Economics Content, and Business, Finance, Microeconomics, and Macroeconomics, It’s the study of scarcity, the study of how people use resources and respond to incentives or the study of decision-making. It often involves topics like wealth and finance, but it’s not all about money. Economics is a broad discipline that helps us understand historical trends, interpret today’s headlines, and make predictions about the coming years.
Also learn, Economics ranges from the very small to the very large. The study of individual decisions is calls microeconomics. The study of the economy as a whole is calling macroeconomics. A microeconomist might focus on families’ medical debt, whereas a macroeconomist might focus on sovereign debt.
Economics focuses on the behavior and interactions of economic agents and how economies work. Microeconomics analyzes basic elements of the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production, consumption, savings, and investment) and issues affecting it, including unemployment of resources (labor, capital, and land), inflation, economic growth, and the public policies that address these issues (monetary, fiscal, and other policies). See glossary of economic.
The Inductive Method: Induction “is the process of reasoning from a part to the whole, from particulars to generals or from the individual to the universal.” This article explains the Inductive Method of Economics; Bacon described it as “an ascending process” in which facts are collected, arranged and then general conclusions are drawn. Also learn the Methods of Economics.
Here are explaining and learn, What is the Inductive Method of Economics? Steps, Merits, and Demerits.
The inductive method was employed in economics by the German Historical School which sought to develop economics wholly from historical research. The historical or inductive method expects the economist to be primarily an economic historian who should first collect material, draw generalizations, and verify the conclusions by applying them to subsequent events. For this, it uses statistical methods. Engel’s Law of Family Expenditure and the Malthusian Theory of Population have been derived from inductive reasoning.
The inductive method involves the following steps:
The Problem:
In order to arrive at a generalization concerning an economic phenomenon, the problem should properly select and clearly stated.
Data:
The second step is the collection, enumeration, classification, and analysis of data by using appropriate statistical techniques.
Observation:
Data are using to make the observation about particular facts concerning the problem.
Generalization:
On the basis of observation, generalization is logically deriving which establishes a general truth from particular facts.
The best example of inductive reasoning in economics is the formulation of the generalization of diminishing returns. When a Scottish farmer found that in the cultivation of his field an increase in the amount of labor and capital spent on it was bringing in less than proportionate returns year after year, an economist observing such instances in the case of a number of other farms, and then he is arriving at the generalization that is known as the Law of Diminishing Returns.
Merits of the Inductive Method:
The chief merits of this method are as follows:
Realistic:
The inductive method is realistic because it is based on facts and explains to them as they actually are. It is concrete and synthetic because it deals with the subject as a whole and does not divide it into component parts artificially
Future Inquiries:
Induction helps in future inquiries. By discovering and providing general principles, induction helps future investigations. Once a generalization is establishing, it becomes the starting point of future inquiries.
Statistical Method:
The inductive method makes use of the statistical method. This has made significant improvements in the application of induction for analyzing economic problems of the wide range. In particular, the collection of data by governmental and private agencies or macro variables, like national income, general prices, consumption, saving, total employment, etc., has increased the value of this method and helping governments to formulate economic policies pertaining to the removal of poverty, inequalities, underdevelopment, etc.
Dynamic:
The inductive method is dynamic. In this, changing economic phenomena can analyze on the basis of experiences, conclusions can draw, and appropriate remedial measures can take. Thus, induction suggests new problems to pure theory for their solution from time to time.
Historico-Relative:
A generalization drawn under the inductive method is often historical-relative in economics. Since it is drawn from a particular historical situation, it cannot apply to all situations unless they are exactly similar. For instance, India and America differ in their factor endowments. Therefore, it would be wrong to apply the industrial policy which was following in America in the late nineteenth century to present-day India. Thus, the inductive method has the merit of applying generalizations only to related situations or phenomena.
Demerits of Inductive Method:
However, the inductive method is not without its weaknesses which are discussing below.
Misinterpretation of Data:
Induction relies on statistical numbers for analysis that “can misuse and misinterpret when the assumptions which are requiring for their use are forgotten”.
Uncertain Conclusions:
Boulding points out that “statistical information can only give us propositions whose truth is more or less probable it can never give us certainty”.
Lacks Concreteness:
Definitions, sources, and methods using in statistical analysis differ from investigator to investigator even for the same problem, as for instance in the case of national income accounts. Thus, statistical techniques lack concreteness.
Costly Method:
The inductive method is not only time-consuming but also costly. It involves detailed and painstaking processes of collection, classification, analyses, and interpretation of data on the part of trained and expert investigators and analysts
Difficult to Prove Hypothesis:
Again the use of statistics in induction cannot prove a hypothesis. It can only show that the hypothesis is not inconsistent with the known facts. In reality, the collection of data is not illuminating unless it is related to a hypothesis.
Controlled Experimentation not Possible in Economics:
Besides the statistical method, the other method used in induction is controlled experimentation. This method is extremely useful in natural and physical sciences which deal with the matter. But unlike the natural sciences, there is little scope for experimentation in economics because economics deals with human behavior which differs from person to person and from place to place. Also, What is Demand? Meaning and Definition.
Further, economic phenomena are very complex as they relate to the man who does not act rationally. Some of his actions are also bound by the legal and social institutions of the society in which he lives. Thus, the scope of controlled experiments in inductive economics is very little. As pointed Out by Friendman, “The absence of controlled experiments in economics renders the weeding out of unsuccessful hypo-these slow and difficult.”
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The Deductive Method: Deduction Means reasoning or inference from the general to the particular or from the universal to the individual. The deductive method derives new conclusions from fundamental assumptions or truth established by other methods. This article explains the Deductive Method of Economics; It involves the process of reasoning from certain laws or principles, which are assuming to be true, to the analysis of facts. Also learn, What are the Methods of Economics?
Here are explaining and learn, What is the Deductive Method of Economics? Steps, Merits, and Demerits.
Then inferences are drawn which are verifying against observing facts. Bacon described deduction as a “descending process” in which we proceed from a general principle to its consequences. Mill characterized it as a priori method, while others called it abstract and analytical.
Deduction involves four steps:
Selecting the problem.
The formulation of assumptions based on which the problem is to explore.
The formulation of hypothesis through the process of logical reasoning whereby inferences are drawn.
Verifying the hypothesis.
These steps are discussing as under, Following are:
Selecting the problem:
The problem which an investigator selects for inquiry must state clearly. It may be very wide like poverty, unemployment, inflation, etc. or narrow relating to the industry. The narrower the problem the better it would be to conduct the inquiry.
Formulating Assumptions:
The next step in deduction is the framing of assumptions which are the basis of the hypothesis. To be fruitful for inquiry, the assumption must be general. In any economic inquiry, more than one set of assumptions should make in terms of which a hypothesis may formulate.
Formulating Hypothesis:
The next step is to formulate a hypothesis based on logical reasoning whereby conclusions are drawn from the propositions. This is done in two ways: First, through logical deduction. If and because relationships (p) and (q) all exist, then this necessarily implies that relationship (r) exists as well. Mathematics is mostly using these methods of logical deduction.
Testing and Verifying the Hypothesis:
The final step in the deductive method is to test and verify the hypothesis. For this purpose, economists now use statistical and econometric methods. Verification consists of confirming whether the hypothesis is in agreement with facts. A hypothesis is true or not can verify by observation and experiment. Since economics is the concern with human behavior, there are problems in making an observation and testing a hypothesis.
For example, the hypothesis that firms always attempt to maximize profits rests upon the observation that some firms do behave in this way. This premise base on a priori knowledge that will continue to accept so long as conclusions deduced from it is consistent with the facts. So the hypothesis stands verified. If the hypothesis not confirms, it can argue that the hypothesis was correct but the results are contradictory due to special circumstances. Explain are Economics is a Science and Art?
Under these conditions, the hypothesis may turn out to the wrong. In economics, most hypotheses remain unverified because of the complexity of factors involving in human behavior which, in turn, depend upon social, political and economic factors. Moreover, controlled experiments in a laboratory are not possible in economics. So the majority of hypotheses remain untested and unverified in economics. Also learn, What are the Fundamentals of Economics?
Merits of the Deductive Method:
The deductive method has many advantages.
Real:
It is the method of “intellectual experiment,” according to Boulding. Since the actual world is very complicated, “what we do is to postulate in our minds economic systems which are simpler than reality but more easy to grasp. We then work out the relationship in these simplified systems and by introducing more and more complete assumptions, finally, work up to the consideration of reality itself.” Thus, this method is nearer to reality.
Simple:
The deductive method is simple because it is analytical. It involves abstraction and simplifies a complex problem by dividing it into parts. Further, the hypothetical conditions are so chosen as to make the problem very simple, and then inferences are deducing from them.
Powerful:
It is a powerful method of analysis for deducing conclusions from certain facts. As pointed out by Cairnes, The method of deduction is incomparable, when conducted under proper checks, the most powerful instrument of discovery ever wielded by human intelligence.
Exact:
The use of statistics, mathematics, and econometrics in deduction brings exactness and clarity in economic analysis. The mathematically trained economist can deduce inferences in a short time and make analogies with other generalizations and theories. Further, the use of the mathematical-deductive method helps in revealing inconsistencies in economic analysis.
Indispensable:
The use of the deductive method is indispensable in sciences like economics where experimentation is not possible. As pointed out by Gide and Rist, “In a science like political economy, where an experiment is practically impossible, abstraction and analysis afford the only means of escape from those other influences which complicate the problem so much.”
Universal:
The deductive method helps in drawing inferences that are of universal validity because they are based on general principles, such as the law of diminishing returns.
Every hypothesis is based on a set of assumptions. When a hypothesis is testing, assumptions are indirectly testing by comparing their implications with facts. But when facts refute the theory based on the tested hypothesis, the assumptions are also indirectly refuted. So deduction depends upon the nature of assumptions. If they are unrealistic, in this method, economists use the ceteris paribus assumption. But other things seldom remain the same which tend to refute theories.
Not Universally Applicable:
Often the conclusions derived from deductive reasoning are not applied universally because the premises from which they are deducing may not hold good at all times and places. For instance, the classicists assumed in their reasoning that particular conditions prevailing in England of their times were valid universally. This supposition was wrong. Prof. Lerner, therefore, points out that the deductive method is simply “armchair analysis” which cannot regard as universal.
Incorrect Verification:
The verification of theories, generalizations or laws in economics is based on observation. And right observation depends upon data which must be correct and adequate. If a hypothesis is deducing from wrong or inadequate data, the theory will not correspond with facts and will refute. For instance, the generalizations of the classicists were based on inadequate data and their theories were refuted. As pointed out by Ircholson, “the great danger of the deductive method lies in the natural aversion to the labor of verification”.
Abstract Method:
The deductive method is highly abstract and requires great skill in drawing inferences for various premises. Due to the complexity of certain economic problems, it becomes difficult to apply this method even at the hands of an expert researcher. More so, when he uses mathematics or econometrics.
Static Method:
This method of analysis is based on the assumption that economic conditions remain constant. But economic conditions are continuously changing. Thus this is a static method that fails to make the correct analysis.
Intellectually:
The chief defect of the deductive method “lies in the fact that those who follow this method may absorb in the framing of intellectual toys and the real world may forget in the intellectual gymnastics and mathematical treatment”.
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Methods of Economics: First, Definition of Economics as; The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human materials wants. This article explains the Methods of Economics; Economic methodology is the study of methods, especially the scientific method, about economics, including principles underlying economic reasoning. The deductive and inductive method involves reasoning from a few fundamental propositions, the truth of which is assumed. Human wants are unlimited, but the means to satisfy the wants are limited. Also learn, What are the Fundamentals of Economics?
Here are explaining and learn, What are the Methods of Economics?
The following Methods of Economics below are;
The Economic Perspective:
Scarcity and choice: Resources can only use for one purpose at a time. Scarcity requires that choices make. The cost of any good, service, or activity is the value of what must give up to obtain it. As well as, How to explain the Nature of Business Economics?
Rational Behavior: Rational self-interest entails making decisions to achieve maximum fulfillment of goals. Different preferences and circumstances lead to different choices. Rational self-interest is not the same as selfishness.
Marginalism – benefits, and costs: Most decisions concern a change in current conditions; therefore the economic perspective is largely focusing on marginal analysis. Each option considered weighs the marginal benefit against the marginal cost. Whether the decision is personal or one made by business or government, the principle is the same. The marginal cost of action should not exceed its marginal benefits. There is “no free lunch” and there can be “too much of a good thing.”
Why Study Economics?
The below are;
Economics of citizenship: Most political problems have an economic aspect, whether it is balancing the budget, fighting over the tax structure, welfare reform, international trade, or concern for the environment. Both the voters and the elected officials can fulfill their role more effectively if they have an understanding of economic principles.
Professional and personal applications: The study of economics helps to develop an individual’s analytical skills and allows students to better predict the logical consequences of their actions. Economic principles enable business managers to make more intelligent decisions. Economics can help individuals make better buying decisions, better employment choices, and better financial investments. Economics is, however, mainly an academic, not a vocational subject. Its primary objective is to examine problems and decisions from a social rather than a personal point of view. It is not a series of “how to make money” examples.
Methods of Economics:
Some of the most important methods of economic analysis are as follows:
Deductive Method, and.
Inductive Method.
Economic generalizations describe the laws or statements of tendencies in various branches of economics such as production, consumption, exchange, and distribution of income. In the view of Robbins, economic generalizations or laws are statements of uniformities that describe human behavior in the allocation of scarce resources between alternative ends.
The generalizations of economics like the laws of other sciences, state cause and effect relationships between variables and describe those economic hypotheses which have been found consistent with facts or, in other words, are true by empirical evidence. But a distinction may draw between a generalization (law) and a theory.
A law or generalization just describes the relationship between variables; it does not provide any explanation of the described relation. On the other hand, a theory explains the stated relation between the variables, that is, it brings out the logical basis of the generalization. Economic theory or a model derives a generalization through the process of logical reasoning and explains the conditions under which the stated generalization will hold.
The deductive method is known as the analytical abstract a priori method. Here we start with certain formal data and assumptions. Then by logical reasoning, we arrive at certain conclusions. We start with undisputed fundamental facts and after adding some assumptions we build up a theory. For instance, it is assumed that businessmen aim at maximum profit. It follows from this that businessmen buy the materials in the cheapest market and sell them in the dearest market.
In the Deductive method of Economic Analysis, we proceed from the general to the particular. This is also known as a hypothetical method for some of the assumptions that may not correspond to facts, but very near facts which may use as the premise for starting, reasoning and drawing conclusions. In economics, we start with very simple premises and work up gradually or more and more complex hypotheses.
In this method, economists proceed from a practical angle to problems of science to reduce the gulf between theory and practice. Induction is done by two forms, viz. experimentation and statistical form. Facts are collecting first, arrange and conclusions are drawn. Then these general conclusions are further verified concerning facts.
The inductive method is generally associating with the statistical form of inductions. The statistical approach has a larger field in economic investigations than the method of experimentation. Further, the method of statistical induction is indispensable for the formulation of economic policy. Malthus presented his famous theory of population only after studying the facts of the population in various countries; He then used statistics to support his theory. Similarly, Engel, the German statistician employed the inductive method and used statistics to formulate his law of consumption.
The Inductive method can apply in two distinct ways:
The experimental method, and.
Statistical method.
Deductive or Inductive?
From the above discussion, we can infer that there is no point in pleading one method against the other. The two methods have to make use of or blended to achieve the required objective. The two methods, deductive and inductive, are not competitive, but complementary helping the investigator. Explain are Economics is a Science and Art?
Just, like any other matter, the issue, whether the deductive method is to refer to the inductive method or vice versa, became a raging controversy in the last century. The classical school of Britain represented by David Ricardo, Malthus, J.S.Mill, N.Senior, etc., strongly advocated deduction and affirmed their support in deductive methodology. On the contrary, the Historical School in Germany represented by Carl Knies, Roscher, Hildebrand, etc., affirmed faith in an inductive method. The controversy over methodology went on until Alfred Marshall brought about a compromise.
What is Science? Science is a systematized body of knowledge ascertainable by observation and experiment. It is a body of generalizations, principles, theories or laws which traces out a casual relationship between causes and results. Also learn, Explain is What is Economics? Meaning and Definition of Criticisms! Economics is a Science and Art!
There is a great controversy among the economists regarding the nature of economics, whether the subject ‘economics’ is considered as science or an art.
Before we start discussing whether economics is science or not, it becomes necessary to have a clear idea about science. Science is a systematic study of knowledge and fact which develops the correlation-ship between cause and effect. Science is not only the collection of facts, according to Prof. Poincare, in reality, all the facts must be systematically collected, classified and analyzed.
There are following characteristics of any science subject, such as;
(i) It is based on systematic study of knowledge or facts;
(ii) It develops correlation-ship between cause and effect;
(iii) All the laws are universally accepting
(iv) All the laws are tested and based on experiments;
(v) It can make future predictions;
(vi) It has a scale of measurement.
On the basis of all these characteristics, Prof. Robbins, Prof Jordon, Prof. Robertson etc. claim economics as one of the subjects of science like physics, chemistry etc.
According to all these economists, ‘economics’ has also several characteristics similar to other science subjects.
(i) Economics is also a systematic study of knowledge and facts. All the theories and facts related to both micro and macroeconomics are systematically collected, classified and analyzed.
(ii) Economics deals with the correlation-ship between cause and effect. For example, supply is a positive function of price, i.e., change in price is the cause but change in supply is the effect.
(iii) All the laws in economics are also universally accepted, like, the law of demand, supply, diminishing marginal utility etc.
(iv) Theories and laws of economics are based on experiments, like, the mixed economy to is an experimental outcome between capitalist and socialist economies.
(v) Economics has a scale of measurement. According to Prof. Marshall, ‘money’ is used as the measuring rod in economics. However, according to Prof. A.K. Sen, Human Development Index (HDI) is used to measure the economic development of a country.
However, the most important question is whether economics is a positive science or a normative science? Positive science deals with all the real things or activities. It gives the solution what is? What was? What will be? It deals with all the practical things. For example, poverty and unemployment are the biggest problems in India. The life expectancy of birth in India is gradually rising. All these above statements are known as positive statements. These statements are all concerned with real facts and information.
On the contrary, normative science deals with what ought to be? What ought to have happened? Normative science offers suggestions to the problems. The statements dealing with these suggestions are coming under normative statements. These statements give the ideas about both good and bad effects of any particular problem or policy. For example, illiteracy is a curse for the Indian economy. The backwardness of Indian economy is due to ‘population explosion’.
Now an important question arises whether economics is a positive science or a normative science? The economists like Prof. Senior (classical economist) and Prof. Robbins, Prof. Freight-men (modern economists) claimed that economics is a positive science. However, Prof. Pigou (classical economist). Prof. Marshall (neoclassical economist) etc. are of opinion that economics is a normative science.
#Economics and Positive Science:
The following statements can ensure economics as a positive science, such as;
(i) Logically based:
The ideas of economics are based on absolute logical clarifications and moreover, it develops the relationship between cause and effect.
(ii) Labour Specialisation:
Labour law is an important topic of economics. It is based on the law of specialization of labor Economists must concern with the causes and effects of labor-division.
(iii) Not Neutral:
Economics is not a neutral between positive and normative sciences. According to most economists, economics is merely positive science rather than normative science.
#Economics and Normative Science:
The following statements can ensure economics as a normative science, such as,
(i) Emotional View:
A rational human being has not only logical view but also has sentimental attachments and emotional views regarding any activity. These emotional attachments are all coming under normative statements. Hence, economics is a normative science.
(ii) Welfare Activity:
Economics is a science of human welfare, All the economic forwarded their theories for the development of a human standard of living Hence, all the economic statements have their respective normative views.
(iii) Economic Planning:
Economic planning is one of the main instruments of economic development. Several economists have given their personal views on the successful implementation of the economic plan. Hence, economics is coming under normative science.
All these lead us to the conclusion that ‘Economics’ is both positive and normative science. It does not only tell us why certain things happen however, it also gives an idea whether it is the right thing to happen.
#Economics as an Art:
According to Т.К. Mehta, ‘Knowledge is science, the action is art.’ According to Pigou, Marshall etc., economics is also considered as an art. In another way, art is the practical application of knowledge for achieving particular goals. Science gives us principles of any discipline however, art turns all these principles into reality. Therefore, considering the activities in economics, it can claim as an art also, because it gives guidance to the solutions of all the economic problems.
Therefore, from all the above discussions we can conclude that economics is neither a science nor an art only. However, it is a golden combination of both. According to Cossa, science and art are complementary to each other. Hence, economics is considered as both a science as well as an art.
For Example: When an economy faces the problem of overpopulation, the economists explain its causes like illiteracy, sociological and cultural set-up, early marriages, the desire of having a good number of children, lack of access to birth control centers, reduced deaths rate, religious considerations, etc. This analysis is said to be positive economics or science.
When economists suggest controlling birthrate by late marriages, education, changing social and cultural set-up, the higher standard of living by less number of children, providing door to door birth control facilities, etc. this is said to be normative economics or science.
When government implements all this suggestions and people act upon and take care by different means and actions it becomes art. Thus, economics is a science as well as an art.
Reference
1. Science and Art – //www.economicsdiscussion.net/economics-2/nature-of-economics-economics-as-a-science-and-an-art/1982 2. Example – //okionomia.blogspot.in/2010/11/is-economics-science-or-art-economics.html 3. Photo Credit URL – //www.sciencefriday.com/wp-content/uploads/2016/03/Glacier_updated.jpg
Learn, What is Economics? Meaning and Definition, with Few different Author and their Criticisms!
Economics is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behavior and interactions of economic agents and how economies work. Microeconomics analyzes basic elements of the economy, including individual agents and markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyzes the entire economy (meaning aggregated production, consumption, savings, and investment) and issues affecting it, including unemployment of resources (labor, capital, and land), inflation, economic growth, and the public policies that address these issues (monetary, fiscal, and other policies). Also learn, What is Demand? Meaning and Definition! What is Economics? Meaning and Definition, with Criticisms!
Meaning of Economics!
Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices on allocating resources to satisfy their wants and needs and try to determine how these groups should organize and coordinate efforts to achieve maximum output.
Economic analysis often progresses through deductive processes, much like mathematical logic, where the implications of specific human activities are considered in a “means-ends” framework.
Economics can generally be broken down into macroeconomics, which concentrates on the behavior of the aggregate economy, and microeconomics, which focuses on individual consumers. Also read, What is Accounting? Meaning and Definition!
Simple Definition of Economics!
The theories, principles, and models that deal with how the market process works. It attempts to explain how wealth is created and distributed in communities, how people allocate resources that are scarce and have many alternative uses, and other such matters that arise in dealing with human wants and their satisfaction.
Few Definition of Economics!
The following points highlight the top four definitions of Economics. The definitions are:
1. General Definition of Economics:
The English word economics is derived from the ancient Greek word oikonomia—meaning the management of a family or a household.
It is thus clear that the subject economics was first studied in ancient Greece.
What was the study of household management to Greek philosophers like Aristotle (384-322 BC) was the “study of wealth” to the mercantilists in Europe between the sixteenth and eighteenth centuries?
Economics, as a study of wealth, received great support from the Father of economics, Adam Smith, in the late eighteenth century.
Since then, the subject has traveled a long and this Greek or Smithian definition serves our purpose no longer. Over the passage of time, the focus of attention has been changed. As a result, different definitions have evolved.
These definitions can conveniently be grouped into three:
(i) Smith’s Wealth definition;
(ii) Marshall’s Welfare definition; and
(iii) Robbins’ Scarcity definition.
2. Adam Smith’s Wealth Definition:
The formal definition of economics can be traced back to the days of Adam Smith (1723-90) — the great Scottish economist. Following the mercantilist tradition, Adam Smith and his followers regarded economics as a science of wealth which studies the process of production, consumption, and accumulation of wealth.
His emphasis on wealth as a subject-matter of economics is implicit in his great book— ‘An Inquiry into the Nature and Causes of the Wealth of Nations or, more popularly known as ‘Wealth of Nations’—published in 1776.
According to Smith: “The great object of the Political Economy of every country is to increase the riches and power of that country.” Like the mercantilists, he did not believe that the wealth of a nation lies in the accumulation of precious metals like gold and silver.
To him, wealth may be defined as those goods and services which command value-in-exchange. Economics is concerned with the generation of the wealth of nations. Economics is not to be concerned only with the production of wealth but also the distribution of wealth. The manner in which production and distribution of wealth will take place in a market economy is the Smithian ‘invisible hand’ mechanism or the ‘price system’. Anyway, economics is regarded by Smith as the ‘science of wealth.’
Other contemporary writers also define economics as that part of knowledge which relates to wealth. John Stuart Mill (1806-73) argued that economics is a science of production and distribution of wealth. Another classical economist Nassau William Senior (1790-1864) argued: “The subject-matter of the Political Economics is not Happiness but Wealth.” Thus, economics is the science of wealth. However, the last decade of the nineteenth century saw a scathing attack on the Smithian definition and in its place, another school of thought emerged under the leadership of an English economist, Alfred Marshall (1842-1924).
Criticisms – Following are the main criticisms of the classical definition:
i. This definition is too narrow as it does not consider the major problems faced by a society or an individual. Smith’s definition is based primarily on the assumption of an ‘economic man’ who is concerned with wealth-hunting. That is why critics condemned economics as ‘the bread-and-butter science’.
ii. Literary figures and social reformers branded economics as a ‘dismal science’, ‘the Gospel of Mammon’ since Smithian definition led us to emphasize on the material aspect of human life, i.e., generation of wealth. On the other hand, it ignored the non-material aspect of human life. Above all, as a science of wealth, it taught selfishness and love for money. John Ruskin (1819-1900) called economics a ‘bastard science.’ The Smithian definition is bereft of changing reality.
iii. The central focus of economics should be on scarcity and choice. Since scarcity is the fundamental economic problem of any society, the choice is unavoidable. Adam Smith ignored this simple but essential aspect of any economic system. Similar, What is Economics of Development? Meaning and Definition!
3. Marshall’s Welfare Definition:
Alfred Marshall in his book ‘Principles of Economics published in 1890 placed emphasis on human activities or human welfare rather than on wealth. Marshall defines economics as “a study of men as they live and move and think in the ordinary business of life.” He argued that economics, on one side, is a study of wealth and, on the other, is a study of man.
Emphasis on human welfare is evident in Marshall’s own words: “Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of the individual and social action which is most closely connected with the attainment and with the use of the material requisites of well-being.”
Thus, “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.” According to Marshall, wealth is not an end in itself as was thought by classical authors; it is a means to an end—the end of human welfare.
This Marshallian definition has the following important features:
i. Economics is a social science since it studies the actions of human beings.
ii. Economics studies the ‘ordinary business of life’ since it takes into account the money-earning and money-spending activities of man.
iii. Economics studies only the ‘material’ part of human welfare which is measurable in terms of the measuring rod of money. It neglects other activities of human welfare not quantifiable in terms of money. In this connection A. C. Pigou’s (1877- 1959)—another great neo-classical economist—definition is worth remembering. Economics is “that part of social welfare that can be brought directly or indirectly into relation with the measuring rod of money.”
iv. Economics is not concerned with “the nature and causes of the Wealth of Nations.” The welfare of mankind, rather than the acquisition of wealth, is the object of primary importance.
Criticisms: Though Marshall’s definition of economics was hailed as a revolutionary one, it was criticised on several grounds. They are:
i. Marshall’s notion of ‘material welfare’ came in for sharp criticism at the hands of Lionel Robbins (later Lord) (1898- 1984) in 1932. Robbins argued that economics should encompass ‘non- material welfare’ also. In Real life, it is difficult to segregate material welfare from non-material welfare. If only the ‘materialist’ definition is accepted, the scope and subject-matter of economics would be narrower, or a great part of the economic life of man would remain outside the domain of economics.
ii. Robbins argued that Marshall could not establish a link between economic activities of human beings and human welfare. There are various economic activities that are detrimental to human welfare. The production of war materials, wine, etc., are economic activities but do not promote the welfare of any society. These economic activities are included in the subject-matter of economics.
iii. Marshall’s definition aimed at measuring human welfare in terms of money. But ‘welfare’ is not amenable to measurement since ‘welfare’ is an abstract, subjective concept. Truly speaking, money can never be a measure of welfare.
iv. Marshall’s ‘welfare definition’ gives economics a normative character. A normative science must pass on value judgments. It must pronounce whether a particular economic activity is good or bad. But economics, according to Robbins, must be free from making the value judgment. Ethics should make value judgments. Economics is a positive science and not a normative science.
v. Finally, Marshall’s definition ignores the fundamental problem of scarcity of any economy. It was Robbins who gave a scarcity definition of economics. Robbins defined economics in terms of allocation of scarce resources to satisfy unlimited human wants.
4. Robbins’ Scarcity Definition:
The most accepted definition of economics was given by Lord Robbins in 1932 in his book ‘An Essay on the Nature and Significance of Economic Science. According to Robbins, neither wealth nor human welfare should be considered as the subject-matter of economics. His definition runs in terms of scarcity: “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
From this definition, one can build up the following propositions:
(i) Human wants are unlimited; wants multiply—luxuries become necessities. There is no end of wants. If food were plentiful, if there were enough capital in the business, if there were abundant money and time—there would not have been any scope for studying economics. Had there been no wants there would not have been any human activity. Prehistoric people had wanted. Modern people also have wanted. Only wants change—and they are limitless.
(ii) The means or the resources to satisfy wants are scarce in relation to their demands. Had resources been plentiful, there would not have been any economic problems. Thus, scarcity of resources is the fundamental economic problem to any society. Even an affluent society experiences resource scarcity. The scarcity of resources gives rise to many ‘choice’ problems.
(iii) Since the prehistoric days, one notices constant effort of satisfying human wants through the scarcest resources which have alternative uses. The land is scarce in relation to demand. However, this land may be put to different alternative uses.
A particular plot of land can be either used for jute cultivation or steel production. If it is used for steel production, the country will have to sacrifice the production of jute. So, resources are to be allocated in such a manner that the immediate wants are fulfilled. Thus, the problem of scarcity of resources gives rise to the problem of choice.
Society will have to decide which wants are to be satisfied immediately and which wants are to be postponed for the time being. This is the choice problem of an economy. Scarcity and choice go hand in hand in each and every economy: “It exists in the one-man community of Robinson Crusoe, in the patriarchal tribe of Central Africa, in medieval and feudalist Europe, in modern capitalist America and in Communist Russia.”
In view of this, it is said that economics is fundamentally a study of scarcity and of the problems to which scarcity gives rise. Thus, the central focus of economics is on opportunity cost and optimization. This scarcity definition of economics has widened the scope of the subject. Putting aside the question of value judgment, Robbins made economics a positive science. By locating the basic problems of economics — the problems of scarcity and choice — Robbins brought economics nearer to science. No wonder, this definition has attracted a large number of people into Robbins’ camp.
The American Nobel Prize winner in Economics in 1970, Paul Samuelson, observes: “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 near future, among various people and groups in society.”
Criticisms: This does not mean that Robbins’ scarcity definition is fault free. His definition may be criticised on the following grounds:
i. In his bid to raise economics to the status of a positive science, Robbins deliberately downplayed the importance of economics as a social science. Being a social science, economics must study social relations. His definition places too much emphasis on ‘individual’ choice. Scarcity problem, in the ultimate analysis, is the social problem—rather an individual problem. Social problems give rise to social choice. Robbins could not explain social problems as well as social choice.
ii. According to Robbins, the root of all economic problems is the scarcity of resources, without having any human touch. Setting aside the question of human welfare, Robbins committed a grave error.
iii. Robbins made economics neutral between ends. But economists cannot remain neutral between ends. They must prescribe policies and make value judgments as to what is good for the society and what is bad. So, economics should pronounce both positive and normative statements.
iv. Economics, at the hands of Robbins, turned to be a mere price theory or microeconomic theory. But other important aspects of economics like national income and employment, the banking system, taxation system, etc., had been ignored by Robbins.
That is why the Robbinsian definition is more popular: Economics is the science of making choices. Modern economics is a science of rational choice or decision-making under conditions of scarcity.
Reference
1. What is Economics – //en.wikipedia.org/wiki/Economics 2. Meaning of Economics – //www.investopedia.com/terms/e/economics.asp 3. Simple Definition of Economics – //www.businessdictionary.com/definition/economics.html 4. Definition by Economist – //www.economicsdiscussion.net/economics-2/definitions/top-4-definitions-of-economics-with-conclusion/14134 5. Photo Credit URL – //telecoms.report/wp-content/uploads/2018/01/cropped-iStock-616902766.jpg
Economics of Development (ED):Economic development is the process by which a nation improves the economic, political, and social well-being of its people. The term has used frequently by economists, politicians, and others in the 20th and 21st centuries. The concept, however, has been in existence in the West for centuries. Modernization, Westernization, and especially Industrialization are other terms people have used while discussing economic development. Economics development has a direct relationship with the environment and environmental issues. Also Learn, How to explain Nature of Business Economics? Economics of Development, Meaning, and Definition!
Learn, Economics of Development, Meaning, and Definition!
Definition of ED? Progress in an economy, or the qualitative measure of this. Economic development usually refers to the adoption of new technologies. The transition from agriculture-based to an industry-based economy, and general improvement in living standards.
About Economics of Development, Many developing countries suffer from endemic poverty, slow economic growth, unequal distribution of income and wealth. Low levels of agricultural and industrial investment, and ineffective government services. Compounding, and partly giving rise to, these problems are shocks emanating from the world economy.
The Economics of Development (ECD) major provides students with the theoretical knowledge, policy awareness. And, analytical techniques to tackle many of the key issues facing their countries in respect of Economics Development and economic policy analysis. The major integrates macroeconomic issues with the underlying microeconomic processes, emphasizing the importance of, on the one hand.
Extra things:
The global economic environment and, on the other hand, domestic institutions, regulatory frameworks, and socio-economic groups. It pays particular attention to the impact of international and domestic economic policies on growth, poverty and income distribution in developing countries. And, seeks to bring out the fundamental linkages between economic growth and human development.
The approach to teaching in the ECD major has a strong comparative element; both in terms of theoretical perspectives on development problems and policies as well as the experiences of different countries. Global and individual country studies and policy briefs, drawn from an array of research institutions and organizations, are used to help students see how economic analysis can bring to bear upon key development problems.
After completing this major, students will have a solid knowledge of contemporary academic and policy-making debates in development. Including the different economics development perspectives underlying these debates. As a consequence, they will well prepare to better equipped to enter policy dialogues at the national level and international levels and engage in related policy research to provide new solutions to existing problems in a changing environment.
Economic development:
Is the development of the economic wealth of countries, regions or communities for the well-being of their inhabitants. From a policy perspective, economic development can define as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base.
Overview: There are significant differences between economic growth and economic development. The term “economic growth” refers to the increase (or growth) of a specific measure such as real national income, gross domestic product, or per capita income. National income or product is commonly expressed in terms of a measure of the aggregate value-added output of the domestic economy called gross domestic product (GDP). When the GDP of a nation rises economists refer to it as economic growth.
The term “economic development,” on the other hand, implies much more. It typically refers to improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates. GDP is a specific measure of economic welfare that does not take into account important aspects such as leisure time, environmental quality, freedom, or social justice. The economic growth of any specific measure is not a sufficient definition of economic development.
Local development:
The term “Economics Development” is often used in a regional sense as well (e.g., a mayor might say that “we need to promote the economic development of our city”). In this sense, economic development focuses on the recruitment of business operations in a region. Assisting in the expansion or retention of business operations within a region or assisting in the start-up of new businesses within a region.
In addition to economic models, the needs of constituency groups guide economic developer’s actions. For example, a local economic developer working out of a mayor’s office may act towards decreasing unemployment by attracting businesses with large labor needs (call centers). The economic developer working for the chamber of commerce dominated by banks.
Real estate agents and utilities will recruit manufacturers with large capital investments (steel and chemical plants). The economic developer working for the state manufacturers association will lobby for more workforce training money. An economic developer working for a university will concentrate on business start-ups. Specifically, those based on intellectual property developed by the university (biotech).
Their major areas:
In its broadest sense, economic development encompasses three major areas:
Policies that governments undertake to meet broad economic objectives such as price stability, high employment, expanded tax base, and sustainable growth. Such efforts include monetary and fiscal policies, regulation of financial institutions, trade, and tax policies.
Policies and programs to provide infrastructure and services. Such as highways, parks, affordable housing, crime prevention, and educational programs and projects.
Policies and programs explicitly directed at job creation and retention through specific efforts in business finance. Marketing, neighborhood development, small business start-up and development, business retention and expansion, technology transfer, workforce training, and real estate development. This third category is a primary focus of economic development professionals.
Economic developers:
Economic development, which is thus essentially economics on a social level, has evolved into a professional industry of highly specialized practitioners. The practitioners have two key roles: one is to provide leadership in policy-making, and the other is to administer policy, programs, and projects.
Economic development practitioners generally work in public offices on the state, regional, or municipal level, or in public-private partnerships organizations that may partially fund by local, regional, state, or federal tax money. These economic development organizations (EDOs) function as individual entities and in some cases as departments of local governments. Their role is to seek out new economic opportunities and retain their existing business wealth.
With more than 20,000 professional economic developers employed worldwide in this highly specialized industry. The International Economic Development Council [IEDC] headquartered in Washington, D.C. is a non-profit organization dedicated to helping economic developers do their job more effectively and raising the profile of the profession. With over 4,500 members across the US and internationally, serving exclusively the economic development community.
Extra things:
Membership represents the entire range of the profession ranging from regional, state, local, rural, urban, and international economic development organizations. As well as chambers of commerce, technology development agencies, utility companies, educational institutions, consultants and redevelopment authorities. Many individual states also have associations comprising economic development professionals and they work closely with IEDC.
There is intense competition between communities, states, and nations for new economic development. Projects in today’s globalized world and the struggle to attract and retain business is further intensified by the use of many variations of economic incentives to the potential business. There is significant attention placed on the various activities undertaken by economic development organizations to help them compete and sustain vibrant communities.
Additionally,
The uses of community profiling tools and database templates to measure community assets versus other communities is also an important aspect of economic development. Job creation, economic output, an increase in taxable basis are the most common measurement tools. When considering measurement, too much emphasis was placed on economic developers for “not creating jobs”.
However, the reality is that economic developers do not typically create jobs. But facilitate the process for existing businesses and start-ups to do so. Therefore, the economic developer must make sure that there are sufficient economic and community development programs in place to assist the businesses to achieve their goals. Those types of programs are usually policy-created and can local, regional, statewide and national.
What is the Economics of Development? Meaning and Definition.
Nature of Business Economics; A Traditional economic theory has developed along two lines; viz., normative, and positive. Normative focuses on prescriptive statements and helps establish rules aimed at attaining the specified goals of the business. Positive, on the other hand, focuses on the description it aims at describing how the economic system operates without staffing how it should operate.
Here is the article, How to explain the Nature of Business Economics?
The emphasis in business economics is on normative theory. Business economic seeks to establish rules which help business firms attain their goals, which indeed is also the essence of the word normative. However, if the firms are to establish valid decision rules, they must thoroughly understand their environment [Hindi]. This requires the study of positive or descriptive theory. Thus, Business economics combines the essentials of the normative and positive economic theory, the emphasis being more on the former than the latter.
Understanding the Characteristics or Nature of Business Economics
The following nature are below;
Microeconomic nature: Business Economics is Microeconomics in nature because it deals with the matters of a particular business firm only.
Use of economic theories: Business Economics uses all economic theories relating to the profits, distribution of income, etc.
Realistic one: Business Economics is real science. It studies all matters concerning business organization by considering the real conditions existing in the business field.
Normative Science: Business Economics is a normative science. It studies the matters concerning the aims and objectives of a business firm. Determines the methods to be adopted for achieving such objectives. It also makes an inquiry into the good and bad in decision making. Hence it is a normative science.
Use of Macroeconomics: Even though Business Economics has the nature of Microeconomics, it also uses Macroeconomics approaches frequently. Certain matters in Macroeconomics like business cycles, national income, public finance, foreign trade, etc. which are essential for Business Economics. So, Business Economics uses the Macro Economics phenomenon for taking business decisions.
Another five Main Characteristics of Business Economics
Some of the main characteristics of business economics are as follows:
Micro in Nature:
Business economics is microeconomics in nature. This is due to the study of business economics mainly at the level of the firm. Generally, a business manager is concerned with the problems of his business unit. He does not study the economic problems of an economy as a whole.
The basis of Theory of Markets and Private Enterprises:
Business economics largely uses the theory of markets and private enterprise. It uses the theory of the firm and resource allocation of the private enterprise economy.
Pragmatic in Approach:
Business economics is pragmatic in its approach. It does not involve itself with the theoretical controversies of economics. Yet it does not relegate the realities of business decision-making to the background by bringing in abstract assumptions. While economic theory abstracts from realities of the individual business units to build up its theories, managerial economics takes proper note of the particular economic environment in which a firm works.
Normative in Nature:
Business economics is also called normative economics which prescribes standards or norms for policymaking. Business economics is prescriptive rather than descriptive. Economic theory, we try to explain economic behavior: Business economics, we try to prescribe policies for a business manager which are most likely applied to achieve his objectives. In economic theory, we build ‘laws’ such as the law of Demand and the Law of Diminishing Returns. In business economics, we apply these laws for policy planning at the level of a firm.
Macro Analysis:
Macroeconomics which deals with the principles of economic behavior for the economy as a whole is also useful for business economics. A business unit operates within some economic environment which is in turn shaped by the behavior of the economy as a whole. Therefore, a business manager must know the external forces working in his business environment.
Demand is an economic principle that describes a consumer’s desire and also willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease demand, and vice versa. What is Glocalization? Meaning, Definition!
Here are discuss What is Demand? Meaning and Definition!
In economics, demand is the quantity of a commodity or a service that people are willing or able to buy at a certain price, per unit of time. The relationship between price and quantity demands stands also known as the demand curve. Preferences and choices, which underlie demand, can represent functions of cost, benefit, odds, and other variables. Determinants of (Factors affecting) demand Innumerable factors and also circumstances could affect a buyer’s willingness or ability to buy a good.
Some of the common factors are:
The following are below;
Good’s own price:
The basic demands relationship is between the potential prices of a good and the quantities that would purchase at those prices. Generally, the relationship is negative meaning that a price increase will induce a decrease in the quantity demands. This negative relationship is embodied in the downward slope of the consumer demand curve. Also, The assumption of a negative relationship is reasonable and intuitive. If the price of a new novel is high, a person might decide to borrow the book from the public library rather than buy it.
Price of related goods:
The principal related goods are complements and substitutes. A compliment is a good that uses for the primary good. Examples include hot dogs and mustard, beer and pretzels, automobiles, and gasoline. Perfect complements behave as a single good. If the price of the complement goes up the quantity demanded of the other good goes down.
Definition of Demand:
The following definitions below are;
Commerce: A claim for a sum of money as due, necessary, or require.
Economics: (1) Desire for certain good or service support by the capacity to purchase it. (2) The aggregate quantity of a product or service estimated to be bought at a particular price. (3) The total amount of funds which individuals or organizations want to commit to spending on goods or services over a specific period.
The Law: An assertion of a legal right, such as to seek compensation or relief.
The amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price. The demand curve is usually downward sloping since consumers will want to buy more as the price decreases. Demand for a good or service exists determined by many different factors other than prices, such as the price of substitute goods and complementary goods. In extreme cases, demand may be completely unrelated to price, or nearly infinite at a given price. Along with supply, it is one of the two key determinants of the market price.
Another Definition:
Demand in economics is how many goods and services are being at various prices during a certain period. It is the consumer’s need or desire to own the product or experience the service. It’s constrained by the willingness and also the ability of the consumer to pay for the good or service at the price offered.
They are the underlying force that drives everything in the economy. Fortunately for economics, people exist never satisfied. Also, They always want more. This drives economic growth and expansion. Without demand, no business would ever bother producing anything.
What are Fundamentals of Economics? Meaning and Definition!
Economics is the study of how these scarce and limit resources are used to make way for unlimited material wants and needs of human being. Broadly, economics is concerned with material things and how people make decisions about these things. Learn Fundamentals of Economics. It studies the subject of having and not having various material things in our life. The field of economics is extensive. It is also ever growing. Economists are willing to examine almost anything that affects the material aspects of human life. Most often, the economists voice concern over unemployment, inflation, interest rates, labor problems, government regulation, energy and international trade. The list of what interests the economists goes on and on and cannot exhaust. Different Types of Risk Faced by Banks Today!
The Fundamentals of Economics
Factors of Income, Economic Policy, Economic Systems, Demand-Supply and the Determination of Price, Macro Economics and Micro Economics, Unemployment and Full Employment, Inflation and Stable Prices, Inflation and the Interest Rate Fiscal and Monetary Policy, The Money Supply. Why are the Need Entrepreneurship for Small Business?
The word ‘fundamental’ has the meaning of basics. When it comes to economics, it indicates the most basic macroeconomic indexes such as economic growth rate, inflation rate, and unemployment rate. Those most basic indexes compose fundamentals of one country and this so-called ‘fundamentals’ best describe the economic status of a country. To put it simply, it shows how strong one’s economy is; whether it’s weak or strong. It can refer to as stamina of a person. To run fast and long, we have to equip ourselves with strong fitness or we would collapse in no time. That’s what happened to emerging markets now. Once it was forecast that emerging markets are ready to run with strong fundamentals, which turn out to bogus. The reason this happened was that it’s hard to estimate fundamentals accurately. We chose to optimistic, and now we sank in the mire.
Korea’s fundamentals are also yet to determine strong. The positive factors that constitute strong fundamentals of Korean economy are vast foreign exchange reserves amounting to over 300 billion dollars. Trade balance surplus, and soundness of government finance. On the other hand, there are also threatening factors such as high household debt. The high percentage of foreign investment in the domestic stock market. In general, Korea’s fundamentals are evaluating to strong enough but it is not reassuring.
Financial Services Commission Chairman Shin Je-Yoon, made a remark on Korea’s fundamentals. “Considering US quantitative easing tapering, Korea’s economic fundamentals are sound and strong, unlike other emerging markets. But we have to scrutinize its impact and route. In this time of crisis, we should prepare not only to microeconomic threats. Which are easily noticeable but also to macroeconomic threats. Also, we should check four systematic risks: tipping effect in the economy, economic volatility, macroeconomic soundness, and mutual relationship with foreign nations.” He also emphasized that Korea should prepare a system that can pre-examine those threats and joint efforts of the Financial Services Commission. Financial Supervisory Service and Bank of Korea are needed.
