Economics – Defined


Economics is a social science. It is a science because it consists of an organised body of knowledge. Also, economists use a set method of inquiry, called ‘the scientific method’, in order to formulate theories and general laws. It is a social science, as it deals with human behaviour in society.

Adam Smith’s Definition (Wealth Definition)

 Adam Smith (1723-90) defined economics as follows : “Economics is the science of wealth”. He is the author of the famous book “Wealth of Nations” (1776). He is known as the Father of Political Economy because he was the first person who put all the economic ideas in a systematic way. It is only after Adam Smith, we study economics as a systematic science.
Adam smith was of the view that economics was concerned with the problems arising from wealth-getting and wealth-using activities of people. He was interested mainly in studying the ways by which the wealth of all nations could be increased.

Alfred Marshall’s Definition (Welfare Definition)

Alfred Marshall (1842-1924) wrote a book Principles of Economics in 1890. In it, he defined economics as “a study of mankind in the ordinary business of life”. An altered form of this definition is : “Economics is a study of man’s actions in the ordinary business of life”.
Marshall agrees that economics studies about wealth. But he does not accept the view that economics studies about wealth alone. In the words of Marshall, “Economics is on the one side a study of wealth, and on the other and more important side, a part of the study of man. Man is the centre of his study. According to him, the study of man is more important than the study of wealth.

Lionel Robbins’ definition (Scarcity Definition)

Lionel Robbins has defined economics as follows : “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”.
 Robbins has given the above definition in his book “An Essay on the Nature and significance of Economic Science”.
The definition of Robbins is based on the following basic assumptions
 1. Ends are various. The term “ends” mean wants. Human wants are unlimited.
2. Means are limited. Means like time, money and resources are limited.
3. We can put time and money to alternative uses. For example, though time is limited, we can use it for different purposes. We can use time for earning money or we may enjoy it as leisure, and
 4. All wants are not of equal importance
Samuelson’s Definition (Modern Definition of Economics)

According to Samuelson, “Economics is a social science concerned chiefly with the way society chooses to employ its resources, which have alternative uses, to produce goods and services for present and future consumption”
Samuelson’s definition tells us that economics is a social science and it is mainly concerned with the way how society employs its limited resources for alternative uses. All this we find in the definition of Robbins. But Samuelson goes a step further and discusses how a society uses limited resources for producing goods and services for present and future consumption of various people or groups.
Samuelson has coined the concept of Net Economic Welfare. “According to Samuelson, “Net Economic Welfare (NEW) is an adjusted measure of total national output that includes only consumption and investment items that contribute directly to economic welfare”.

Therefore, we can say that economics is a social science that deals with:

- the creation of wealth from scarce resources;
- the production and distribution of goods and services for consumption;
- the behaviour, interaction and well-being of the groups involved in the above activities;
- the fact that there is a trade-off involved in production and in consumption.

The subject has been divided into two main parts: (i) Microeconomics; and (ii) Macroeconomics . Microeconomics is the study of the choices that individuals and businesses make, the way these choices interact in markets and the influence of governments. Macroeconomics is the study of the performance of the national economy and the global economy.

Sunday, 24th Apr 2016, 09:36:16 PM

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