Eco B - 1
ECONOMICS
We may define economic activity as any action that helps in the satisfaction
of human wants. It is this activity which forms the subject-matter of the
study of economics.
Economics originally developed as a science of statecraft.
Definitions of economics:
1. Wealth definition - by Adam Smith approach/school/thought
2. Welfare definition - by Alfred Marshall
3. Scarcity definition – by Lionel Robbins
4. Growth definition – by Paul A. Samuelson
1 Wealth definition – Wealth has always assumed‫ تظاهر کردن‬a significant
role to control and regulate the economic activity. But with the development
of trade, industry and commerce, the role of wealth has become more
dominant‫غالب‬. Economists in the 18th and the early 19th centuries had defined
economics as that part of knowledge which relates to wealth.
Adam Smith defined economics as “a science which studies the nature and
causes of the wealth of nations”.
2 Welfare ‫ آسایش‬definition – Alfred Marshall defined economics as:
“Political economy or Economics is a 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 ‫حصول‬and with the use of the
material requisites ‫ احتیاج‬of 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
man”.
Marshall was the first to realize the significance of human welfare. He
believed that wealth is not an end in itself, it is a means to an end, the
ultimate ‫نهایی‬end being human welfare.
3. Scarcity ‫ کمیابی‬Definition – Lionel Robbins defined economics as ;
“Economics is the science which studies human behavior as a
relationship between ends and scarce means which have alternative uses.”
The definition of Robbins bring home the following fundamental conditions:
 Economics is a science – a positive science – because it studies how
human beings adjust their multiple wants to scarce means.
 Economics studies human behavior.
 Ends – Ends refer to the human wants which are unlimited.
 Scarce means – Human wants are unlimited while the means (material
resources) to satisfy them are limited.
4. Growth Definition - Professor Paul A. Samuelson has propounded ‫اریرایه‬
‫ کردن‬the growth-centered definition of economics;
“Economics is the study of how man and society choose, with or without the
use of money, to employ scarce productive resources which could have
alternative uses, to produce various commodities‫ وسیله مناسب‬over time and
distribute them for consumption ‫مصرف‬now and in future among various
people and groups of society.’
MICRO ECONOMICS
Micro and macro have come to be known as two important approaches to the
economic analysis. Micro has been taken from the Greek word ‘Mikros’
which means small. Professor Ragner Frisch coined this term for the first
time in 1933, and since then it has become an important approach of
economic analysis.
“Micro economics is the study of particular firm, particular household,
individual price, wage, income, industry and particular commodity”. (K.
E. Boulding)
Scope ‫ هدف‬of Micro Economics:
Scope of Micro
Economics
Theory of Demand
Theory of Production
Theory of Price Determination
Theory of Factor Pricing
1. Theory of Demand : In the theory of demand we study the concept of
individual demand and market demand, elasticity of demand, equimarginal principle, consumer’s surplus, etc.
2. Theory of Production : It deals with various factors of production,
production function, optimum combination of inputs to maximize the
output, returns to a variable factor and returns to scale.
3. Theory of Price Determination : It deals with the determination of
commodity price by a firm under different market structures.
4. Theory of factor pricing : It deals with the determination of rent,
wages, interest and profit.
Significance of Economics:
1. Significance for academicians ; Economics is logical and systematic
science. Economic theory explains how production takes place, how
goods are exchanged and finally consumed.
2. Significance for consumers : The ultimate object of economics is to
promote human welfare. The law of substitution, for example, helps
consumers to maximize their satisfaction from a given income.
3. Significance for the producers ; The aim of producers is to find out
the least cost combination. The study of economic theory helps
producers to choose the level of output that maximizes profits.
4. Significance in price determination : Theory of price is the most
important part of economic theory. Pricing of products is a very
difficult decision that the firms have to take under the different market
conditions. So economic theory suggest at what time what price
should be determined for a unit of commodity at different conditions.
5. Solves problems of income distribution – Distribution of national
income among the different factors of production is the most sensitive
and difficult problem. The theory of distribution suggests that every
factor should be paid according to its marginal productivity.
6. Significance for the administrators – A successful administration is
one which offers maximum amenities to the citizens causing the least
burden on them. So a good tax-policy helps the administrator
(Government) in this regard.
7. Significance for the planners – Several countries have adopted the
technique of economic planning to accelerate the pace of their
economic growth.