ih INTRODUCTION MODULE Economics Economics is a social science. It is the study of the principles which govern the functioning of the economy and its various components. Credit goes to the ancient Greeks in developing the term ‘Economics’ from the word ‘Oikonomia’ which means household management. This term was applied by them to the management of city states called ‘polis’. In older times, Economics was considered as a branch of Politics. Definitions of Economics There had been a lot of disagreement about the subject matter of economics. Different writers have tried to define the subject matter of economics differently. But no unanimity has been obtained in this matter. The various definitions of economics can be classified under four heads (i) wealth (ii) welfare (iii) scarcity and (iv) growth. i. Wealth Definition Adam Smith, the father of economics defined economics as a Science of Wealth. Economics was regarded as the science which studied the production and consumption of wealth. ti. Welfare Definition Prof. Alfred Marshall, the neo-classical economist defined economics as the “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 the use of material requisites of well-being.” Thus, it is on the one side, a study of wealth and on the other, the most important side, a part of the study of man.TL 12 Managerial iti, Scarcity Definition pret. Lionel Rr ened eccnomles “a i ierce WAFER atadter haar A Tow ann etaonstap oroeen ends cand scarce mets wich ire citarmttve rep study stein tan wee CARIN, ACORN #> es eset, Dat & uinlimited wants put the means to satisfy these wants are Vitnited. These % Tos ‘nem have alternate uses. ‘Thus 4 fimdamental problem arises - the problem of ‘h housing between less urgent and more urgent warts. problem of cl iv. Growth Definition Econ Professor Pail A Samneison has given a growth oriented definition of of the fac ‘xccotting to him “Economics is the study of how men and society choose, with ‘keeps on the wse of money, to employ scarce productive resources which could have The sues, ro produce various commodities over time and distribute them for ci economi and in the future among various people and groups in society”. 1. Subj Uses and Objectives of Economics Th oonomics has become an extremely useful subject and has acquired great growth in the last few decades. The important objectives and uses of economics are: Mill, th 1. ‘To deal with problems of individuals and families: Economics deals jon connected with individuals and families. It sudies about the type of jobs: Jevel of wages for different types of jobs in industries, the effects of the rise 7 on the standard of living of people etc. ons 2, To study problems that affect the Society and State: Economics studies t ; problems and questions which affect the Society and State as a whole and suitable solutions for them. ses! ends t B To study the actions and behaviour: Economics studies the actions and | | cof businessmen, investors and speculators under different circumstances. a 5 scienIntroduction 13 4. To study the causes of poverty to remove it; Economics is actively engaged in studying the causes of poverty with a view to suggest effective methods for removing it. 3 To stndy the reasons for inequalities in Income: Economics gives reasons for inequalities in income and wealth distribution of a nation, Scope of Economics Economists hold different views as regards the scope of economics. It is so because ‘of the fact that economics is a dynamic subject and it deals with human behaviour which keeps on changing tinder different sets of conditions, The scope of economics comprises: (1) Subject matter of economics, (2) Role of economics as a science or an art, and (3) Eeonomics as a positive or normative science. 1. Subject matter of economics The subject matter of economics has been emerged under different stages of the growth of its definition. To the classical economists like Adam Smith, J.B. Say and J.S. Mill, the subject matter of economics comprises the study of wealth, In the latter half of eighteenth century, the main objective of the study of economics was to amass more and more wealth. Marshall, the neo-classical thinker gave a new dimension to the subject matter of economics by introducing in it the element of human welfare. Economics, according to him, is the study of mankind in the ordinary business of life. Prof, Robbins enlarged the scope of economics by extending its subject matter to the study of that part of human behaviour which is connected with the adjustment of unlimited ends to the scarce means which have alternative uses. 2. Economics - as a science or an art Economists hold divergent views as regards the question whether economics is a science or an art. If we analyse economics as a discipline, we find that it has got all the prerequisites of science. Like science, economics is a systematised body of knowledge.14 ‘ conomics cannot be j 4 But there are critics who believe that e treated ag é F of the following. ~ 2 s o uniform approach and opinion about a par i, Economists do not hav te = event. ii, Bxact measurements are not possible in economics. iii, It is not possible to make correct predictions in economics, ‘There are economists who believe that economics is an art. Art practical use of knowledge. Science creates certain principles and theories, them a practical shape. While science studies the causes and effects of , roblems. Hence, economics is both sciep prescribes solutions to various P science, it formulates different principles and theories, while as an art solutions to various problems. nce or a normative science PY ER ESE as 3. Economics as a positive scie ‘There is a divergent view amongst economists as to whether econ nce. One group of economists led by Lionel the other group treats it as a ndrmenee E 8 soignce or a normative scie! that economics is a positive science; Economics as a positive science deals with things as they are, their but it remains strictly neutral as regards ends. No normal judgements are positive scientist. 7 ‘A normative science deals with things as they ought to be. It asses regards rightness or wrongness of a phenomena. In practice, economics has developed along both positive and no Sere re Ee bs Importance of the study of Economics Economics has got both theoretical and practical significance. E each and every aspect of human life. It can be studied under two h significance, and (ii) Practical significance, their ¢Introduction I. Theoretical significance 1 Helps to increase knowledge: The study of economics helps us to understand the concepts of national income, employment, productions, consumption, savings, capital formation, demand, supply, balance of payment, balance of trade etc, It also equips us to understand fiscal policy, monetary policy and industrial policy of the government, operation of various economic systems, operations of capital market, money market and financial institutions. Helps to develop analytical attitude: Economics as a science creates and develops logical thinking towards various economic problems. It enable us to analyse various data pertaining to domestic economy as well as international economy. I, Practical significance Economics has got tremendous practical advantages. Some of the important areas in ‘which economics has practical advantage are listed below. 1. as ot Significance for consumers: Economics is significant for the consumers as it helps them to make the best possible use of the limited available resources. Significance for producers: Like a consumer, the producer too wants to make the best use of resources available with him. Production is the effective combination of those factors of production, namely, land, labour, capital and enterprise. Economics helps the producers in determining the remuneration of various factors of production, i.e., rent to land, wages to workers, interest to capital and profit to entrepreneur. It also helps the producers in the fixation of the price of their products. Significance for workers: The study of economics enables workers to understand their significance in the production process. It helps them to understand the value of their contribution to production and reward for the contribution i.e., wages. A worker can resort to collective bargaining to ensure fare wages to him and his fellow workers,f 1.6 Managerial Eco 4, Significance for politicians: A good politician should be a person with understanding on various economic issues like, unemployment, poverty, inflati economic growth, economic development, national income, percapita income, sectg contribution to national income ete. Study of economics will help them to addregs q issues faced by the people in a more effective way. 5. Significance for academicians: Economics is considered as queen of social Economic theories explain the concept of consumption, production, distrib investment, etc. They also tell about the various economic problems, their caus effects and their possible solutions. 6. Significance for administrations: Fiscal and monetary policies are formulated § the administrators. So they must know the theories of taxation and finance. It yj enable them to understand the sources of public revenue and debt. 7. ‘For effective manpower planning and human resource development: P manpower planning and human resource development is very important for economies. Economics will help in making effective plans for the best use of avail human resources. 8. Useful in price fixation: Economic theories on value and equilibrium help producers to target an optimum level of output and maximising their revenue. helps the manufacturers to fix up price under different situations. 9. Solving distribution problems: Factors of production, namely, land, labour, capital and entrepreneurship have to be rewarded for their relative contribution in prod 1. Theory of distribution in economics suggests that every factor should be paid according to its marginal productivity. 10. Helpful to managers: Economics provides analytical tools and techniques to the managers to achieve the goals of the organisation that they manage.