est ter] Introduction 1.1. Introduction 1.3 Nature of Economics | 1.2 Meaning of Economics 1.4 Economic and Non-Economic Activities 1.1 INTRODUCTION The word ‘Economics’ has been derived from two Greek words ‘Oikos’ (a house) and to manage). Thus, economics means ‘Household Management’. Earlier, it used to be called as Political Economy’. With the increase in areas of human activity, the scope of Economics has considerably increased over the years. ‘nemei Asa subject, there is no harmony in definition of ‘Economics’. Diff ferent economists have defined itin different ways, which has led to a lot of disp s and misconceptions 1.2 MEANING OF ECONOMICS Various definitions of economics developed during the course of history h divided into four parts: 1. Wealth Definition by Adam Smith 2. Welfare Definition by Alfred Marshall 3. Scarcity Definition by Lionel Robbins 4. Growth Oriented Definition by Samuelson ave been broadly Wealth Definition According to Adam Smith, ‘Economics is the science of wealth’. Adam Smith was an 18" century Scottish philosopher, whois considered as the Father of Modern Economics. in his most famous book published in 1776, An Inquiry into the Nature and Causes of the Wealth of Nations’, or, more popularly known as ‘Wealth of Nations’, he emphasized that Economics is an enquiry into the nature and causes of wealth of nations. * In the ordinary language, wealth means money. 11Statistics for Eco Nom lies has a special meaning, In Economics, wealth refers $a 8 lo But in economics, the term ‘wealth those goods which satisfy man wan ts, me ° Adam Smith was of the view that economics . 5 ealth-using activities of peop'e: wealth-getting and wealth-using a : . He weneael mainly in studying the ways by which the wealth of all nations could be increased. . ie * However, welfare definition was criticized as it ga wealth and ignored human welfare and moral values. Welfare Definition , According to Alfred Marshall, ‘Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it’. Dr. Alfred Marshall was the first Economist, who denied the wealth-related definitions of Adam Smith, in his two books published in 1890, named ‘Principles of Economics’ and ‘Economics of Industry’, and emphasized that wealth is for man and man is not for wealth. So, as per him, wealth is not the ‘End, but only a‘Means’ to attain welfare, * Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man. * According to Marshall, the primary object and end of economics is the promotion of material welfare, which is part of human welfare. * Due to this reason, he shifted the emphasis from wealth to welfare. * However, Marshall's definition was also criticized. The distinction made by Marshall between economic and non-economic activities was not accepted by Robbins. Moreover, Robbins also asserted that economics not only studies about material goods but also about services (like services of a teacher, a doctor, etc.). Scarcity Definition According to Prof. Lionel Robbins, ‘Economics is the science which studies human behaviour as 4 relationship between ends and scarce means which have alternative uses’. concerned with the problems arising from ve too much importance to materia) * Scarcity definition of economics was given by Robbins in his book ‘An oe on the Nature and Significance of Economic Science’, published in 1932. ° Scarcity definition is based on following fundamental characteristics of human existence, which gives rise to economic problem: (i) Unlimited Wants; Man has unlimited wants or ends, never be fully satisfied. No sooner a wantis satisfied (ii) oie apesataed Scarcity refers to the limitation of supply in relation to dema ad for a commodity. Scarcity is universal and applies to all individuals, organisations 2 (iii) Alternative uses: Resources are not uses. It makes choice among reso i.e, they can |, anew want only scareChapter 1 * Economics: An Introduction scarcity is the root of all Economic Problems Scarcity refers to a situation when resources are not enough to satisfy all the wants of its people, Scarcity is pervasive, and is a fact of economic life for each and every individual, in the whole world. Scarcity of resources is the basic reason for existence of economic problems inall economies. There would have been no economic problem, if resources were not scarce scarcity affects our daily life. We face various forms of scarcity in our daily life. The long queues at {railway reservation counters, crowded buses and trains, shortage of essential commodities, increasing prices of petrol, vegetables or pulses, etc., are all manifestations of scarcity] We face scarcity because the things that satisfy our wants are limited in availability. PT wy Dowe study economist Economics's studied because it enables us to understand different aspects of the economy and helps in analysing problems and policies of the government. However, the main reason for the study of economics can be simplified to a single word: ‘Scarcity’. In other words, human wants are greater than the available resources. So, there is a need to allocate these scarce resources for the satisfaction of never ending human wants. Hence, Economics is concerned with the selection of resources under conditions of scarcity However, Scarcity definition of Robbins was also criticized. Prof Samuelson said that this definition suffers with the problem of economic growth asit has only discussed about problems of present generation, and ion. Moreover, economic problems donot always arise from scarcity, They notanything about future generati goods, as it happened during The Great Depression of 1930s in USA. may also arise due to abundance o} Growth Oriented Definition rding to Prof. Samuelson, ‘Economics is the study of how man ith or without the use of money, to employ scarce ve alternative uses, to produce various te them for consumption now and in and society choose, wt productive resources, which could ha commodities over time and distribu the future among various people and groups of society.’ conomics is a social science and it is Prof. Anthony Samuelson mainly concerned with the way how society employs its limited resources (1915-2009) odified version of scarcity definition 4 to be the most appropriate and satisfactory. It not only includes all definitions, but also takes up the issue of economic growth Samuelson’s definition tells us that for alternative uses. So, it is a mi Samuelson’s definition is considere the issues which were highlighted in the earlier welfare. and soci DEFINITIONS OF ECONOMICS i om " ‘ Growth Oriented | Wealth Definition Welfare Definition eee Definition ) a 7 + + ¥ By By By By Prof. Lionel Robbins Prof. Samuelson Alfred Marshall Adam SmithStatistics for Economics which is mainly used by many of Conclusion Ea att J the following de with the f he economist ind society choose to employ scarce resources that could r sts the study ere ommodities that satisfy their wants and to Coie sative uses in order to produce various CO ious persons and groups in society.’ distribute them for consumption among various p g the economists regarding the nature of economics, whether There isa great controversy amc b nomics’ is considered as science or an art E Science is a systematised body of kno 1. Economics as a Science: Scier dge, which analysis cause lationsh tific principles have universal validity. Economics is also tic study of knowledge and facts and deals with the correlation-ship between a systematic study of knowledge a cause and effect. Moreover, all the laws in economics are generally niversally accepted Despite these similarities, economic laws a not as precise and positive as the laws ot natural sciences. Therefore, economics can be led as social science Economics as a science can be (9 Positive Economics (or Science): Positive Economics deals with what are the e problems and how are they actually solved. For example, India is an overpopulated country or prices are constantly rising. Positive Economics aims to make real description of an economic activity. It is based upon facts, and thus, not suggestive. (ti) Normative Economics (or Science):\Normat ive Economics deals with what ought to be » the econon oblems should be solved overpopulated country or prices show determin ®, India should not be an native Economics aims to val opinion and therefore, it is ld not rise. Nor the ideals. It is based upon individ iggestive in nature. 2. Economics as an Art: Art refers to skillful and personal application of syster to bring desired results. It can be acquired through study, observation Similarly, economics also requires human imagination for the practical Principles and theories. Art ells us how to do things, ie. to achi tsalso used for achieving a variety of goals, From all the above discussions, we can conclud Itis a golden combination of both, ie. matic knowledge and experience. application of laws, leve an objective. Economics le that economics is neither just science norjust art. economics is considered both as science as well as an art. ECONOMIC AND NO Introduction All human beings are and desires. For exa engaged in some activity or the mple, farmers are orofessionals (like CA’s or Doctors) ctivities can broadly be divic 1. Economic Activities 2. Non-Economic Activities other busy in their field, w are busy in their profe: ded into two cal T in order to satisfy their wants orkers are working in factories, ssion. Depending on wants, all human tegories.chapter? ® Economics: An Introduction Economic Acti omic activities refer to those a living. For example, worker working, f Y factory, shopkeeper selling goods in Economic Activities Non-Economic Activities Indertaken to earn mone; Indertaken to get satisfaction nis shop, doctor attending the patients \_U7dertal y vs 9 ic, ete Economic activities are concerned with all those activities, which are concerned with the Consumption and Distribution of goods and services, which are not available for free So, every economy should undertake three main economic activities: Consumption: Consumption is an economic activity which deals with the use of goods and services sfaction of human wants) Eating of bread, drinking of milk, wearing watches, listening music, etc. are consumption activities. In consumption, we study wants, their rigin, natur 2 and characteristics and the laws governing them Production:{it is the proc of converting raw material into finished produc * Production is an important economic activity as it enhances the utility of the product by changing it in the form needed by the consumers. * It includes all activities which are undertaken to produce goods and services for generation of income and satisfying human wants. The activities of farmer, carpenter, trader, teacher, doctor, shopkeeper, ete. all come under production. * It involves deciding what to produce (i.e. which all goods and services) and how to produce (i.e. choice of technique), ; = Land, labour, capital and entrepreneur are the four factors of production) * In production, we study the means of production, their basic features and also the laws governing production. Two Vital Elements of an Economy: "Production” and*Consumption’ are the two essential economic activities of an economy. Generally, every individual in an economy is engaged either in consumption activities or in production activities. When an individual is engaged in the consumption of goods or services, he is acting as a consumer. Similarly, when an individual is engaged in the production of some goods or services, he is acting as a producer. (iii) Distribution: We know that production is the result of the combined efforts of the four factors of production namely land, labour, capital and entrepreneur. Distribution is that economic activity which studies how income generated is distributed among these factors of production, i.e. how a part of income generated will go as rent (for use of land), a part will go as wages to labour, a part will go as interest to owners of capital and a part will g0 as profits to the entrepreneur, It deals with determining how the total income arising from production process (known as Gross Domestic Product or GDP) is distributed to the factors in the form of rent, wages, interest and profit respectively.Non-Economic Activities Activities which are not concerned with creation of money or wealth are known as Non- Economic activities. For example, housewife cooking food for her family or a teacher teaching his own son. In non-economic activities, there is no expectation of any kind of monetary reward or benefit. They are inspired by sentimental reasons and are performed out of love, sympathy, sentiments, patriotism, etc. Some more examples of non-economic activities performed in the economy are: () Charitable activities like blood donation camps, free education to needy students; (i) Social activities like get-together, attending parties; (iti) Political activities performed by different political parties; (iv) Religious activities like praying to God. i