The term ‘Economics’ is derived from two Greek words, oikou and nomos, meaning the rule or law of the household. It originally dealt with the way in which a prudent household might best make the most efficient use of the limited income.
The concept of efficient use of resources of the family was later carried over to society as a whole. For this broader setting, economics analyses how a society utilizes its scarce resources of manpower, raw materials, and capital to satisfy the material wants of its members. More than seeking to understand how a given society actually allocates its scarce resources among different uses, economics seeks to formulate criteria which would achieve the best possible allocation of resources.
Economics evokes the picture of a society with fixed resources skills and productive capacity deciding what specific kinds of goods it ought to produce and how they ought to be distributed. The major role of economics seems to be the study of how best to utilise a fixed and fully employable productive potential.
Economics concernes itself not just with how a nation allocates to various uses its scarce productive resources, important as that may be. It also deals with the process by which the productive capacity of these resources is increased and with the factors which in the past have led to sharp fluctuations in the rate of utilisation of resources.
In the day-to-day events we come across several economic problems like changes in price of individual commodities as well as general price level changes; the economics prosperity and well-being are reflected by higher standards of living of some people despite general poverty of the masses in India; the problems of unemployment of certain class of persons or in some areas are some of the matters connected with economic analysis. The study of economics will help in analysing the possible causes contibutory to these problems and might suggest a number of alternative courses, which could be adopted for tackling these problems.
Scope of Economics
Unfortunately, several definitions of the subject 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:
1. Science of wealth
2. Science of material well-being
3. Science of choice making and
4. Science of dynamic growth and development
5. We shall examine each one of these briefly.
6. Science of wealth : Some earlier economists defined economics as follows:
“An inquiry into the nature and causes of the wealth of the nations.”
“Science which deals with wealth.”
In the above definitions wealth becomes the main focus of the study of economics.
Science of material well-being : Under this group of definitions the emphasis is on welfare as compared with wealth in the earlier group.
“Economics is 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.”
Alfred Marshall
“The range of our inquiry becomes restricted to that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money.”
A.C. Pigou
In the first definition economics has been indicated to be a study of mankind in the ordinary business of life.
Science of choice making : A more scientific explanation about the meaning of economics emerges out to the definition of Robbins who emphasises the choice making aspect as a means of optimization of human satisfaction.
“Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”
The definition deals with the following four aspects:
(i) Economics is a science: This is because it contains a systematised knowledge in regard to human endeavour to optimise certain objective functions under given constraints.
(ii) Unlimited ends: This speaks of fundamental human psychology of multiplying human needs so that they are always more than the resources that can be acquired.
(iii) Scarce means: The scarcity of resources here is with reference to the needs. It must be admitted that scarcity is at the base of most of the human economic problems. This applies to every walk of life.
(iv) Alternative uses: Although resources are scarce they are capable of alternative uses. This applies very much to financial resources which can be used for several possible alternatives.
“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”.
Paul A. Samuelson
The concept embodied in the above definition emphasises growth over time and, therefore, it had been characterised as a more dynamic explanation which is at the same time very comprehensive because it does not restrict to material well-being or for that matter the money measure is not a limiting factor.
Usefulness of economics : Economics is useful to man in his household as well as public and social affairs but it is more useful in business. Economics provides certain tools which can be used for solving various business problems. The knowledge about economic situation in the country and the world has a great bearing on the success of business.
Economics laws or theroies establish cause and effect relationships which are true under certain asumptions. The laws of production are particularly helpful in business.
Production is undertaken in anticipation of demand. Economics helps in forecasting demand. It is based on a number of factors concerning the product and some external froces. It depends on the size of market, the degree of competition, elasticity of demand and the general economic situation. These estimates also help in finding out the likely return on investment.
For making a suitable choice of location, one must know about the availability of raw materials, transport facilities, power and labour. The price situation also influences the demand for the product. The exchange rate has a bearing on the value which will be realised from exports. Indirectly, the general price level and the foreign exchange rate influence the overall economic activity in the country and, therefore, the business prospects of a given product.
The policy of the Government also influences business through its fiscal, monetary and other effects. A business man must be aware of policies and the implications on his business and what is happening in other countries because, in the modern era of economic interdependence, business in a country is bound to be affected by conditions in the world as a whole.
Shopping Cart
