HIMACHAL PRADESH NATIONAL LAW UNIVERSITY

SHIMLA

ECONOMICS ASSIGNMENT

Title: RELATION BETWEEN LAW AND ECONOMICS

Submitted To:
Dr. Digvijay Katoch
Assistant Professor of Management
HPNLU, Shimla

Submitted By:
Shreya Thakur
112022009
B.B.A. LL.B. (Hons.)
First Semester

1
 ACKNOWLEDGEMENT

I want to take this opportunity to thank some of the individuals who have made significant
contributions to the development of this project.
I am grateful to Dr. Digvijay Katoch, my Economics Professor, for providing me with such
an insightful topic and for his support and encouragement throughout the project. Despite his
hectic schedule, he has always been patient enough to listen to my questions and resolve
them.
I am also grateful to Himachal Pradesh National Law University, Shimla, and Vice
Chancellor ma'am, Dr. Nishtha Jaswal for including me in this project and assisting me in
becoming acquainted with the University.
This task could not have been done without the support of all other University staff members,
my parents, siblings, and friends. Their motivation became my driving force during the tenure
of the completion of this assignment.

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Contents

ACKNOWLEDGEMENT................................................................................................2
INTRODUCTION:....................................................................................................3
HOW DOES LAW AFFECT ECONOMICS ............................................................5
HOW DOES ECONOMICS AFFECT LAW.............................................................9
CONCLUSION............................................................................................................13
BIBLIOGRAPHY…………………………………………………………………………………………………………
15

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 INTRODUCTION

The word economy comes from the Greek word oikonomos, which means “onewho manages
a household.” At first, this origin might seem peculiar. But in fact, households and economies
have much in common.A household faces many decisions. It must decide which household
membersdo which tasks and what each member receives in return: Who cooks dinner?Who
does the laundry? Who gets the extra dessert at dinner? Who gets to drivethe car? In short, a
household must allocate its scarce resources (time, dessert, car mileage) among its various
members, taking into account each member’s abilities, efforts, and desires. Economics is the
study of how society manages its scarce resources. In most so-cieties, resources are allocated
not by an all-powerful dictator but through the combined choices of millions of households
and firms. Economists, therefore, study how people make decisions: how much they work,
what they buy, how much they save, and how they invest their savings. Economists also
study how people inter-act with one another. For instance, they examine how the multitude of
buyers and sellers of a good together determine the price at which the good is sold and the
quantity that is sold. Finally, economists analyze the forces and trends that affect the
economy as a whole, including the growth in average income, the fraction of the population
that cannot find work, and the rate at which prices are rising.
The law and economics movement provides both a broad theory of law and conceptual tools
for clarifying and improving its practises. According to the general conception, law is best
understood as a social tool that promotes economic efficiency, and that economic analysis
and efficiency as an ideal may drive legal practise. It also looks at how legislation may be
utilised to enhance market circumstances. Law and economics provide a framework for
modelling legal outcomes as well as shared goals for unifying various sectors of legal
activity. The combination of legal theory with economic reasoning has also resulted in new
study goals in the domains of behavioural economics, such as how rationality impacts
people's conduct in legal settings, public choice theory, and how Collective behaviour should
influence law, and game theory may help us comprehend strategic activity in a legal
environment.
Law and economics are two subjects that are intricately interwoven. Concepts like custom,
future, sovereignty, and scarcity are related to both law and economics, analogous to property
or contract concepts.1 According to Black's Law Dictionary, the law is a corpus of norms of
action or behavior that have binding legal effects and are imposed by a governing authority.
Legal systems are the institutions that support laws. Legal systems can refer to either a
collection of rules guiding the power of law or a systemized expression of the governing
body. Economic growth and development can have different meanings, but it generally
involves improving the country's economic well-being by making it more affluent. While
economic growth is limited to quantifiable outcomes such as an increase in GDP, economic
development would also include variables that contribute to the economy's welfare, such as
the development of infrastructural facilities. Economic development is a process.

1
John R. Commons,Law and Economics,available at https://heinonline-org-hpnlu.knimbus.com/HOL/Page?
collection=usjournals&handle=hein.journals/[last visited 26th November]

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Law and economics emphasise that markets are more efficient than courts. According to the
positive theory, the legal system will force a transaction into the market whenever possible.
When this is not possible, the legal system attempts to "mimic a market" by guessing what
the parties would have desired if markets had been possible. The second distinguishing
feature of law and economics is the emphasis on incentives and people's responses to these
incentives. In accident (tort) law, for example, the purpose of damage payments is not to
compensate injured parties, but rather to provide an incentive for potential injurers to take
efficient (cost-justified) precautions to avoid causing the accident. Law and economics, like
other branches of economics, assume that people are rational and respond to stimuli.
. The focus of law and economics is on determining the impact of legal regulations. Law and
economics handle issues such as these: What impact do legal restrictions that hold
irresponsible drivers accountable for the harms they inflict have on the number of automotive
accidents? What effect do regulations that punish businesses for discharging hazardous
materials into the environment have on the quantity of pollution? Is the death sentence
effective in reducing the number of murders, and if so, by how much? Economic analysts
often believe that people and companies wish to avoid legal consequences when attempting
to answer such problems. Analysts frequently utilize facts and statistics to validate their
theoretical predictions.

Legal systems can refer to either a collection of rules guiding the authority of law or a
systemized expression of the governing growth is limited to quantifiable outcomes such as an
increase in GDP, economic development would also include variables that contribute to the
economy's welfare, such as the development of infrastructural facilities. Economic
development is a process of economic growth.body. Economic growth and development can
have different meanings, but it generally involves improving the country's economic well-
being by making it more affluent. While economic

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 HOW DO LAWS AFFECT ECONOMICS?
The state’s primary duty in the economic world is to create and enforce laws and norms that
promote a country's economic growth and development. The demands and values of the
private sector drive the functioning of the public sector. Using a broad sense of the term, the
act includes law. In this sense, the law dictates boundaries to the spectrum of potential
activities of people, limiting the entire economy's final equilibrium. As a result, it is a critical
economic control tool. While it is impossible to influence changes in population, tastes,
technological expertise, and so on, it is relatively easy to pass laws once they are deemed
desirable and therefore achieve some desired economic state; hence, the subject of the link
between law and economics acquires enormous importance.
The first is the allocative dimension, in which the law dictates where resources should be
located, where they should originate from, what they should be utilized for, and so on. All of
a people's wants can never be satisfied. Still, we will consider that the economic optimum has
been reached when it is impossible to transfer any of the natural resources and human
energies from the satisfaction of one want (say food) to the satisfaction of another desire (say
shelter) without decreasing the total satisfaction obtained from the use of the given amount of
energy and natural resources. The legislation decides whether the state or market forces
should allocate the resources. The procedural component follows, determining how effective
legal enforcement is and if legal institutions operate in tandem to achieve economic growth
and development. The system might be discretionary, in which the state can change laws at
their leisure, or rule-based, in which they must follow particular legal standards or principles.
These two elements of laws and legal systems are major economic factors. For optimum
economic growth in a country, it is preferable to have a market-driven allocative function and
a rule-based procedural function.
Laws must be clear, open to the public, fair, and equally applied to all members of society.
Property rights are the rights of individuals and businesses to possess and use the property as
they see appropriate. If you have $100, you can use it in any way you choose, whether you
spend it, lend it, or save it in a jar. It belongs to you. The property encompasses tangible
property and the right to knowledge and expertise, which is very important because your
training decides your income. The power to engage in contracts with third parties with your
property is included in the use of this property. To get into a contract, individuals or
businesses must own the property. On the other hand, contractual rights are founded on
property rights and allow individuals to agree with others governing the use of their property
while enabling redress through the legal system in the case of non-compliance. One example
is the employment agreement: a skillful surgeon works on an ailing person and expects to
receive compensation. Failure to pay would be considered property theft by the patient, with
the property being the surgeon's services. The provisions of the patient-surgeon contract will
be met in a society with substantial property rights and contractual rights since the surgeon
will have recourse through the legal system to obtain payment from that individual. People
are less inclined to get into contracts if there is no legal structure that enforces them.
Contracts for existing or future services due to the possibility of nonpayment This would
make doing business difficult and would limit economic development.

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The role of law, particularly significant in economic life, is to impact the level of certainty
between humans in society. According to H.W. Robinson (Hadisumarto, 1993), the current
economy views individual expectations as drivers of economic activities. As such, they are
critical in determining the equilibrium of the economy and the stability of the attained
equilibrium. The businessman, the sponsor, the landowner, the workers, and the customers
who carry out the projected activities will get the best results. Some of the outcomes can be
expected in today's complicated environment.2 In today's complex world, most actual returns
are determined by how accurately predicted future events are predicted. The future is
uncertain, and each person must estimate what will happen to assess his actions today—the
estimates he uses are referred to as his "expectations." Expectations may be divided into two
categories:
(a) expectations of natural occurrences and technological breakthroughs (for example, crop
predictions and projections of television upgrades) that are generally beyond human control,
and
(b) expectations of the conduct of other people. Category (b) is probably the most difficult to
establish since we do not yet have the same competence in anticipating human acts as we
have in predicting natural events and general scientific growth. It is also the most influential
group since most men rely on the actions of many other people, maybe spread across the
globe, for the success of their endeavors. Contracts were developed to reduce the number of
expectations necessary for the operation of the business. When two people agree to fulfill
certain specific duties to each other at some definite future date, certainty takes the place of
ambiguity in these commitments. Contract law has evolved to ensure that every contract is
entirely definite. Individuals may rely on fulfilling their contracts since methods of enforcing
agreements signed between two parties have been outlined. As a result, commercial contract
law plays a critical role in defining the degree of certainty that can be reached in business
interactions and is thus essential to the economy's efficiency and stability. The contract law
only impacts the ease with which equilibrium may be attained.

When the very foundations of the economic system are changing, the institutional framework
becomes even more critical. Such adjustments can only be accomplished through the legal
system. Once it is agreed that a specific economic system is favored, the existing collection of
institutions is desired to be compatible with and beneficial to that particular form of
economy. In other words, for any economic system, whether feudalism, competitive
capitalism, communism, or fascism, there is one optimal collection of social and legal
institutions. Assuming that a planned economy is desired and that the current economy is to
be changed into a planned economy, it is evident that new laws and new institutions can only
accomplish the such transformation. Planning necessitates dictation where required, which
limits the individual's scope of activity.

2
https://www.emerald.com/insight/content/doi/10.1108/978-1-78756-793-1-00012/full/pdf?title=the-role-
of-law-in-economic-development-to-develop-a-special-economic-zone-in-order-to-build-a-national-and-
regional-economy

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This, in turn, implies specific regulations governing what the person may, may not, and must
do. Suppose planning is to be the next evolution of man's production organization. In that
case, the relevance of law in economic life will be significantly expanded, and the
construction of statutes will necessitate a far more profound understanding of economics.
“perfect competition” has been found desirable and clearly defined the law should ensure the
actual attainment of “perfect competition ” in all markets. Any attempts by individuals or
groups of individuals to introduce monopoly should be frustrated, and any possible
legislation to ensure the rapid adjustment of the needs to variations in economic data should
be made. The law should be so framed that it would allow the smoothest possible working of
such a competitive system.

From this logic, one can conclude that legislation should be purposefully created to serve
only economic goals. Once a kind of economic system is adopted, an optimal legal
framework should be designed to make the attainment of economic equilibrium as quick and
frictionless as feasible, regardless of other criteria. However, this ignores ethical and strategic
considerations. The final conclusion to be reached is that the legal system should be designed
in such a way that the community's economic ends are achieved with the least amount of
energy and resources expended but that deviations from this principle are acceptable as long
as the financial costs of the variations are equated to the value of the strategic or ethical
advantages gained.

The economic cost of any ethical or strategical advantages of proposed legislation must be
very carefully estimated before the law can even be considered. The lawyer must then
perform the function of blending the requirements of the economic system with the social and
ethical requirements of the day. To do this, he must have explicit knowledge of the effects of
this or that restriction on the economy. His economics must be impeccable. Either we are to
require some such lawyer-economist to prepare the law, or there must be some machinery
whereby the lawyer, on the one hand, and the economist, on the other, can collaborate in the
elaboration of the law. It is only then that the economic ends and the ethical ends of society
will be reconciled.

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HOW DO ECONOMICS AFFECT LAW

Economics may be defined in several ways. It is the study of scarcity, how people use
resources and respond to incentives, or how people make decisions. It frequently incorporates
subjects like wealth and finance, although it is not only about money. Economics is an
extensive study that helps us comprehend past trends, interpret current headlines, and forecast
future events. Economics covers the micro to the macro. Microeconomics is the study of
individual decisions. Macroeconomics is the study of the economy as a whole. A
microeconomist might concentrate on medical debt in families, whereas a macroeconomist
might concentrate on sovereign debt. Economics is concerned with Human well-being and is
at the heart of all economic issues. What regulatory structures exist, and what institutional
arrangements may be constructed to improve human welfare? Law does the same purpose;
human welfare improves when a criminal is punished under the law.

Until recently, the application of economics in the law was limited to antitrust law, regulated
industries, taxation, and some specialized issues such as calculating monetary damages. In
these areas, economics was required to answer questions such as "What is the defendant's
market share?"; "Will price controls on automobile insurance reduce its availability?"; "Who
really bears the burden of the capital gains tax?"; and "How much future income did the
children lose as a result of their mother's death?" Beginning in the early 1960s, as the
economic study of law moved into more conventional areas of the law, such as property,
contracts, torts, criminal law and procedure, and constitutional law, this restricted relationship
altered substantially  "Will private ownership of the electromagnetic spectrum encourage its
efficient use?"; "What remedy for breach of contract will cause efficient reliance on
promises?"; "Do businesses take too much or too little precaution when the law holds them
strictly liable for injuries to consumers?"; and "Will harsher punishments deter violent
crime?"

The character of legal studies, the general understanding of legal principles and institutions,
and even the practice of law have been altered by economics. Consider the following signs of
the effect of economics on the law as evidence. By 1990, at least one economist was on the
faculty of North America's leading law schools and those in Western Europe. Many
prestigious colleges offer dual degree programs (a Ph.D. in economics and a J.D. in law).
Many papers in law reviews use an economic perspective, and some magazines are devoted
entirely to the subject. For example, the Journal of Law and Economics began in 1958; the
Journal of Legal Studies in 1972; Research in Law and Economics, the International Review
of Law and Economics, and the Journal of Law, Economics, and Organization in the 1980s;
and the Journal of Empirical Legal Studies in 2004.
An exhaustive study found that articles using the economic approach are cited more
incentralmajor American law journals than articles using any other method.3 Economics
established a scientific foundation for predicting how legal punishments would affect
3
William M. Landes & Richard A. Posner, The Influence of Economics on Law: A Quantitative Study, 36 J. L.
& ECON. 385 (1993)

9
conduct. Sanctions appear to economists to price, and individuals, presumably, respond to
sanctions in the same way they respond to prices. Individuals react to increased pricing by
consuming less of the more costly commodity; similarly, people presumably respond to
harsher legal penalties by engaging in less sanctioned conduct. For studying the impact of the
implicit prices that rules attach to conduct, economics provides mathematically exact theories
(price theory and game theory) and empirically reliable tools (statistics and econometrics).
Aside from efficiency, economics predicts how the legislation will affect another key value:
wealth distribution. One of the first applications of economics to public policy was expecting
who should shoulder the burden of alternative taxes. Economists understand how laws impact
income distribution between classes and groups better than other social sciences. While
virtually all economists support improvements that promote efficiency, some economists take
sides in distribution conflicts while others do not.
The economic study of law connects two significant subjects and aids comprehension. You
undoubtedly conceive of laws as fostering justice; many individuals do not. In economics,
laws are viewed as incentives for modifying behavior (implicit pricing) and policy
instruments (efficiency and distribution).
However, economic research frequently takes legal institutions such as property and contracts
for granted, significantly impacting the economy. As a result of legal differences, capital
markets in Japan, Germany, and the United States are organized differently. Failures in
financial laws and contracting had a role in the 2008 banking crisis in the United States and
the accompanying recession, which was milder in Japan and Germany. Furthermore, the lack
of protected property and Some underdeveloped countries' economies are paralyzed by the
lack of solid contracts. Improving the efficacy of the legal system in developing nations is
critical to their economic success. Law requires economics to comprehend its behavioral
effects, and economics needs a law to understand market underpinnings.

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CASE STUDY

The New Economic Policy 1991

In 1991, the Indian government implemented a new economic policy as a critical step toward
economic transformation. The program was intended to loosen financial limitations and boost
India's place in the global economy. Finance Minister Dr. Manmohan Singh formally
announced the new economic policy under the leadership of Prime Minister P.V. Narsimha
Rao. It took attempts to boost India's financial reputation in the global arena. The current
economic strategy of India in 1991 focused on raising foreign exchange reserves, reducing
market constraints, and boosting the interchange of commodities, services, money, people
resources, and technology throughout the world, fostering economic growth.

The most important feature of this strategy is India's worldwide exposure to the outside
world, which was the most novel and beneficial action adopted. 1991: New Economic Policy
India brought economic liberalization to the country by opening markets to private and
foreign companies, increasing imports, and lowering taxes to stimulate profitable commercial
operations. The new economic policy aimed to reduce roadblocks to economic growth and
provide a more competitive environment with access to the global market. India's New
Economic Policy of 1991 brought about reforms in international trade and investment,
industrial privatization, and fiscal restraint. The many changes represent an economic policy
in India that significantly diverges from prior government policies.

Before 1991, India's economic growth was constrained due to many limitations and
restrictions on new businesses and the entrance of foreign goods and services. As a result, an
economic policy in India was required to implement fundamental changes that would
eliminate impediments to growth and enhance the economy. The following are the essential
characteristics of India's New Economic Policy 1991:

 The program prioritized liberalization and privatization, allowing for more worldwide
exposure
 The new economic policy called for structural improvements and inflation-control
measures.
 The program aimed to boost international market competitiveness by enabling foreign
firms to enter.
 The policy reduced government control and reservation in various sectors and allowed
for greater participation of private companies to aid growth and profitability.

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 STEPS TAKEN IN NEW ECONOMIC POLICY

The primary outcome of the measures taken in this policy can be observed in achieving three
significant milestones: privatization, liberalization, and globalization. These are discussed as
follows:
Privatization:
A significant step was to allow private enterprises to set up industries and businesses in
previously reserved sectors controlled by the government as the public sector. The main
objective was to improve the efficiency of public sector companies suffering losses and
stagnation due to the under-utilization of capacity and resources. 
The measures taken under the process of privatization are as follows:
 Selling shares of public sector units to allow more involvement of private companies.
 Disinvestment in public sector units that suffer losses and sell out to the private
sector.
 Replacing most of the public sector ownership with private companies to help in
industrial development and economic stability.
 Liberalization
As a liberalization measure, the new economic policy abolished getting private-sector
licenses for starting a new venture in India. This allows more private companies to come
forward to invest in the industrial sector.
The steps taken in the New Economic Policy 1991 India that led to the liberalization of the
economy are mentioned as follows:
 Free determination of interest rates by all commercial banks.
 Increase the investment limit for the small-scale industries for the necessary upgrade.
 Freedom to import raw materials and capital goods by Indian industries.
 Diversification and increase in production capacity by private companies without
government restrictions.
Globalization
Globalization refers to conscious moves towards establishing better interactions with other
countries, thus making a presence in the global scenario. Globalization means exposure and
involvement in the world’s economic landscape through contributions to trade, investment,
production, technology, and financial matters with other countries.
The measures taken with the aim of globalization of the Indian economy are as follows:
 Reduction in import and export duties to attract more international investors and
suppliers to the Indian market.
 Implementation of a long-term trade policy with reduced foreign trade restrictions that
encourage healthy competition between domestic and foreign products with
competitive pricing.

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  Partial convertibility of the Indian currency to the currency of other countries to
increase the extent of foreign investment.

IMPACT OF THE REFORMS

1. Poverty fell from 36% in 1993-1994 to 26.1% in 1999-2000. In both rural and urban areas,
the poverty rate has decreased.

2. Reforms increased air travel and expansion in the civil aviation sector. In 1991, the
government enacted the Open Skies Policy (which enabled private players to to enter the
aviation sector) to increase competition. Private companies in domestic and international
aviation industries are reaping the benefits of this approach today.

3. International technology was more accessible due to the reforms that opened the borders to
foreign goods. Cell phone technology is a beautiful example of this. In the post-1991 era, the
automobile industry expanded, making automobiles more readily available, increasing
competition, and lowering automobile prices.

4. As India’s reputation grew in the international marketplace, so did the number of foreign
visitors.

5. In several sectors, such as auto components, telecommunications, software,

pharmaceuticals, biotechnology, research and development, and professional services
provided by scientists, technologists, doctors, nurses, teachers, management professionals,
and similar professions, reforms resulted in measurable increases in international
competitiveness.

6. The telecommunications industry has grown dramatically. This industry has reaped the
benefits of economic reforms to a large extent. 7. The sector, which was once severely
regulated and monopolized by the government, now has multiple competing service
providers. The telecom policy grew out of the National Telecom Policy of 1994, which
sought to open up all sectors to private operators.

Conclusion
The New Economic Policy 1991 India was envisioned to control corruption, inefficiency,
and stagnation in growth. The economy was in turmoil under the excessive regulations and
controls by the government and the inefficient functioning of public sector units. In such a
situation, the new economic policy introduced various reforms that brought new and
innovative ideas toward building a base for the Indian economy to stand firm in the global

13
forum. The current monetary policy aims to boost economic growth with many significant
developments and make India one of the leading economic powers in the world.
 

14
 CASE STUDY

ANS 2 : To get something that we like, we usually have to give up something else that we
also like. Making decisions requires trading off one goal against another. The first principle
states that people face trade-offs which simply means that to get a thing A, we will
have to give up or sacrifice other things B, C, or D. We have to make a decision to
choose one alternative out of the many alternatives available to us. Consider a student
who must decide how to allocate her most valuable resource—her time. She can spend
all of her time studying economics, spend all of it studying psychology, or divide it
between the two fields. For every hour she studies one subject, she gives up an hour
she could have used studying the other. And for every hour she spends studying, she
gives up an hour she could have spent napping, bike riding, watching TV, or working
at her part-time job for some extra spending money. Consider parents deciding how to
spend their family income. They can buy food, clothing, or a family vacation. Or they
can save some of the family income for retirement or the children’s college education.
When they choose to spend an extra dollar on one of these goods, they have one less
dollar to spend on some other good.
At the microeconomic level, we individually specialise in creating things and services
that require the least amount of sacrifice; that is, we are the lowest opportunity cost
producers. We exchange items that are the least expensive for us to supply in
exchange for goods that would require more labour, money, or resources for us to
generate ourselves. Our trading partners forego items that would have cost them the
least to produce in order to obtain items that would have cost them more but that we
have produced more efficiently and at a lower cost. When we trade with others, we
not only get more goods at a lower cost than if we produced everything ourselves, but
we also have access to a wider variety of goods and services than if we produced
everything ourselves. We can produce on our own. Trading raises the standard of
living by causing each person to specialise in the goods they can produce best and
with the lowest opportunity cost—that is, requiring each of us to make the fewest
sacrifices and use the fewest resources.
When people are grouped into societies, they face different kinds of trade-offs.
One classic trade-off is between “guns and butter.” The more a society spends on
national defense (guns) to protect its shores from foreign aggressors, the less it can
spend on consumer goods (butter) to raise the standard of living at home. Also
important in modern society is the trade-off between a clean environment and a
high level of income. Laws that require firms to reduce pollution raise the cost of
producing goods and services. Because of these higher costs, the firms end up earn-
ing smaller profits, paying lower wages, charging higher prices, or some combina-
tion of these three. Thus, while pollution regulations yield the benefit of a cleaner
environment and the improved health that comes with it, they come at the cost of
reducing the incomes of the regulated firms’ owners, workers, and customers.
Another trade-off society faces is between efficiency and equality. Efficiency
means that society is getting the maximum benefits from its scarce resources. Equal-

15
ity means that those benefits are distributed uniformly among society’s members. In

other words, efficiency refers to the size of the economic pie, and equality refers to
how the pie is divided into individual slices.
When government policies are designed, these two goals often conflict. Consider,
for instance, policies aimed at equalizing the distribution of economic well-being.
Some of these policies, such as the welfare system or unemployment insurance,
try to help the members of society who are most in need. Others, such as the in-
dividual income tax, ask the financially successful to contribute more than others
to support the government. Though they achieve greater equality, these policies
reduce efficiency. When the government redistributes income from the rich to the
poor, it reduces the reward for working hard; as a result, people work less and
produce fewer goods and services. In other words, when the government tries to
cut the economic pie into more equal slices, the pie gets smaller.

Recognizing that people face trade-offs does not by itself tell us what decisions
they will or should make. A student should not abandon the study of psychology
just because doing so would increase the time available for the study of economics.
Society should not stop protecting the environment just because environmental reg-
ulations reduce our material standard of living. The poor should not be ignored just
because helping them distorts work incentives. Nonetheless, people are likely to
make good decisions only if they understand the options that are available to them.
Our study of economics, therefore, starts by acknowledging life’s trade-offs. Roger Garrison
explains macroeconomic trade-offs by assuming a two-good world with consumer products,
which directly satisfy people's demands, and producer goods, sometimes known as capital or
investment goods. Producer products only indirectly, over time, and theoretically, meet
people's desires. Producer goods comprise tools, factories, and equipment used to
manufacture consumer products. Normally, beginning textbooks oversimplify trade-offs by
assuming two items, such as weapons and butter, but splitting production into the two broad
categories of producer and consumer goods encompasses everything that is created in the real
world. Consumer products can satisfy desires immediately, but producer goods can only do
so with a wait and with some uncertainty.
TANSTAAFL is an economic term that refers to the notion of opportunity costs, which
argues that for every option taken, there is an alternative that was not picked that would have
also produced some benefit. Decision-making necessitates trade-offs and believes that there
are no genuine freebies in society. Products and services given (for free) to individuals, for
example, are paid for by the person making the gift. Even when there is no one to bear the
direct costs, as in the case of negative externalities such as pollution, society bears the
burden.
When dealing with assets that offer a stream of relatively large, predictable payouts over a
period of several years with purportedly little risk, investors must be especially vigilant of a
seemingly free lunch. Many of these investments continue to be burdened with hidden costs,
some of which investors may not fully comprehend. In principle, any investment that offers a
guaranteed return is not a free lunch since there is an implied cost elsewhere, such as the cost
of not investing elsewhere.

16
The economists were correct in the coinage of this phrase as nothing in life is for free. For
example “if a student who has science stream in his class 11 and 12 and took up law as a
career by coming to a National Law University he has let go of the opportunity to become a
doctor.  "You can only obtain something for nothing if you have previously gotten nothing
for something," Fred Brooks said. If one person or group receives something for free,
someone else must pay for it. There is a societal cost even though there appears to be no
direct cost to any particular individual. Similarly, while someone might gain "free" from an
externality or a public good, someone must pay the cost of providing these advantages.
Consider the decision to go to college. The main benefits are intellectual enrich-
ment and a lifetime of better job opportunities. But what are the costs? To answer
this question, you might be tempted to add up the money you spend on tuition,
books, room, and board. Yet this total does not truly represent what you give up
to spend a year in college.
There are two problems with this calculation. First, it includes some things that
are not really costs of going to college. Even if you quit school, you need a place to sleep and
food to eat. Room and board are costs of going to college only to the
extent that they are more expensive at college than elsewhere. Second, this calcu-
lation ignores the largest cost of going to college—your time. When you spend
a year listening to lectures, reading textbooks, and writing papers, you cannot
spend that time working at a job. For most students, the earnings they give up to
attend school are the single largest cost of their education.
The opportunity cost of an item is what you give up to get that item. When
making any decision, decision makers should be aware of the opportunity costs
that accompany each possible action. In fact, they usually are. College athletes
who can earn millions if they drop out of school and play professional sports
are well aware that their opportunity cost of attending college is very high. It is
not surprising that they often decide that the benefit of a college education is not
worth the cost.

Ans 1 The term TANSTAAFL is thought to have originated in 19th-century American

saloons where customers were given free lunches in exchange for purchasing drinks.
According to the basic structure of the offer, there is an implicit cost associated with the free
lunch: the purchase of a drink. However, there are extra unanticipated expenses associated
with consuming the free lunch. Customers were attracted to buy more beverages since the
meals were heavy in salt. So the saloons purposefully provided free lunches with the
expectation that additional drinks would generate enough revenue to cover the cost of the
lunch. Many businesses still use the oxymoronic tactic of offering a free good or service in
exchange for the purchase of another good or service to entice customers.
Economic research begins with the idea of scarcity. Scarcity denotes the situation in which
our desires outnumber the resources available to meet those desires. Every day, whether we
realise it or not, we face the dilemma of scarcity. It's lovely to fantasise about a world without
scarcity, but the sad fact is that the things we desire are limited because the resources
required to generate them are few. If you want a new skateboard, you will need wood, tools,
and labour (all of which are resources). The owners of the wood, tools, and labour want

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something in exchange for the use of their resources because their resources could have been
used elsewhere.
When people make choices they incur a cost. If you choose to buy a video game instead of a
movie, there is a cost--not the price you pay for the video game, but opportunity cost.
Economists define an opportunity cost as the most highly valued opportunity given up when
you make a choice. So the opportunity cost of buying the video game is that you cannot buy
the DVD. The opportunity cost is the opportunity lost. The opportunity cost of spending
money is the lost opportunity to save the money. For society, the opportunity cost of using
land for a park is the housing given up. The opportunity cost of spending tax revenues on
healthcare is the lost opportunity to spend that same money on education. Keep in mind that
the opportunity cost is the most highly valued opportunity given up. Think about this: When
your alarm went off this morning, you had a number of options open to you. Assuming you
first chose to get out of bed, you could have chosen to go to school, watch TV, or go to the
mall. Now, what is the opportunity cost of going to school? Is it both watching TV and going
to the mall? No. Because of the scarcity problem, you would have only been able to do one of
those options if you weren’t at school, so you are only giving up the opportunity to do one of
them, more specifically the one you were most likely to do. So, if you were to place a value
on your choices you would choose the activity you valued most, which was go to school,
your opportunity cost would be the one on which you placed the next highest value—
probably watching television.

Because people face trade-offs, making decisions requires comparing the costs
and benefits of alternative courses of action. In many cases, however, the cost of
an action is not as obvious as it might first appear.

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 CONCLUSION

Economic problems such as these are certain to arise whenever regulations

(direct or indirect) are imposed upon economic activity. And, unless
unforseeable and perhaps undesirable repercussions are to follow, it is clear that
a very careful scrutiny of any proposed legislation of this nature must be made
by lawyers who are at the same time expert economists. The economic cost of
any ethical or strategical advantages of proposed legislation must be very
carefully estimated before the law caneven be considered and the lawyer must
then perform the function of blending the requirements of the economic system
with the social and ethical requirements of the day. To do this he must have a
clear knowledge of the effects of this or that restriction upon the economy. His
economics must be impeccable. Either we are to require some such lawyer-
economist to prepare the law or there must be some machinery whereby the
lawyer on the one hand and the economist on the other can collaborate in the
elaboration of law. It is only then that the economic ends and the ethical ends of
society will be reconciled.

Laws and legal systems are critical determinants of a country's economic

prosperity. The interaction of legal systems' allocative and procedural elements
results in good economic transformation. In the Indian setting, the rule of law
has played a critical role in economic growth. The legal system in India impacts
entities' access to money, which is one of the prerequisites for economic
development, and the genesis of the legal system is crucial in determining the
law's flexibility. The virtues and shortcomings of India's legal system have been
linked to the country's economic development and shortfalls.

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 BIBLIOGRAPHY

 An Introduction to Law and Economics,[20th November 2022],

https://www.law.berkeley.edu/php-programs/courses/fileDL.php?fID=4554
 Budiman Ginting Rosnidar Sembiring, Afrita Abduh,The Role of Law in Economic
Development: To Develop a Special Economic Zone in Order to Build a National and
Regional Economy,[20th November 2022]
https://www.emerald.com/insight/content/doi/10.1108/978-1-78756-793-1-00012/
full/pdf?title=the-role-of-law-in-economic-development-to-develop-a-special-
economic-zone-in-order-to-build-a-national-and-regional-economy
 LAW AND ECONOMICS, H. W. ROBINSON., THE MODERN LAW REVIEW, VOl. II
MARCH, 1939 No. 4

BOOKS CITED:
1. DK SETHI . U ANDREWS , FRANK ISC ECONOMICS 31-38 ( FRANK
BROS. &
CO.)
2. D.N. DWIVEDI , MICROECONOMICS 1 118 – 127 ( PEARSON )
3. PAUL KRUGMAN ROBIN WELLS , MICROECONOMICS (WORTH
PUBLISHERS )

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