BUSINESS ECONOMICS, ASHISH SRIVASTAVA Definition of Economics : Prof. Zuethen Economics is an unfinished Science.

. Classical or Wealth oriented Neo Classical or Definitions oriented Definition Welfare Modern Definitions SCARCITY ORIENTED DEFINITIONS

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Growth oriented definitions

Lead by Prof Smith

Lead by Prof Marshall

Lead by Prof Lead by Prof Robbins Samuelson

The classical School of thought or wealth oriented definition: This school of thought was lead by prof Adam Smith and followed by Prof J.B. Say, Prof J. S. Mill and Prof F.A. Walker. In 1776 Smith in his book titled An Enquiry into nature and causes of wealth of nations defined economics as : Political Economy is a subject concerned with an enquiry into the nature and causes of wealth of nations. J. S. Mill Political Economy professes to teach or investigate the nature of wealth and the laws of its production and its distribution. J.B. Say, The aim of political economy is to show the way in which wealth is produced, distributed and consumed. F.A. Walker Political Economy or ECONOMICS is the name of that party of knowledge which relates to wealth. Neo Classical school of thought or welfare oriented definitions: Neo Classical Economists- Prof AFRED MARSHALL, Cannon and Pigue etc. defined the Economics as a science of welfare. Neo classical economists emphasized on man rather than money and started ethical approach. Cannon The aim of Political ECONOMY is the explanation of the general causes on which the material welfare of human being depends. Pigue The range of economy is the enquiry becomes restricted to that past of social welfare which can be directly or indirectly in to relationship with the measuring rod of money. Neo Classical Economists give the first place to man and its welfare. They took the Economics as an engine of social betterment. The Modern Definitions:

BUSINESS ECONOMICS, ASHISH SRIVASTAVA

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Scarcity Definition: In his book An Essay on the nature and significance Science in 1932, Lionel Robbins defined economics as Economics is a science which atudies human behavior as a relationship between ends and scarce means which have alternative uses. He also said that Economics is the science of choice. Growth oriented Definition Modern Economists provided the analytical and dynamic approach. Prof Samuelson renovated to changes taking place both in the means as well as wants. Modern Economists said that Economics is the allocation of scarce resources and of the determinants of employment, income and economic growth. SCOPE OF ECONOMICS Scope means sphere of the study of economics. Area or field covered in economics. The subject matter of economics Nature of Economics Relationship of Economics with other Disciplines The subject Matter of Economics:

TraditionalApproach

Modern Approach

1. Production 2. Consumption 3. Exchange 4. Distribution

1. Micro Economics
2. Macro Economics

The process of Conumption involves the utilization of utility of goods and services for the satisfaction of human wants. E.g. Law of Diminishing Marginal Utility, law of Equi marginal utility.

BUSINESS ECONOMICS, ASHISH SRIVASTAVA

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PRODUCTION is the result of consumption or demand. E.g. Law of Variable Proportion, Law of Return to Scale. Micro Economics: It studies the economic actions of indivisuals i.e. a particular firm, individual household, wages, profits etc. so micro economics is the study of an economy. Nature of Economics: Science: Objectivity Systematic study of cause and effect relationship Power to explain the things Power to predict the things Use of scientific methods Universality. Art Positive or Normative science

Methodology of Economics Cossa Method means the logical process, used in discovering or in demonstrating the truth. Deductive Method Inductive Method Deductive: It is also known as abstract or hypothetical method of economic analysis. In this method we study from general to particular. Advantages of Deductive Methods: Simple in reaching to conclusion of complex problems. It has certainty and clarity. Its application is easy, it doe not require statistical or mathematical information. It is suitable bcoz there is no scope of observation and experimentation of human behavior as it is rational.

Disadvantages: If assumptions are faulty then inferences will be wrong. It is dangerous to formulate govt policies It lacks empirical evidences.

BUSINESS ECONOMICS, ASHISH SRIVASTAVA Inductive or Empirical or Historical Method: Particular to general. Advantages: It is reliable and helpful in formulation of sound policies. It is universally valid as based on scientific procedure. Disadvantage: It is a costly method as it requires large investment for the collection of data. It can lead to biased results if the statistics is not used cautiously.

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Economic Laws: In simple words law is a general statement which shows cause and effect relationship between different variables. N the same way economic laws describes the cause and effect relationship of economic variables. UTILITY ANALYSIS

Utility is one of the basic concept given by Prof Marshall. In ordinary sense it is usefulness. Example Wine is harmful for health. Thus it has no utility. But in economics, wine has utility bcoz it has a power to satisfy human wants. Hence usefulness and utility are two different things. Modern Economists define the utility in broad sense. According to them Expected Satisfaction is known as utility.