Nature and Scope of Economics (1)

 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.
Wants Efforts
satisfaction
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.
1. Wealth Definition. Adam Smith
2. Welfare Definition. Alfred Marshall
3. Scarcity Definition. Lionel Robbins
4. Growth Definition. Paul Samuelson
 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

 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.
 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.
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.
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.
 LionelRobbins 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.”
1. Unlimited wants.
2. Scarce means.
3. Means have alternative uses.
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.
 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.
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.
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 Greek.
Mikros (small) and makros (large).

Micro means individualistic and macro
aggregative.
 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.’
 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.
 The French sociology philosopher Augustine
Compte used the terms ‘static and dynamic’
first time in social science.
 J.S Mill was the first to use these terms in
economics.
 Clear and scientific distinction between the
two terms made by Ragner Frisch in 1928.
 The word ‘static’ derived from the Greek
‘statike.’ which means bringing to a stand still.
It means a state of rest or no movement.
 According to Clark, where five kinds of changes
are conspicuous by their absence. The size of
population, the supply of capital, methods of
production, forms of business organization and
wants of people.
 Static economy thus a time less economy
where no changes occur.
 Static is like a snapshot from a ‘still.’
 Dynamic is the study of change .
 Economic dynamics is concerned with

time lags, rates of change,
 Economic dynamics is the running picture

of the working of the economy.
 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.
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.
1. It is intellectual method, near to reality.
2. This method is simple.
3. The use of mathematics brings exactness.
4. Universal validity.
1. This method based on assumptions.
2. Inadequate data.
3. Lerner criticised this method is simply
armchair analysis.
 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.
1. This method proceeds from particular to
general, it is thus realistic.
2. Helps in future enquiries.
3. Statistical method.
4. Dynamic.
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.
 Economics is the social science that studies the production, distribution,
and consumption of goods and services. Economics aims to explain how
economies work and how economic agents interact. Economic analysis is
applied throughout society, in business and finance but also in crime,
education, the family, health, law, politics, religion, social institutions, and
war. Economic textbooks distinguish between microeconomics ("small"
economics), which examines the economic behavior of agents (including
individuals and firms) and "macroeconomics" ("big" economics),
addressing issues of unemployment, inflation, monetary and fiscal policy.
Business economics (also called managerial economics), is a branch of

economics that applies microeconomic analysis to specific business
decisions. As such, it bridges economic theory and economics in practice.
It draws heavily from quantitative techniques such as regression analysis
and correlation, Lagrangian calculus (linear). If there is a unifying theme
that runs through most of business economics it is the attempt to
optimize business decisions given the firm's objectives and given
constraints imposed by scarcity, for example through the use of
operations research and programming
 Source:
 Manquee book managerial economics.
 www.Slideshare.com
 www.Wikipedia.com
 www.Google.com

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 The word Economics is derived from the

Greek words “OKIOS NEMEIN” meaning

that Economics is concerned with wealth.

man has given second place

and on the other side more important side

Mikros (small) and makros (large).

of full employment and ‘ceteris paribus’

Ricardo, Marshall, J.B Say and J.S Mill.

 Economic dynamics is concerned with

 Economic dynamics is the running picture

while induction proceeds from particular to

1.observation; 2. formation of hypothesis

Business economics (also called managerial economics), is a branch of

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