Meaning
& Definition of Economics
Economics as a Social
Science : An
opening statement
Economics
is a social science that seeks to understand how
different societies allocate scarce resources to
meet the unlimited wants and needs of its
members. As with any social science, economics is
concerned with human behavior--behavior of
individuals and interaction among these
individuals. What makes economics notable among
the other social sciences is that this particular
discipline addresses the requirements for human
survival, sustainability and advancement. For
those living in developed countries, notions of
human survival might seem trivial. However, for
much of the world's population survival is barely
within their grasp.
The term economics is derived
from the Greek words ‘Oikos’ and
‘Nomas’. ‘Oikos’ means
household and 'Nomas' means management. So, in
its original sense economics means house hold
management (i.e. satisfying as many wants of the
family as possible by economizing or wisely
allocation the limited resources at the disposal
of the family among different wants or uses).
The art of household management
(i.e. the maximization of satisfaction by
economizing the limited resources) was applied by
the Greeks to the governing of polis (i.e. a city
or state) and the term "economics" was
applied by them to the governing of state or
city. For this reason economics was originally
called political economy. (It may be noted that
for a long time, economics was called political
economy. It was Alfred Marshall who first used
the term "economics" for political
economy.
Today, the art of household
management is practiced by everybody. (I.e.
government as well as individual) for the
management or solution of the day –to
–day economic problems. So, in the modern or
practical sense, economics means management or
solution of the day-to-day economics problems,
arising from unlimited wants and limited
resources, by economizing or distribution wisely
the limited resources among different uses. In
short, economics is the science that studies how
human beings try to satisfy their unlimited wants
with limited means or resources.
Some might label economics as the science of
human progress; that is, how choices are made
such that the standard of living of individual
human beings improves. This is not to say that
economics only has comment for the accumulation
of material wealth. Improvement in living
standards includes, lower infant mortality, the
provision of basic and essential health care,
appropriate shelter and infrastructure, and
of-course meeting the caloric needs of every
human being. In addition, improved living
standards support greater levels of literacy and
education necessary to sustain political systems
which celebrate human initiative, creativity and
spirit.
We might view an improvement in the standard
of living as a problem of production with its
foundation in technological expertise and the
accumulation of human knowledge. However, even if
we overcome this technological problem, as we
have in much of the world, difficulty in the
distribution of what is produced prevents a
significant number of individuals from enjoying
the fruits of human progress. This problem of
distribution is often rooted in weak political
institutions and ineffective methods of
governance. And yet the strength of the political
institutions depends much on the level of
education of the governed. Human progress is
accomplished with growth in educational
attainment.
Economics is the study of human
Behavior in the activities of production,
distribution and consumption. Economics
approaches them on the premise that these
processes are a question of choice. The problem
of choice occurs at a number of different levels.
Choices connected with society as a whole require
a different approach from problems that are
located at the level of business. The differences
in analytical approach are reflected in the major
distinction within Economics: that between
general economics (or social economics) and
business economics. Business economists are
concerned with economic functioning within
organizations. General economists study economic
phenomena at the level of a single market or
industrial branch or of society as a whole,
including the international dimensions. These two
major approaches are reflected in the two
variants within the programme. Besides general
economics and business economics, there is a
third variant: international financial economics,
which overlaps the fields of business
Economics is the systematic
study of questions such as: how much of its
income a household chooses to save and what goods
it chooses to buy; how many people a business
chooses to employ and how it sets its prices; how
the price system in a market economy allocates
resources and incomes; and how all the households
and businesses in the country interact to
determine national output, the balance of
payments, inflation and unemployment. It reveals
why purely self-interested behaviour may
nevertheless produce a desirable outcome for
society as a whole. But it also reveals how
easily this process can go awry, justifying
government intervention. A case in point is the
need for co-ordinated international action to
limit environmental pollution. Above all, the
study of economics develops a mental approach
suitable for analysing a whole range of problems,
often well outside what is conventionally thought
of as the domain of economics.
Economics is a social science
that seeks to develop a broad understanding of
how an economic system operates on both the
microeconomic level of individual markets and on
the macroeconomic level of economywide
aggregates. Economists examine how societies
organize their activities with respect to the
production, exchange, and consumption of goods
and services. The concept of efficient use of
resources of the family was later carried over to
society as a whole. For this boarder setting,
economics analyses how a society utilizes its
scarce resources of manpower, raw materials and
capital to satisfy the material wants of its
members.
Resources may
be goods and servies (output)
or the factors of production (inputs):
- Goods and services are
those products that are directly consumed
by individuals to satisfy their desires
- The factors of
production are those elements
required to produce the desired output
these factors include
- Land (acreage and raw
materials)
- Labor (unskilled,
semi-skilled, professional)
- Capital (machines,
factories, transportation equipment and
infrastructure)
- Entrepreneurship
(organizing the other factors of
production and risk-taking)
Economics is the study of the
production of wealth and its distribution. It is
concerned with the financial operations of
industry and commerce both in terms of the
performance of individual firms (microeconomics)
and the national economy (macroeconomics).
Economics is a broadly based subject which covers
a wide range of economic, business and social
issues, and it relates directly to current
problems facing managers, workers and
policymakers.
Economics is the study of
choice and how choices made by individuals and
society affect our standard of living. Its
subject matter is society, how people choose to
lead their lives and how they interact. It brings
methods of science to the fundamental questions
and problems faced by society. By doing so,
Economics helps us understand and explain a
variety of topics such as employment, inflation,
business cycles, economic growth, markets,
production, distribution, wages, profits,
interest rates, money, taxes, competition,
monopoly, international trade, economic history,
public policy, and many others. Courses range
from the very practical and applied to the more
abstract and theoretical.
Economic problems are an
ever-present and inherent part of our lives: the
existence of high levels of unemployment, global
competition in world markets, arguments about the
wisdom of free trade agreements, the merits of
alternative pollution control policies, and the
Bank of Canada's forceful endeavors to restrain
inflation. While many issues are fundamentally
economic in nature, there are many other social,
political and environmental problems that have
important economic consequences. The social
science of economics is our attempt to analyze
and understand these and many other problems.
More formally, economics is concerned with the
material well being of human societies. It is
often described, as the study of how we use our
limited resources to satisfy our unlimited
material wants. An extensive body of analysis has
developed to do that.
Every day, in the ordinary and extraordinary
business of our lives, we encounter difficult
economic issues:
- Should I borrow money to buy a computer,
or should I use my savings?
- Should I exchange dollars for pesos
today, or should I wait until tomorrow?
- Is the recent American economic boom
sustainable?
- How will new technologies affect the
price I pay for telephone service?
- What kind of health care reform is best
for my country?
- What really caused the baseball
players'strike? Will it happen again?
- Should the North American Free Trade
Agreement be extended to other nations of
the Western Hemisphere?
- How will the European Union change its
Common Agricultural Policy to accommodate
new members in Central and Eastern
Europe?
- Will Russia and its neighbors
successfully complete their market
transition programs? In economics, we
apply powerful tools of analysis to
questions such as these
The study of economics begins with an
understanding of technology, the creation of new
technology, and the efficient use of that
technology all to address the problem of
production. But just as important, an
understanding of the workings of an economic
system must acknowledge the political system that
exists and the potential for political change to
address the problem of distribution. An economic
system must provide for the physical needs of
human beings and, just as important, satisfy
their wants and desires which provides much of
the incentive for human progress.
The past decade has provided witness to
amazing events in the economic progress of
different nations. Economists were more than
impressed with the extraordinary rate of economic
growth in much of Southeast Asia only for these
countreis to experience massive economic
collapse. Huge transformations and transitions
have taken place in Eastern Europe and the
nations of the former Soviet Union. Socialism has
given way to market-oriented ideals only to be
confused by the promises of capitalism. Japan,
once thought to be the true dominant economy at
the dawn of the new millennium now suffers under
the weight of an ineffective financial system
based on favoritism, collusion, and political
manipulation. The United States has experienced
such a prolonged steady expansion such that many
of the problems of inflation, unemployment, and
stagnation seem to be eliminated. And yet,
economic history has taught us that economic
success should not be taken for granted. Success
is often difficult and sometimes fleeting as
suggested by the following questions:
- What were the causes of the 7-10% annual
rate of economic growth in countries like
Malaysia, Hong Kong, Indonesia, and South
Korea at a time when most developed
nations experienced growth rates of 2-3%
per year? And why did these economies
suddenly collapse such that they are all
in recession as we anticipate the second
millennium?
- Why has the promise of capitalism failed
to allow the transitional economies of
many Russian- speaking nations and other
Eastern European countries achieve
sustainable economic growth?
- What are the reasons that the many
nations of Africa, Latin America,
and Asia minor have failed to
experience even a spark of economic
growth and the rewards of human
development?
These are the present
questions of economics in general, and more
specifically, economic policy. Developing an
understanding of these economic events in
addition to more fundamental issues related to
policy and development are the reasons for this
course of study.
Needs are met by those goods
and services required for human survival.
Needs are often determined by nature, climate and
region, and are often finite.
Wants refer to everything
else.Human wants are determined by society and
the culture in which an individual lives. These
wants are truly unlimited and represent the
source of the problems facing all economic
systems.
Three questions to be
addressed by any economic system are:
- What to Produce?
What goods and services are desired by
the members of a given economy?
- How to Produce?
What is best method to combine the
factors of producton to produce those
goods and services?
- How to
Distribute what is produced?
Which members of a given economy will be
able to acquire and consume those
available goods and services?
Definitons of Economics
Economics is a social science often defined as
the study of:
How a given society
make decisions about the
allocation of scarce resources to meet the unilimited
wants and needs of its members.
The purpose of defining a subject is to
understand its meaning, nature, characteristics
and limitations as possible. Unfortunately,
several definitions of the subject as clearly of
economics have been given which have rather
complicated the grasp of its true meaning. For
the sake of convenience let us classify the
various definitions into four groups as indicated
below:
- SCIENCE OF
WEALTH or CLASSICAL OR WEALTH DEFINTION
- SCIENCE OF
MATERIAL WELL-BEING or NEO-CLASSICAL OR
WELFARE DEFINTION
- SCIENCE OF
CHOICE MAKING or SCARCITY DEFINTION
- SCIENCE OF
DYNAMIC GROWTH AND DEVELOPMENT or MODERN
OR GROWTH-ORIENTED DEFINTION
SCIENCE OF
WEALTH or CLASSICAL OR WEALTH DEFINTION:
-
The earliest or the first systematic
definition of economic was given by Adam Smith.
That is why, Adam smith is universally regarded
as the 'Father of Economics'. Adam smith defined
Economics as "An enquiry into the nature and
causes of the wealth of the nations"
popularly known as "Wealth of Nations"
published in 1776.
The view of Adam Smith was shared by other
economists like J.B.Say, J.S.Mill,
Prof.F.A.Walker, N.W.Senior etc. In the words of
J.B.Say, the French economist, "Economics is
the science which treats wealth". According
to J.S.Mill "The practical science of
production and distribution of wealth".
According to Prof. F.A.Walker, the American
economist, "Economics is that body of
knowledge which relates to Wealth". In the
words of N.W.Senior, "the subject-matter of
political Economics is not happiness but
wealth".
According to these Economists, Acquisition
(i.e. earning) of wealth is the main objective of
human activity. So, Economics is a science
relating to the production, distribution, and
exchange of wealth. Truly speaking there is
nothing wrong in defining Economics as a science
connected with wealth earning and wealth spending
activities. Moreover, in the context of the
national economy every country will like to
become rich. However, welfare of the people
cannot be increased without creating wealth. In
other words, Economics is a study of how wealth
is produced, distributed and exchanged for
consumption in short Economics is a science of
wealth.
- SCIENCE OF
MATERIAL WELL-BEING or NEO-CLASSICAL OR
WELFARE DEFINTION: -
On account of the severe criticism of the
wealth definition by literary men and social
reformers , Economics lost its importance .
further , several developments and changes had
taken place in the Economics, social and
political spheres of the world between 1776 and
1890. So , economists of neo-classical school of
though like Alfred Marshall, Pigou, cannon,
Prof.Ely and others attempted to re-define
Economics to make it more acceptable to the
people . the recognized the main defect of the
wealth definition lack of reference to man and
his welfare.
The most important of the welfare definitions
was the one given by Prof. Alfred Marshall .
According to him "Economics is a 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 with the use of the material
requisites of well being . thus , it is on the
one side a study of wealth and on the other and
more important side a part of the study of the
man". According to A.C.Pigou "The range
of our inquiry become restricted to that part of
social welfare that can be brought directly into
relation with the measuring rod of money".
According to Marshall , Economics is a study
of man's actions in the ordinary business of life
(i.e. it enquires or studies how man earns his
income and uses it).Further Economics is not
concerned with wealth as such. It is concerned
with acquisition and use of wealth by man. He
gave primary importance to man and his welfare
and only secondary importance to wealth. Again
Marshall considered Economics as a social science
, i.e. a science which considers man not in
isolation by as a member of the society
- SCIENCE OF
CHOICE MAKING or SCARCITY DEFINTION: -
The scarcity definition of Economics was given
by Prof. Lionel Robbins in his book "The
nature and significance of economics
science", published in 1932.
Scarcity refers to the condition where
the quantity desired of a particular
resource exceeds the quantity available in
the absence of a Rationing system
Rationing Systems include:
- Tradition and Culture
- Planning and Central Government Command
- Voting and Political Procedures
- Markets -- using a system of prices to
act as a means of communication
between buyer and seller.
According to him "Economics is a science
which studies human behavior as a relationship
between ends and scarce means which have
alternative use". According to him , the
ends(i.e. human wants) are unlimited . but the
means (i.e. the resources) to satisfy the human
wants are not only limited, but also can be used
for different or alternative purposes . so there
arise Economics problems .the economic problem
are solved by people by adjusting their limited
resources, which can be put to alternative uses,
To their unlimited wants. The way in which people
choose between the different wants and use the
scarce resources, having alternative uses, for
getting maximum satisfaction constitutes the
subject matter of Economics
- SCIENCE OF
DYNAMIC GROWTH AND DEVELOPMENT or MODERN
OR GROWTH-ORIENTED DEFINTION: -
Robbins's scarcity definition was no doubt
more comprehensive scientific and satisfactory
and that is why it was widely used for about 30
to 35 years. But of late, the modern economist
like J.M.Keynes, Benham, Samuelson have
considered Robbins's scarcity definition
unsatisfactory for the modern growth oriented
world. So they have given a modern definition of
Economics
According to Paul A. Samuelson "Economics
is the study of how men and society choose with
or without the use of money to employ scarce
productive resources which could have alternative
uses to produce various commodities over time and
distribute them for consumption now and in the
future amongst various people and groups of
society".
According to J.M.Keynes, "Economics
studies how the levels of national income and
employment in the community are determined and
how the national income grows over years".
According to the definition of the modern
economists, Economics is not only a study of
allocation of scarce resources but also a study
of how the means can be further increases to
secure maximum satisfaction of wants and how the
levels of income and employment in a county are
determined and how national income grows over
years.
Why we want to study
Economics ?
There are many reasons for
studying economics. First reason is, economics is
essential to understanding the world, in which
you live and work. What determines the prices of
the goods and services on which you spend your
income, and the prices of the stocks and bonds in
which you invest your savings? How does education
affect the lifetime earnings of people? Why do
some people earn so much and others so little?
Why do some jobs pay high wages while other jobs
pay low wages? How do firms operating in
different market environments decide what
quantities to produce of their product outputs,
what prices to charge for these outputs, and what
quantities of labour and capital inputs to
employ? How can economic analysis help us
understand and solve the problems of
environmental pollution and resource depletion?
What determines the level of national income and
aggregate employment, the rate of price
inflation, the rate of unemployment, the rate of
growth of aggregate output and productivity, and
the international value of the Canadian dollar?
Why do average standards of living vary so widely
among and within countries?
A second reason to study
economics is that it can equip you to participate
more successfully in the increasingly
knowledge-based and interdependent global economy
of the twenty-first century. Economics is
fundamentally about choice Behavior -- about how
individuals, families, firms and governments
deploy their scarce resources so as to maximize
the economic well being of their stakeholders.
How do individuals decide how much of their time
to devote to paid work, how much and what kinds
of formal education to acquire, how much of their
incomes to spend and save, how to allocate their
spending among the vast array of consumer goods
and services, how to invest their savings, and
how much to invest in home ownership? By
systematically addressing these sorts of
questions, economics can help individuals make
better purchasing, employment and financial
decisions. And by providing in-depth analysis of
firms' decision-making in a variety of market
settings, economics can help business managers
and pdfcutives make better production, employment
and investment decisions.
A third reason to study
economics is that it can give you a better
understanding of the objectives, methods and
limitations of government economic policy. How
can government policy help reduce environmental
pollution? How does the tax system affect the
incentives for people to work, for families to
spend and save, and for firms to invest? How do
government budget deficits and debt affect the
economy? What are the effects of freer
international trade on Canadians' standard of
living? How do the actions and policies of the
Bank of Canada affect interest rates and the
money supply, and thence the rate of price
inflation, the external value of the Canadian
dollar, and international capital flows? How can
governments enhance the competitiveness of
domestic markets and the international
competitiveness of Canadian firms? Can Canada
afford in their present form the country's large
social welfare programs such as Medicare and the
Canada Pension Plan? Economics helps us to
understand better the forces shaping both our
public and private economic lives. Therefore, a
lively intellectual curiosity about what is going
on in the real world of economic events is one
indication of strong prospects for success in the
major.k
Some of you reading this message may be just
beginning to take your first economics course at
a high school, college, or university.
Others may be in the middle of a semester and
will have already learned some things about macro
and micro economics in your classes. A few
of you may be nearing completion of an
undergraduate or graduate degree in economics,
business, or international studies.Whether
you are a novice or a veteran economics student,
it doesn't take you long to see that economics is
an important element in world affairs and that
economics is powerful and influential discipline.
Knowledge of economics gives you a unique
perspective of the world community and is an
essential tool for good decision making.
Economic ideas and principles are used by world
leaders and corporate executives to make
decisions that change the course of human
history. This is the main reason that the
Bank of Sweden awards a Nobel Prize each year to
economists who have significantly contributed
ideas to the science.
Recent world trends have made the study of
economics more relevant and significant than ever
before. Globalization is linking commercial
and political relations between countries at a
pace and on a scale never before experienced by
the world community of nations. World trade
has expanded dramatically as more and more
countries have opened their markets to foreign
products. The foreign trade sector is the
fastest growing component of most economies, and
trade in services is the most rapidly growing
category. Billions of dollars worth of
foreign exchange and mutual funds are moved from
country to country on a daily basis via
electronic transfer over the internet.
Stock markets are no longer the exclusive purview
of a few rich nations. An economic crisis
in one nation has the potential to significantly
alter the direction and economic performance of
many others. Government policy makers are
constantly monitoring the economic performance of
their countries and adjusting their fiscal,
monetary, and trade policies to correct for an
undesirable economic imbalance. The
standards of living and quality of life for
millions of households are affected by these
decisions.
Economics is more than
Demand & Supply
Supply and demand is an
important part of economics, but economists are
engaged in studying almost all aspects of human
activity that involves the production and
distribution of wealth. Economists use logic,
statistics, and critical thinking to study some
of the most important social and political issues
of our time. Economic perspectives are essential
in public debates involving Social Security, free
trade agreements, pollution regulations, welfare
reform, and tax policy
BASICS;
Quick quiz: Suppose several
producers of Your Favorite products suddenly go
out of business, causing a serious shortage of
Your Favorite Product. Nonetheless, everyone
still wants to buy the same amount of it. What
will happen to the price of Your Favorite
products?
If you predicted a price
increase, you may have a knack for economics: the
study of the production, distribution, and
consumption of goods and services. More broadly,
economics is the study of how individuals,
businesses, governments, and societies choose to
spend their time and money, and otherwise
allocate their resources. Even more broadly,
economics is the study of choices. When the
federal government decides to allocate a certain
part of national budget to military spending and
another part to funding for the arts, that
decision and its consequences is economics.
Similarly, when you decide to buy a CD instead of
a fancy new shirt (or to watch Nick at Night
instead of MTV, or take the bus instead of your
car) that's economics, too.
Knowledge of economics is an
invaluable component of any liberal arts
education, not to mention an indispensable tool
for making sense of the intricacies of the modern
world. It is also excellent preparation for a
future in business, as well as for graduate
studies in law, public policy, and international
studiesk
For any Corrections
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