 INTRODUCTION.

 Economics is an important branch of Social

Science which deals with the behaviour of human
beings in relation to economic activities.
 Having more practical applicability, it is called
queen of Social Sciences.
 Basic premise of Economics.
 Unlimited human wants.
 Limited means of satisfying these wants.
  Definition of economics.
 Wealth definition.
 Welfare definition.
 Scarcity definition.
 Growth oriented definition.
 Wealth classical definition.
 Adam Smith defined economics as the science of
wealth.
 He published his book “An enquiry into the
nature and causes of the wealth of the Nations”.
 He is often called as the father of Economics.
Why?
 Merits
 Highlights important problem of various
economics that is creation of wealth.
 Focussed on issues of Economics by considering
problems of poverty, unemployment.
 Demerits.
 Confined to wealth ignoring welfare.
 Undue important to wealth neglecting man.
 Bread and butter science, dismal science.
 Welfare /Neo classical definition.
 “Study of mankind in the ordinary business
of life..... Thus, on one side it is a study of wealth
and on the other and more important side, a
part of the study of man.”
 This definition was propounded by Professor
Alfred Marshall in his book principles of economics
in 1890.
 As per him, wealth is a ‘mean’ and welfare is an
‘end’.
 Merits.
 Broadened the scope of Economics by
considering welfare.
 Economics is both social and normative science.
 Divided human activities into economics and
non economic activities.
 Demerits.
 Ignored services and focused on goods only.
 Vague concept of welfare.
 Neglected scarcity.
 It was Marshall who used the term ‘economics’
for the first time.
 Scarcity definition.
“Economics is a science which studies the human
behaviour as a relationship between unlimited and
scarce means which have alternative uses.”(L.L
Robbins).

 Merits
 Economics is a science.
 Unlimited ends. Science of choice.
 Scarce means.
 Alternative uses.
 Demerits
 Definition just reduced to a science of choice.
 Economics neutral between ends.
 Economic growth and development neglected.
 Economic problem arises out of abundance as
well not only scarcity.
 Great Depression of 1930s arose due to
abundance not scarcity.
  Even now, scarcity definition is considered to be
the best possible definition for economics. Why?

Growth oriented modern definition.

“Economics is a study of how men and Society choose

the use of money to employ scarce productive
resources which could have alternative uses to
produce various commodities and distribute them for
consumption now and in the future people and
Groups of society.”(Samuelson)”

 Main points
 Mix of wealth, welfare and scarcity definition .

Included economic growth and development as well.

Methodology of Economics

 Subjects of matter of Economics divided into

microeconomics and macroeconomics.
 Micro Economics is microscopic view of
economy.
 Macroeconomics is telescopic view of economy.
 Microeconomics also called price theory. Why?
 Nature of Economics
 Economics is a science. Why?
 Cause effect/easily predicable (law of demand).
 Economics is an art. Why?
 Art is practical applicability of knowledge.
 Economics is both an art and science.
 Economics is both positive Science as well as
normative science.
 Positive science only situation and facts, law of
demand.
 Normative science, value judgement.
Government should increase minimum support
price so that income of farmers does not fall.
 Methods of study.
 Deductive method.
 Also called abstract method.
 General to particular (General assumption is
made that man is rational. Thus, he would buy
cheap and sell dear.
 Merits
 No data collection required.
 Enables economist to derive theories using
mathematical tools.
 Inductive method.
 Also called empirical method.
 From particular to general.
 As income increases, savings increase.
 Merits.
 It leads to measureable conclusions.
 Economics involves integration of the two
methods.
 Central Economic Problems.
 Unlimited wants and scarce resources leads to
economic problem.
 Central economic problems are of four types:
 What to produce?
 How to produce?
 For whom to produce?
 What provisions to be made for economic growth?
 Production possibility curve, transformation
curve and Central problems of an economy.
 Opportunity Cost concept
 Cost of forgone alternative.
 Some Basic concepts of Economics.
 Utility: want satisfying power of a commodity.
 Value: value in exchange.
 Price: value expressed in money.
 Wealth: things having value.
 Stocks: No time dimension.
 Flows: Time dimension.