Definition of Economics
Important to Know: -
Modern Economics is originated in 1976
Father of Economics is Adam Smith
Economics is described as the “Queen of social science”.
Adam Smith:
Economics is an inquiry into the nature and causes of the wealth of nations.
Alfred Marshall:
Economics is a study of mankind in the ordinary business of life. It examines that part of
individual and social actions which is most closely connected with the attainment and use of the
material requisites of wellbeing.
Lionel Robbins:
Economics is the science that studies human behavior as a relationship between ends and s
NATURE OF ECONOMICS:
Samuelson Says "Economics is the oldest of the arts, the newest of sciences, indeed the
queen of all the social sciences."
ECONOMICS: AS A SCIENCE AND AS AN ART
(A) Economics is a Science
1. It is a systematized body of knowledge that studies the relationship between cause and
effect.
2. It is capable of measurement.
3. It has its own methodological apparatus.
4. It should have the ability to forecast.
(B) Economics is an Art
It involves creativity and interpretation in understanding how people make choices and
interact. Economists use imagination to analyze data, create policies, and explain complex
issues, similar to how artists express ideas. This blend of creativity and analysis helps address
real-world problems.
Question:- Economics is a science or an art?
It is science in its methodology and art in its application. Studying the unemployment problem is
a science, but framing suitable policies to reduce the extent of unemployment is an art.
SOCIAL SCIENCE:
Economics is a social science that studies human behavior and interactions. It focuses on how
Individuals, firms, and governments make choices about allocating scarce resources to satisfy
unlimited wants. By analyzing patterns and behaviors, economics helps to understand how
decisions impact society..
SCOPE OF ECONOMICS:
ECONOMICS AS A POSITIVE SCIENCE
Positive economics deals with economic issues (or economic behavior related to the past,
present or future. It deals with such economic situations which can be studied by using facts
and figures.
“the ultimate goal of a positive science is the development of a 'theory' or 'hypothesis' that yields
valid and meaningful (not trustic) predictions about phenomena not yet observed.”
Thus, economics is a positive science. It seeks to explain what happens and not what ought to
happen this view was held even by nineteenth-century economists.
Characteristics of Positive Science:-
Observations/statements related to positive economics show the following characteristics:
1. These statements do not reflect any value judgment or opinion of the economists (which
could be a matter of debate).
2. These statements are based on facts and figures related to the past, present, and future.
3. These statements highlight the nature and extent of economic problems or analyze the
economic behavior of the people related to the past, present, and future.
4. These statements are verifiable for truth (facts and figures can be verified).
ECONOMICS AS NORMATIVE SCIENCE
As a Normative science, Economics involves value judgments.
It is prescriptive and describes 'what should be the things'. In other words, normative
economics is the economics of 'what ought to be'. It deals with the 'opinions' of economists
related to economic issues or economic problems. Different economists may offer different
opinions. On the solution to an economic problem. Opinions involve value judgments.
Characteristics of Normative Science:-
Observations/statements related to normative economics show the following characteristics :
1. These statements involve value judgment.
2. These statements lead to controversies and debates.
3. These statements reflect 'what ought to be', as a solution to economic problems.
4. These statements indicate opinions and are, therefore, not verifiable for truth.
Positive Economics Normative Economics
1. Economic issues related to past, present, 1. Normative economics deals with
and future. economists' opinions related to economic
issues or problems.
2. Statements of positive economics re late to 2. Statement of normative economics
'what was', 'what is', and 'what would be'. relates to 'what ought to be'.
3. Statements of positive economics 3 are not 3. Normative statements cannot be termed as
necessarily statements of truth. These may true or false. These statements involve
be true or false. opinions only.
4. Facts and figures (as statements of 4. Normative statements are not verifiable at
positive economics) are verifiable for truth. all.
5. Positive economics does not involve 5. 5. Normative Economics involves value
Normative value judgment. judgment.
SCIENCE OF SCARCITY
Robbins says that men feel innumerable wants which he calls ends. But the resources available
to them to satisfy these ends are limited. These resources are termed as means.
The Importance of the existence of scarcity is that it gives rise to a need to allocate the
available resources among alternative uses. Given unlimited wants, an economy must make the
best use of its limited resources.
So Robbins defined economics thus: "Economics is the science which studies human
behavior as a relationship between ends and scarce means which have alternative uses."
LOGIC OF CHOICE
Time and means for achieving ends are limited and are capable of alternative applications.
Ends are unlimited and are capable of being distinguished in order of importance. These factors
cause human behavior to assume the form of choice. He has to choose between competing
ends.
Choices are necessary because there are insufficient resources to satisfy all human wants. A
country cannot produce everything its citizens would like to consume. So it has to decide, that
is, it has to make a choice about, which goods to be produced and which left unproduced; what
quantity of each to be produced and whose wants to be satisfied and whose left unsatisfied.
Question:- What is Managerial Economics?
Ans:- To Mansfield, “Managerial economics is concerned with the application of economics
concept and economics to the problems of formulating rational decision making”
Functions of Managerial Economics
1. Demand Analysis and Forecasting: This helps in understanding consumer demand
patterns and predicting future demand, essential for production and inventory planning.
2. Cost and Production Analysis: Involves analyzing production costs and determining
the most efficient production levels, enabling cost-effective decision-making.
3. Pricing Decisions and Policies: Helps managers set competitive and profitable pricing
strategies by analyzing demand, costs, and competitor prices.
4. Profit Management: Assists in achieving profit goals by balancing costs and revenues,
planning, and risk management to sustain profitability.
5. Capital Management: Involves managing investments in assets and projects, ensuring
optimal capital use for growth and long-term success.
6. Decision-Making under Uncertainty: Provides tools to assess and manage risks,
aiding in confident decision-making in uncertain market conditions.
MICROECONOMICS
Microeconomics is concerned with the economic activities of economic units as consumers
, resource owners, and business firms.
IMPORTANCE OF MICROECONOMICS
1. Microeconomics analyzes consumer choices and reactions to price changes, helping
businesses predict demand patterns.
2. It provides tools to allocate resources efficiently, enabling firms to maximize production
while minimizing costs.
3. Through supply and demand analysis, microeconomics explains how prices are set,
aiding firms in pricing strategies and policy decisions.
4. It studies different market structures (like monopoly and competition), helping in
understanding competition levels and guiding firm strategies.
5. Microeconomics assists policymakers in creating economic policies, such as taxes and
subsidies, to influence consumer behavior and control inflation
What is Macroeconomics?
Ans: It is the study of an economy as a whole including the
interactions between markets and the government.
