MODULE 1

INTRODUCTION TO ECONOMICS

MEANING OF ECONOMICS
Traditional Approach
According to traditional approach, subject matter of economics includes following
things:
Consumption: Consumption means the process of destroying the utility. ...
Production: It is the creation of utility. ...
Exchange: In exchange, we study the buying and selling process of goods and
how the price of goods and service are determined by various markets like
perfect competition, monopoly, monopolistic, ...

Modern Approach
 Adam smith defined the subject matter of economics as the study of the
causes of material welfare or as the science of wealth.
 Alfred Marshall in particular defined economics as the study of
production, consumption, exchange and distribution of wealth by men
engage in the ordinary business of life.
 Robinson however defined this subject matter as too restricted in scope to
embrace all the facts.
 According to Robinson "Economics is the science which studies human
behaviour as a relationship between ends and scarce means which have
alternative uses".
 A satisfactory definition must combine both these conception of economics.
We may define economics as social science concerned with the proper use
and allocation of scarce resources for the achievement and maintenance
of growth and stability.

WHY DO WE STUDY ECONOMICS?

Students who choose to study economics as a major or minor courses not only
gain the skills needed to understand complex markets but come away with
strong analytical and problem-solving skills, as well as the business acumen
necessary to succeed in the professional world.

Traditionally, the study of economics is:

 The study of economics is important because it teaches us how to make

rational use of scarce resources to satisfy our unlimited wants.
 It offers the firm and the government a rational guide in the allocation of
scarce resources.
 It enables the government to plan towards national integration and
economic growth.

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  In choice making it helps us arrange our needs in order of preference.
 The study of economics helps us to solve the problems of what to produce,
how to produce and for whom to produce.
 It helps us to offer economic solution to economic problems.
 It equips one to be in a better position to estimate a country's total wealth.
 It helps the individual to build up a body of economic principles and
equips him with the tools of economic analysis.

THE NATURE OF ECONOMIC SCIENCE

Economics as a Science and an Art
There is a great controversy among the economists regarding the nature of
economics, whether the subject ‘economics’ is considered as science or an art.

If it is a science, then it is either positive science or normative science.

Economics as a Science:
Before we start discussing whether economics is science or not, it becomes
necessary to have a clear idea about science. Science is a systematic study of
knowledge and fact which develops the correlation-ship between cause and
effect. Science is not only the collection of facts, according to Prof. Poincare,
in reality, all the facts must be systematically collected, classified and
analysed.

There are following characteristics of any science subject, such as;

1. It is based on systematic study of knowledge or facts;
2. It develops correlation-ship between cause and effect;
3. All the laws are universally accepted
4. All the laws are tested and based on experiments;
5. It can make future predictions;
6. It has a scale of measurement.

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On the basis of all these characteristics, Prof. Robbins, Prof Jordon, Prof.
Robertson etc. claimed economics as one of the subject of science like physics,
chemistry etc. According to all these economists, ‘economics’ has also several
characteristics similar to other science subjects.
1. Economics is also a systematic study of knowledge and facts. All the
theories and facts related with both micro and macro-economics are
systematically collected, classified and analysed.
2. Economics deals with the correlation-ship between cause and effect.
For example, supply is a positive function of price, i.e., change in price
is cause but change in supply is effect.
3. All the laws in economics are also universally accepted, like, law of
demand, law of supply, law of diminishing marginal utility etc.
4. Theories and laws of economics are based on experiments, like, mixed
economy to is an experimental outcome between capitalist and socialist
economies.
5. Economics has a scale of measurement. According to Prof. Marshall,
‘money’ is used as the measuring rod in economics. However, according
to Prof. A.K. Sen, Human Development Index (HDI) is used to measure
economic development of a country.

However, the most important question is whether economics is a positive

science or a normative science? Positive science deals with all the real things
or activities. It gives the solution what is? What was? What will be? It deals
with all the practical things. For example, poverty and unemployment are the
biggest problems in Nigeria. The life expectancy of birth in India is
gradually rising. All these above statements are known as positive
statements. These statements are all concerned with real facts and
information.

On the contrary, normative science deals with what ought to be? What ought
to have happened? Normative science offers suggestions to the problems. The
statements dealing with these suggestions are coming under normative
statements. These statements give the ideas about both good and bad effects
of any particular problem or policy. For example, illiteracy is a curse for
Indian economy. The backwardness of Nigerian economy is due to
‘population explosion’.

Now an important question arises whether economics is a positive science or a

normative science? The economists like Prof. Senior (classical economist) and
Prof. Robbins, Prof. Freight-men (modern economists) claimed that economics
is a positive science. However, Prof. Pigou (classical economist). Prof.
Marshall (neoclassical economist) etc. are of opinion that economics is a
normative science.

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Economics and Positive Science:
The following statements can ensure economics as a positive science, such as;

1. Logically based: The ideas of economics are based on absolute logical

clarifications and moreover, it develops relationship between cause
and effect.
2. Labour Specialisation: Labour law is an important topic of economics.
It is based on the law of specialisation of labour Economists must
concern with the causes and effects of labour-division.
3. Not Neutral: Economics is not a neutral between positive and normative
sciences. According to most economists, economics is merely positive
science rather than normative science.

Economics and Normative Science:

The following statements can ensure economics as a normative science, such
as,
1. Emotional View: A rational human being has not only logical view but
also has sentimental attachments and emotional views regarding any
activity. These emotional attachments are all coming under normative
statements. Hence, economics is a normative science.
2. Welfare Activity: Economics is a science of human welfare, All the
economic forwarded their theories for the development of human
standard of living Hence, all the economic statements have their
respective normative views.
3. Economic Planning: Economic planning is one of the main instruments
of economic development. Several economists have given their
personal views for the successful implementation of economic plan.
Hence, economics is coming under normative science.

All these lead us to the conclusion that ‘Economics’ is both positive and
normative science. It does not only tell us why certain things happen however,
it also gives idea whether it is right thing to happen.

Economics as an Art:
According to Т.К. Mehta, ‘Knowledge is science, action is art.’ According to
Pigou, Marshall Etc., economics is also considered as an art. In other way, art
is the practical application of knowledge for achieving particular goals.
Science gives us principles of any discipline however; art turns all these
principles into reality. Therefore, considering the activities in economics, it can
claim as an art also, because it gives guidance to the solutions of all the
economic problems.

Therefore, from all the above discussions we can conclude that economics is
neither a science nor an art only. However, it is a golden combination of

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both. According to Cossa, science and art are complementary to each other.
Hence, economics is considered as both a science as well as an art.

STUDY QUESTIONS
1. What is evolutionary theory in economics?
2. What are evolutionary economics assumptions?
3. Choice arises because of scarcity of resources. Discuss
4. Mention and discuss any five (5) fundamental problems of economics
5. Mention and explain any uses of the study of economics
6. Use diagram(s) and answer the question of what to produce and in what
quantity.
7. Economics as a Science and an Art
8. Distinguish between positive and normative economics