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Compiled by: Reshu Agrawal Sagtani

Module: Health Policy and Financing
MPH, School of Public Health
2/19/23
Patan Academy of Health Sciences
§ Origin of Economics;

§ Definition/theories of economics – characteristics and criticisms;

§ Economic theory - methods to propound them;

§ Economics as a science – normative and positive;

§ Economic Laws.

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- Our activities to generate income are termed as economic activities, which are

responsible for the origin and development of Economics as a subject.

- Originated as a Science of Statecraft. Emergence of Political Economy.

- Greek word ‘Oekonomicus’, ‘Oeko’ means households and ‘nomicus’ means study. So, it

is the study of households.

- 1776 : Adam Smith (Father of Economics) – First Book on economics “An Inquiry into

the Nature and Causes of Wealth of Nations” popularly known as “Wealth of Nations”
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§ An economic theory is a set of ideas and principles that attempt to explain how the economy

works, how resources are allocated, how prices are determined, and how different economic
agents (such as individuals, firms, and governments) interact with each other;

§ Economic theories can take many different forms, ranging from mathematical models to

descriptive narratives about the workings of the economy;

§ Economic theories are not necessarily universally accepted, and different economists may have

different views on how the economy works and how it should be managed;

§ As new data becomes available and economic conditions change, economic theories may also

evolve and change over time;

§ Nonetheless, economic theories are an important tool for understanding how the economy

works, and for making informed decisions about economic policy and strategy.
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§ Wealth Definition (Adam Smith);

§ Welfare Definition (Alfred Marshall);

§ Scarcity Definition (Lionel Robbins);

§ Growth oriented definition (Samuelsons);

§ Need oriented definition (Jacob Viner).

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§ Earliest definition of Economics / Classical school of Economics.

§ Adam Smith, who is generally regarded as father of economics, defined

economics as “ a science which enquires into the nature and cause of

wealth of nation”. He emphasized the production and growth of wealth as
the subject matter of economics.

§ Smith argued that self-interested individuals pursuing their own economic

interests would ultimately produce outcomes that were beneficial to society

as a whole.
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§ Takes into account only material goods;

§ Deals with production, distribution and exchange of wealth;

§ Focus on ways and means of increasing the wealth of society;

§ Emphasis on the role of markets and free trade in promoting economic

growth.

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§ Considered economics as a dismal or selfish science;

§ Defined wealth in a very narrow and restricted sense which considers only

material and tangible goods and neglect of factors like well being, social
justice etc.;

§ Have given emphasis only to wealth and reduced man to secondary place in

the study of economics.

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According to Alfred Marshall:

§ Wealth is not end but only a means to an end, the end being human welfare;

“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 material requisites of well being”.

§ Welfare includes not only material goods but also intangible factors such as leisure,

health and social status;

§ Thus, it is on one side a study of wealth; and on other; and more important side, a

part of the study of man.

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§ It is primarily the study of mankind;

§ Takes into account ordinary business of life both wealth and other aspects;

§ Emphasize on material welfare as the primary concern of economics i.e.,

that part of human welfare which is related to wealth;

§ Economics studies how people work and live, i.e. how man earns and

spends his income to increase welfare.

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§ Only includes material things. Criticized because of the distinction made

between economic and non-economic;

§ Money is not a satisfactory measure of welfare. Money cannot represent an

equal utility or welfare for all persons;

§ Criticized for treating economics as a social behavior rather than a human

behavior. Thus welfare definition restricts the scope of economics to the study
of persons living in organized communities only.

§ Welfare in itself has a wide meaning which is not made clear in definition.
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According to Lionel Robbins: “Economics is the science which studies human
behavior as a relationship between ends and scarce means which have
alternate uses.”

Characteristics of Scarcity Oriented Definition:

§ Unlimited ends ( wants ).

§ Scarce means.

§ Alternative use of means/ opportunity costs

§ Choice – study of human behavior/subjective value in economic decision

making
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§ Limited scope: His definition does not focus on many important economic

issues of cyclical instability, unemployment, income determination and

economic growth and development.

§ Does not take into account the possibility of increase in resources over

time.

§ Neglect on social costs of economic activity such as environmental effects

which affect the well-being of society as a whole.

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§ According to Prof. Samuelson “Economics is the study of how men and society

choose with or without the use of money, to employ the scarce productive
resources which have alternative uses, to produce various commodities over
time and distribute them for consumption now and in future among various
people and groups of society.

§ JM Keynes, ” Economics is the study of the factors affecting the size, distribution,

and stability of a country’s national income.” Keynesian theory of economics,

which emphasizes the importance of government intervention to stabilize the
economy during times of economic downturn. 2/19/23 14
§ The definition is not merely concerned with the allocation of given resources but also

with the expansion of resources, tries to analyze how the expansion and growth of

resources to be used to cope with increasing human wants;

§ More dynamic approach and complex process that goes beyond just output or

productivity;

§ According to him, problem of resource allocation is a universal problem;

§ Definition is comprehensive in nature as it is both growth oriented as well as future

oriented.

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§ Too much emphasis on technological progress and overlooking other

important factors like political issues, social change etc.

§ Simplistic assumptions of perfect competition which might not be reflective

of real-world economic behavior

§ Less focus on distributional imapcts of growth on different social groups

and regions.

§ Neglect of environmental impacts of economic growth like

population,climate change, depletion of resources etc.
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§ According to Jacob Viner “Economics is what economists do”.

§ He emphasized the study of human welfare and the satisfaction of human needs as

the central focus of the discipline;

§ Evolution of economics definition over time and thus, emphasized on production,

exchange and distribution of good and services.

§ This definition reflects that there cannot be a single, unambiguous way of defining

economics as a more holistic approach to economic analysis is required which takes

into account social, cultural and environmental factors as well which affect human
welfare.
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Deductive method (Method of logical reasoning) :

§ Start with a set of general theoretical principles or assumptions about how the

economy works.

§ Use these principles to derive more specific predictions or hypotheses about how

different economic variables will behave under certain conditions.

§ Test these predictions or hypotheses against empirical data or observations.

§ Revise or refine the theory based on the results of the tests.

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§ Observe a set of empirical phenomena, such as patterns in economic data or

behavior of economic agents;

§ Identify regularities or correlations among these phenomena;

§ Generate a more general hypothesis or theory that can explain these regularities or

correlations;

§ Test the hypothesis or theory against additional empirical data or observations;

§ Refine or revise the theory based on the results of the tests.

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§ Both macro and micro economic theories are based on inductive and deductive reasoning.

§ Economic theories use deductive reasoning to develop general principles and models that

describe the behavior of large-scale economic systems such as national economies. These

models are used to derive specific predictions about the behavior of the economy under
different conditions.

§ Economic theories also makes use of inductive reasoning by testing these predictions against

empirical data and observations. Economists use statistical methods to analyze economic

data and test whether the predictions of macroeconomic theory hold up in the real world.

§ Thus both types of theories , are grounded in deductive reasoning but is complemented by

empirical testing and validation using inductive reasoning.

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§ Positive economics is concerned with describing and explaining economic

phenomena as they exist, without making value judgments.

§ Positive economists seek to understand the underlying causes of economic

phenomena and to develop theories that can explain and predict economic

behavior.

§ Positive economics is based on empirical observation, statistical analysis, and

logical reasoning, and it aims to be as objective and value-free as possible.

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§ Normative economists seek to prescribe what ought to be done in the economy

based on ethical or political considerations.

§ Normative economics is inherently subjective, as it involves making value

judgments and taking into account different ethical or political perspectives.

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§ Universality: Economic laws are valid in most of the times and places, and they

apply to almost all economic agents and activities.

§ Empirical basis: Economic laws are based on empirical observations and

statistical analysis of economic data.

§ Generalization: Economic laws describe general tendencies or patterns in

economic behavior, rather than specific instances.

§ Ceteris paribus assumption: Economic laws hold true under the assumption

that all other factors remain constant, ceteris paribus.

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§ Qualitative and quantitative: Economic laws can be qualitative, describing the

direction of the relationship between two or more economic variables, or

quantitative, providing a specific measure of the relationship.

§ Testability: Economic laws can be tested through empirical observation and

statistical analysis of economic data.

§ Limited scope: Economic laws are limited in scope and may not hold true in all

situations or under all conditions.

§ Subject to revision: Economic laws may be revised or updated as new data

becomes available or as economic conditions change.

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§ Slides from Mr. Pramod GC (BPKIHS);
§ Slides from Public Health Foundation of India (PGD course material);
§ Online information from Google Scholar.

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