Chapter 1: nature and scope of economics

Unit 1: introduction

The word economics is derived from a Greek word oikonomia meaning household

Oikonomia is made up of two words oiko (a house) and Nomos (management), so

economics means household management.

Till 19th century economics was known as political economy.

Economics is considered to be originated in the year 1776.

Father of economics is Adam smith.

An enquiry into the nature and causes of wealth of nations, shortly known as
wealth of nations, was written by Adam smith.

Economics deals with economic activities of the people and problem of choice.

The two fundamental facts which form the subject matter of economics is that
human wants are unlimited and the means to satisfy these unlimited wamts are
relatively scarce.

Definition of economics

“An inquiry into the nature and causes of the wealth of the nations, written by
Adam Smith. (1776)

“Science which deals with wealth” by J.B. Say.

“Economics is a study of mankind in the ordinary business of life. It examines that

part of individual and social action which is most closely connected with the
attainment and with the use of the material requisites of well-being. Alfred
Marshall. (1890)

“The range of our inquiry becomes restricted to that part of social welfare that
can be brought directly or indirectly into relation with the measuring rod of
money” A.C. Pigou.
“Economics is the science which studies human behavior as a relationship
between ends and scarce means which have alternative uses”. Lionel Robbins
(1932)

Science of dynamic growth and development: “Economics is the study of how

men and society choose, with or without the use of money, to employ scarce
productive resources which could have alternative uses, to produce various
commodities over time and distribute them for consumption now and in the
future amongst various people and groups of society”. Paul A. Samuelson. (1948)

The terms micro and macro economics were first coined and used by Ragnar
Frisch in 1933

Micro word is derived from a Greek word mikros meaning small, and macro word
is derived from a Greek word Makros meaning large.

Micro Economics

 It is the study of individual economic units of an economy.

 It is primarily concerned with determination of price and output of a
commodity or service.
 Its main tools are demand and supply of a particular commodity or factor
of production.
 In microeconomics price and output determination of a commodity is
studied while assuming that macro variables remain constant.

Macro Economics

 It is the study of economy as a whole and its aggregates.

 It is concerned with the determination of aggregate output and general
price level in the economy as whole.
 Its main tools are aggregate demand and aggregate supply of the whole
economy.
 In macroeconomics national output or income is studied while assuming
micro variables remain to be constant.