the important branches of economics. Consumptionmeans to satisfy human wants through the use of goods and services.

Production:Production is defined as the creation of utility. The goods and services are

produced form consumption.

Exchange:It studies how goods are exchanged between different parties. Here, we

study the determination of price of goods and services under different

markets.

Distribution:Here, we study the distribution of national product among the various

factors of production i.e. land, labour, capital and organization.

Public finance:It studies income and expenditure aspect of the government.

But according to modern approach the whole subject matter of economics is classifiedinto two parts:

Micro economics: Macro economics:Micro economics is the study of individual units whereas macro economics is

the study of economy as a whole. All traditional theories such as consumption,production, exchange, distribution fall under micro economics. In macro


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economics we study the factors that determine a countrys national income,saving, investment, consumption, etc.

Concept of Positive and normative economics:

Positive economics:Positive economics is an exploration of state of things as they are. It is concerned

with the description of economic events. It tries to follow scientific principles toformulate theories. It doesnt give value judgement. According to David Begg, Positive

economics deals with objective or scientific explanation of the working of the economy.Therefore, positive economic deals how the economy actually behaves. The objective of

positive economics is to explain how society makes decisions about consumption,production and exchange of goods and services.

Normative economics:Normative economics is an evaluation of state of things as they ought to be. It is

based on subjective value judgement. Therefore, normative economics explain rightness

or wrongness of things. According to David Begg, Normative economics offersprescriptions or recommendations based on personal value judgement.

Neo classical economists believe on normative economics.

We can make distinction between positive and normative economics by a statement,The poor are malnourished, and the government must provide food subsidy to the poor.

Here the first part of the statement The poor are malnourished is a positive economics

and the second part of the statement The government must provide food subsidy to the

poor is a statement of normative economics.

Concept of micro economics and macro economics:

Micro economics:The word micro is derived from Greek word mikros meaning small. Therefore,

micro economics is the study of the behavior of individual units of an economy. For Eg :

Individual consumer, individual producer, households, individual price, individual

market, etc.According to Edwin Mansfied: Micro economics deals with the economic

behavior of individual units such as: consumers, firms and resource owners.

According to K.E. Boulding: Micro economics is the study of particular firms,particular household wages, individual prices, incomes, individual industries, particular

commodities.

Thus, micro economics studies the small components of the national economy.But it doesnt study economy as a whole. Micro economics is also called price theory.

Macro economics:The word macro is derived from Greek word makros meaning large.

Therefore, macro economics is concerned with the analysis of economy as a whole orits large aggregates such as national income, national product, total employment, totalconsumption, total investment, monetary policy, fiscal policy, general price level, etc.

According to Edwin Mansfied: Macro economics deals with behavior of

economic aggregates such as gross national product and level of employment.

According to K.E. Boulding: Macro economics is that part of economics whichstudies the overall averages and aggregates of the system.

economics class 11 unit 1 _ basic-concept-of-economic

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