Introduction

Definition of economics
Scope of economics
Subject matter of
economics
Methodology of economics
INTRODUCTION
The word Economics is derived from the Greek
words OKIO NOMIA meaning household
management .
Man is bundle of desires. Goods and services satisfy
these wants. But almost all the goods are scarce. To
produce goods land, labour, capital and
organization are needed. Economic problem arises
because of scarcity.
Economics is a study of economic problems. Wants
are motive force for economic activity. Wants leads
to efforts. Efforts secures satisfaction.
What is economics?
Satisfaction of Individual Human
wants
Satisfaction of collective Society
wants
Wants Efforts

satisfaction
Economics Definitions
1. Wealth Definition. Adam Smith
2. Welfare Definition. Alfred Marshall
3. Scarcity Definition. Lionel Robbins
4. Growth Definition. Paul Samuelson
1.Wealth Definition.
Father of Economics Adam Smith in his
book Wealth of Nations 1776 defined
economics is the study of wealth.
J.B Say, J.S Mill, Walker, B.Price all agreed
that Economics is concerned with wealth.
In this definition wealth is given first place,
man has given second place
2. Welfare definition.
Alfred Marshall in his book Principles of
Economic Science-1890 defined
Economics is the study of man kind in the
ordinary business of life.
Economics is one side a study of wealth;
and on the other side more important side
a part of study of man
He made economics is a science of human
welfare.
Welfare definition-points
1. Mainly concerned with the study of man in
relation to wealth.
2. First place to man, second place to wealth.
3. It studies man not in isolation but a member
of a social group.
4. Definition considered only material welfare,
ignored immaterial welfare.
3. Scarcity Definition.
Lionel Robbins in his book Nature
and Significance of Economic Science-
1932 given scarcity definition.

Economic is the science which

studies human behavior as a
relationship between ends and scarce
means which have alternative uses.
Scarcity Definition-main Points
1. Unlimited wants.
2. Scarce means.
3. Means have alternative uses.
Growth definition
Economics Noble prize winner (1970) Paul
Samuelson proposes a dynamic definition in his
book Economics(1948)
Economics is the study of how people and society
end up choosing with or without money to employ
scarce productive resources that could have
alternative uses to produce various commodities
and distribute them for consumption, now or in
the future among various persons and groups in
society. Economic analysis the cost and benefits of
improving patterns of resources use.
Growth Definition-points
1. Scarcity : Unlimited wants ,scarcity of
resources and alternative uses.
2. Dynamism: The importance of time is
brought in the definition.
3. Economic growth: His definition gave
importance to economic growth
4. Wide scope: Economic choice exist not only
in a monetary economy but also in a barter
economy.
5. Problem of choice: Definition explains
problem of choice in present and future in
dynamic conditions.
SCOPE OF ECONOMICS
SCOPE OF ECONOMICS
Microeconomics may be defined as that branch of
economic analysis which studies the economic behavior
of the individual unit, may be a person, a particular
household, or a particular firm.
Macroeconomics may be defined as that branch of
economic analysis which studies behaviour of not one
particular unit, but of all the units combined together.
Macroeconomics is a study in aggregates
International economics: As the countries of the
modern world are realising the significance of trade with
other countries, the role of international economics is
getting more and more significant nowadays
 Public finance: The great depression of the 1930s led to the
realisation of the role of government in stabilising the
economic growth besides other objectives like growth,
redistribution of income, etc. Therefore, a full branch of
economics known as Public Finance or the fiscal economics has
emerged to analyse the role of government in the economy.
Development economics: As after the second world war
many countries got freedom from the colonial rule, their
economics required different treatment for growth and
development. This branch developed as development
economics.
Health economics: A new realisation has emerged from
human development for economic growth. Therefore, branches
like health economics are gaining momentum.
 Environmental economics: Unchecked emphasis on
economic growth without caring for natural resources and
ecological balance, now, economic growth is facing a new
challenge from the environmental side.
Urban and rural economics: Role of location is quite
important for economic attainments. There is also much
debate on urban-rural divide. Therefore, economists have
realised that there should be specific focus on urban
areas and rural areas.
Therefore, there is expansion of branches like urban
economics and rural economics. Similarly, regional
economics is also being emphasised to meet the
challenge of geographical inequalities
NATURE OF ECONOMICS
Scope means province or field of study.
(i)Economics A Science and an Art
(ii)Economics - Positive and Normative
(a) Economics is a science:
By applying the characteristics of science,
we find that economics is a branch of knowledge
where the various facts relevant to it have been
systematically collected , classified and analyzed.
(b) Economics is a art:
An Art is a system of rules for the attainment of a

given end.
A science teaches us to know; an art teaches
us to do.
Science and art are complementary to each other
and economics is both a science and an art.
(ii) Positive and normative
economics
(a) Positive science:
it only describes what it is and normative science
prescribes what it ought to be.
positive science does not indicate what is good or
what is bad to the society.
it will simply provide results of economic analysis of
a problem.
(b) Normative science :
it makes distinction between good and bad.
it prescribes what should be done to promote human
welfare and it also suggest how it can be rectified.
Therefore, economics is a positive as well as
normative science
SUBJECT MATTER OF
ECONOMICS
Economics can be studied throgh:
(A) Traditional approach
(B) Modern approach
 (A) Traditional approach
Economics is studied under five major divisions:
1. Consumption: Extracting utility from goods and
services.
2. Production: Production of goods and services which
posses utility.
3. Exchange: means buying and selling of goods and
services. It is link between consumer and producer.
4. Distribution: Sharing of income by the four factors of
production.
5. Public finance : it studies how the government gets
money and how it spends it. Thus in public finance,
we study about public revenue and public
expenditure.
 It divided into :
(i) Micro-economics
(ii) Macro-economics
The terms micro and macro derived from Greek.
Mikros (small) and makros (large).
Micro means individualistic and macro aggregative.
(i)Micro Economics.
Micro economics is the study of particular
firms, households, individual prices and
particular commodity.
Micro economics is based on the assumption of
full employment and ceteris paribus (other
things remain constant).
Micro economics was popularized by David
Ricardo, Marshall, J.B Say and J.S Mill.
Micro economics called as Price Theory.
(ii)Macro Economics:
Macro economics is the study of economic
system as a whole.
Macro economics studies aggregates
values like National Income, National
output, general price level, total
consumption, saving and investment of a
country.
Macro economics is called Income and
Employment theory.
J.M Keynes popularized macro Economics
Where micro economics explain a tree in
the forest, macro economics explains all the
trees in the forest.
Methodology of
economics
To study economics, two methods are there.
1.Deductive method
2. Inductive method.
Deduction proceeds from general to particular while
induction proceeds from particular to general.
Deduction method
1. This method deduces conclusions from the
truths established by other methods.
2. It involves the process of reasoning from certain
laws or principles which are assumed to be true,
to analysis of facts.
3. Deduction as a descending process in which
we proceed from a general to particular.
4. It as a priori method and also called it abstract
and analytical method
5. Ricardo regarded as the first economist who
applied this method.
6. Ex; the law of diminishing returns.
Deduction method
-merits
1. It is intellectual method, near to reality.
2. This method is simple.
3. The use of mathematics brings exactness.
4. Universal validity.
Deduction method
demerits
1. This method based on assumptions.
2. Inadequate data.
3. Lerner criticised this method is simply
armchair analysis.
Inductive method
This method involves the process of reasoning
from particular to general.
It as an ascending process.
This method involves four stages:
1.observation; 2. formation of hypothesis
3.generalisation; 4. verification.
This method was introduced by German
historical school Roscher, Hillbrand, and Fedric
List.
Inductive method-Merits
1. This method proceeds from particular to
general, it is thus realistic.
2. Helps in future enquiries.
3. Statistical method.
4. Dynamic.
Inductive method-
Demerits
1. Statistical numbers can be misused and
misinterpreted.
2. Probable.
3. Time consuming and costly method.
4. Differ from investigator to investigator for
the same problem.
Difference Between Micro and
Macro
o. Economics
S.N BASIS FOR
COMPARISO MICROECONOMICS MACROECONOMICS
N
The branch of The branch of
economics that economics that studies
studies the behavior the behavior of the
1 Meaning of an individual whole economy, (both
consumer, firm, national and
family is known as international) is known
Microeconomics. as Macroeconomics.
Individual economic Aggregate economic
2 Deals with
variables variables
Applied to
Business Environment and
3 operational or
Application external issues
internal issues
Covers various
issues like demand, Covers various issues
supply, product like, national income,
Difference Between Micro
and Macro Economics
S.No BASIS FOR
MICROECONOMICS
. COMPARISON
Helpful in determining
the prices of a product
along with the prices of
5 Importance factors of production
(land, labor, capital,
entrepreneur etc.) within
the economy.
It is based on unrealistic
assumptions, i.e. In
microeconomics it is
Limitations
6 assumed that there is a
full employment in the
society which is not at all
possible.
MACROECONOMICS
Maintains stability in the
general price level and
resolves the major
problems of the
economy like inflation,
deflation, reflation,
unemployment and
poverty as a whole.
It has been analyzed
that 'Fallacy of
Composition' involves,
which sometimes
doesn't proves true
because it is possible
that what is true for
aggregate may not be
true for individuals too.
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