Industrial Economics

Module 1

By : Ankita Upadhyay
 Basic Economic Concepts

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MODULE 1 Ankita Upadhyay BY: Ankita Upadhyay
 Introduction
Derived from the ancient Greek word
“Oikonomia” which means “household
management”
Thus, Economics was the concerned with how a
household manages it scarce resources to satisfy
the needs and wants of its members.
Later, its scope was widened to include the
allocation of resources by various economies to
satisfy the needs & wants of the people at large.

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 Definition of Economics
The definition of economics has gone through
perceptible changes. Broadly speaking, the
various definition has been categorised under
four heads:
1. Wealth definition by Adam smith (1776)
2. Welfare definition by Alfred Marshall (1890)
3. Scarcity definition by Robin Williams (1932)
4. Growth definition by Paul A. Samuelson
(1948)

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Wealth Definition of Economics
In 1776, Adam Smith, in his book- “An Inquiry
into the Nature & Causes of the Wealth of
Nations” suggested the definition of Economics
as “the study of the nature & causes of the
generation of wealth of a nation”.
According to Adam smith, Economics seeks to
explain & analyse the generation of wealth &
also its distribution.
According to J.B Say, “Economics is the science
which deals with wealth.

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 Features of Wealth Definition
• It separated Economics from Political
science
• Emphasis on the importance of wealth
• Seeks to examine the nature & causes of
wealth
• Introduction of the concept of “Economic
Man”

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 Criticism of Wealth Definition
• Too much emphasis on wealth.
• Ignored non-material goods
• Restricted its scope as the study of science
of bread & butter, dark science or Dismal
science.
• Ignored the importance of man over wealth.

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Welfare Definition of Economics
In 1890, Alfred Marshall evolved a better
definition of economics which shifted its
focus from the study of wealth to welfare of
man.
He defined Economics is a study of man’s
actions in the ordinary business of life. It
enquires how he gets income & how he
spends it.”

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 Features of Welfare Definition
1. Economics is a study of man
2. It is concerned with only those activities of man
which are related to acquisition & enjoyment of
wealth.
3. Economics is a social science as it deals with the
behaviour of ordinary people in the society.
4. Economics deals with human activities related to
material welfare. In this way, Marshall laid the
foundation of welfare economics.

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 Criticism of Welfare Definition
1. Narrow & unscientific
2. Material welfare cannot be measured by an
scale, cannot be accepted as end of
Economics.
3. Ignored human behavior.

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Scarcity Definition of Economics
In 1932, Lord Robbins defined Economics as
“a science that studies human behaviour as
a relationship between ends and scarce
means which have alternative uses.”
In other words, Economics is the science
which studies how an individual satisfies
unlimited wants with limited resources
which have alternative uses.

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 Features of Scarcity Definition
1. Science
2. Deals with human behavior
3. Ends- unlimited human wants- multiplicity
of ends.
4. Means- Limited resources- alternative uses
5. Problem of choice making

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Superiority of Scarcity Definition over
Welfare Definition
1. Scientific definition
2. Universal application
3. Science of choice
4. Wider scope

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 Criticism of Scarcity Definition
1. Disregards structural changes
2. Doesn’t include Economic Development
3. Neutral between ends

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Growth Definition of Economics
In 1948, Paul A. Samuelson gave growth definition of
Economics
According to him, “Economics is the study of how
people and society end up choosing with or
without the use of money, to employ scarce
productive resources that could have alternative
uses, it produces various commodities over time
and distributes them for consumption, now or in
the future, among various persons and groups in
society. It analyses costs and benefits of improving
patterns of resource allocation.”

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 Features of Growth Definition
1. Science as well as art
2. Not neutral as regards Ends
3. Dynamic (Added time as one of the
dimensions of Economics)
4. Practical
5. Universally applicable

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 Nature of Economics
In the words of Samuelson, “Economics is
the oldest of the art, the newest of
sciences, indeed the queen of all the social
sciences.”

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 Economics as a Science
Science is a systematic body of knowledge
concerning the relationship between causes and
effects of a particular phenomenon”. In science,
we collect, classify and analyses the facts
systematically.
Characteristics of Science:
Renowned philosopher Bacon had pointed out
four main characteristics of science:
• Observation of facts,
• Measurement,
• Explanation, and
• Verification.
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 Economics as a Science
It is evident from the above that Economics is
a science. But some scholars do not agree with
this view. They maintain that laws of
Economics are not as exact and universal as
the laws of physics and chemistry, etc. In
reality their disagreement is not justified.

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 Economics as an Art
According to Cossa, science is concerned with ‘knowing’
and art is concerned with ‘doing’. “Art is the practical
application of knowledge for achieving definite ends.”
In the words of Wagner, “Art is the examination of ways and
means for attaining a definite aim.”.
J.N. Keynes has used the term ‘Applied Economics’ in place
of the term ‘art’. Modern economists substitute the term
‘Economic Policy’ for ‘art’.
As an art, economics helps us in the solution of our
practical problems. Its study enables us to know the best
methods of achieving economic objectives.

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 Economics as an Art
Arguments in favour
• Solution of the Problems
• Realistic Situation
• Practical basis of Assumptions
• Verification of Economic Theories
Arguments Against:
• Different Nature of Science and Art
• Nature of Economic Problems
• Uncertainty
• Lack of Immediate Solution.
Conclusion:
In short, economics is both a science and an art. In the words of Cossa,
“Science requires art, art requires science, each being complementary
to the other.” It has also been suggested that as a science it should be
called “economics” and as an art it should be called “economy”.

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 Scope of Economics
The horizon of economics is gradually expanding. It is
no more a branch of knowledge that deals only with
the production and consumption. However, the basic
thrust still remains on using the available resources
efficiently while giving the maximum satisfaction or
welfare to the people on a sustainable basis.
Thus, scope of economics can classified as
• Economic theory
• Applied economics
• Descriptive economics

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 Importance of Economics

Theoretical Practical
Consumers
Producers
Increase in knowledge
Workers
Politicians
Academicians
Administrators
Development of analytical
attitude Manpower planning
Solving Distribution problems

MODULE 1 BY: Ankita Upadhyay