GSEB Std XI Economics Chapter 1 An Introduction to Economics Prepared by: Jeegar Bhatt (9725452059)

Economics
Part 1
Chapter 1 An Introduction to Economics

What is an economic activity?

Whatever activity is aimed at getting money to satisfy wants is called economic activity. So,
human wants are mother of economic activity.
Other activities which are inspired by love, affection, duty, voluntary services, patriotism etc.
are called non-economic activities.
Human Activities

Economic Non-Economic
Evolution of Economic Activity:
Wandering hunter  Animal husbandry  Farmer  Trader  Factory  Industrial
Revolution
With the evolution of economic activity began the age of commerce and the age of industrial
activity which resulted in Industrial Revolution.
On the basis of economic activity world is divided into developed countries and developing
countries.
Every man pursuing economic activity faces innumerable problems. Such problems are
known as economic problems.
Economic Problem:
Scarcity gives birth to economic activity/ problem. Scarcity is relative in nature which
means that if something is available in small quantity e.g. rotten eggs but if nobody wants it,
it cannot be considered as scarce. On the other hand coal is available in large quantity, but its
demand exceeds its supply, so coal is scarce in relation to its demand.
Due to scarcity we have to make a choice as to how to utilise our resources. Scarcity is the
mother of choice and a problem of allocation of resources.
Eastern School of Economic Thought:
Different books in India presented economic thought some of them are Kautilya Arthshastra,
Mahabharat Shanti Purva, Manu Smriti, Shukra Niti, Kaamandkiya Nitisaar etc.
Kautilya’s definition of Economics, ‘Arth is a basic instinct of man. The land on which man
lives is Arth. The science teaching the art of maintaining this land is called Economics.’
Land was considered as wealth by Kautilya because it gives livelihood and shelter.

Important matters described by Kautilya are Raj Dharma, taxes to augment state revenue,
different kinds of taxes, heads of expenses of the state, accounting procedures, sale, purchase,
property rights, safeguarding of property, remuneration, wage, salary, interest, debt etc.

Kautilya’s Arthshastra in real terms is eco-ethics (Laws of economics based on ethical code
of conduct), it is also considered as a book of sermon (religious speech).

Western school of Economic Thought:

It consists of Adam Smith who gave Wealth definition, Prof. Alfred Marshall who gave
Welfare definition and Prof. Lionel Robbins who gave Scarcity definition of economics.
Adam Smith:
According to him, ‘Economics is a science of wealth.’ He emphasised on material wealth by
considering all necessary goods as wealth.

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GSEB Std XI Economics Chapter 1 An Introduction to Economics Prepared by: Jeegar Bhatt (9725452059)

According to him man produces wealth. He utilises, exchanges and distributes this wealth,
economics studies production, consumption, exchange and distribution and principles
governing this activities.

He gave significant weightage to wealth in his book ‘Wealth of Nations’ but failed to show
the significance of the human behaviour related to wealth.
Prof. Alfred Marshall:
Marshall also considered concept of material wealth but according to him wealth is a means
and human welfare is an end.
He defined economics as study of ordinary business of man. According to him this ordinary
business is wealth getting and wealth using activities.
Important points of Marshall’s definition:
 Man is at the centre of economics
 Economics studies wealth getting and wealth using activities of man.
 Economics is concerned with material welfare of man.
Criticism of Marshall’s definition:
 Non-material things(services) were not considered
 Economics has no relation with welfare. Goods like drugs, opium, liquor, etc. Do not
give rise to welfare but are part of economics. Marshall ignored these activities.
 Economics is not purely a social science. A pure social science only studies man
living in society and ignores those in isolation. Actual economics considers man
living in society or living in isolation.
 Welfare definition is more descriptive than analytical. Marshall just classified
activities into economic and non-economic activities which was unscientific and
illogical.
Prof. Lionel Robbins:
According to Lionel Robbins Economics is science of scarcity. Scarcity arises because nature
has not provided sufficient means to satisfy all human wants. Thus economics is science of
scarcity and it studies the process of allocation of resources in order to satisfy wants.
Points clarified by Robbins’ Definition:
 Economics is behavioural science not just social science. It studies economic problem
of all man, whether living in society or in isolation.
 It studies all want satisfying material and non-material things which include goods
and services.
 Economics is neutral between ends. Economics is not just concerned with welfare
oriented activities, it also studies actions which are harmful to human life.
 Economics is science of choice.
 In order to get maximum satisfaction, man allocates his limited resources to different
wants. Thus it can be called science of resource allocation.
 Science of economising.
 Economics is science of positive thinking and puts emphasis on scarcity and choice.
Criticism of Robbins’ Definition:
 Economics cannot remain neutral between ends. It has to opine for what is good and
what is bad.
 Avoids macroeconomic concepts.
 Overlooked the principles of economic growth and economic development.
Factors responsible for economic problem:
1. Unlimited wants:
a. Many wants originate from one want
b. Wants increase by foolish imitation

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GSEB Std XI Economics Chapter 1 An Introduction to Economics Prepared by: Jeegar Bhatt (9725452059)

c. Repeated wants
d. New technology
e. Increase in population
2. Wants with different importance:
Necessities, Comforts (wants which can be postponed for some period), Luxuries
(wants which can be postponed forever permanently)
3. Limited resources: There are two kinds of resources – human and natural. Both the
resources are scarce so their economical use is required. Choice of resource can be
made keeping in mind selected want for economising. Limited resources gives rise to
problem of choice.
4. Alternative uses of means: Means have alternative uses that is why, choice of means
to be used is to be made e.g. Land is a natural wealth having alternative uses i.e.
cultivation, construction of building, establishing factory etc. But once the land is
used for some purpose for example agriculture, it cannot be used for anything else.
This alternative uses of means makes problem of choice more complex. In order to
use resources wisely we have to allocate resources according to the importance of
wants.

Nature of economics
Economics as an Art: Like art it is normative and asks ‘What should be’. It provides rules and
regulations to assist increasing material welfare or economic growth. It is concerned with suggesting
solution to our day-to-day problems.
Economics is a Science: Like science it asks question ‘What is’. It uses inductive and deductive
methods of analysis and draws some specific principle. As science economics establishes relationship
between cause and effect and is neutral between ends.
Economics as science faces two problems i) there are more opinions than number of economicsts,
which means for different economists principles of economics are different. ii) Unlike chemistry or
physics, economics does not precisely predict about any future event.
Economics – Science and Art: Economics is a science because it imparts knowledge and it is an art
because it is fruitful to the society.
Methods of economic analysis:
Microeconomics (study of individual unit) and Macroeconomics (study of aggregate or all units)
Microeconomics: Micro means small. It is a study of individual unit, e.g. industry, firm, household
etc.
Macroeconomics: macro means large. It is a study of all industries not only one industry.
“Economics studies ordinary business of life of man”:
According to Prof. Alfred Marshall ordinary business of life of man means wealth getting and wealth using
activities. Wealth means the goods which are considered necessary. Economics studies, how a man gets
materially rich and how well he uses his richness. At any given time a man will be engaged either in wealth
getting or wealth using activity. Every man has limited wealth so he always thinks about how to get maximum
out of his limited wealth.
“Economics is a Science of Choice”:
Human wants are unlimited, but the resources to satisfy these wants are limited. Also these resources can be put
to more than one use. In order to fulfil his desires man has to grade wants according to its importance and has to
decide which wants are to be satisfied first. As a rational being a man has to decide how to use his resources for
maximum satisfaction. So we can say that economics is a science of choice.
“Economics is a social science.”
Economics is concerned with the problems of society. It suggests that man living in society has limited
resources and they have to adjust these resources with his unlimited wants. Over and above this, economics also
studies social problems like poverty, unemployment, infrastructure etc. Economics is also concerned with the
proper utilisation of social resources and general welfare. Thus, it can be said that economics is a social science.