Introduction to Economics
Contents
⚫ Learning Objectives
⚫ Meaning of Economics
- Microeconomics
- Macroeconomics
⚫ Different Concepts of Economics
- Wealth
- Welfare
- Scarcity
- Growth
Learning Objectives
⚫ To help for Identifying the main users and purview
of Microeconomics and Macroeconomics to
understand the problems in the economy.
⚫ To understand the various Concepts of Economics
for effective allocation of resources
Meaning of Economics
Economics is a science that studies human behavior which aims
at allocation of scarce/limited resources in such a way that :
⚫ Consumer can maximize their satisfaction.
⚫ Producers can maximize their profits.
⚫ Society can maximize its social welfare.
Features of Economics
• Study of Individual Organization/Firm
•Study of Aggregates
•Dynamic Science
• Study of Interdependence like income and demand
Need For Economics?
Scope of Economics
•Microeconomics:
•Macroeconomics:
Micro Economics
• Micro comes from Greek word mikros, means “Small”.
• Study of economic behavior of small economic units: -
An individual consumer
- An individual organization
- An individual market in an economy
• Deals with the economic interactions of a specific person, a
single entity, or a company for buying and selling goods ` in
markets.
Cont...
⚫ Main tools : Demand and Supply
• Aims to determine price of a commodity or factors of production.
• Example: Individual income, individual output, price of
a commodity etc.
• Important Components:
Theory of Consumer Behaviour or Theory of Demand
Theory of Supply
Price Theories
Macro Economics
• Macro comes from Greek word makros, means “Large”.
• Study of the performance, structure, behavior and decision-making
of an economy as a whole.
- Aggregate National Income
- Total Consumption
- Total Demand
- Total Saving and Investment
- Total employment
•Concerned with the problem of Unemployment, Economic
fluctuations, Inflation or deflation, International Trade and
Economic growth.
Cont...
• Aims to determine income and employment level of the
economy and to maximize national income and provide
national economic growth
• Main tools:
Aggregate Demand and Aggregate Supply
• For example: National Income, Aggregate output, Aggregate
consumption etc.
• Important Components:
Theory of Income and Employment
Theory of Inflation and Deflation
Monetary Policy, Fiscal Policy
Different Concepts of Economics
•Wealth Concept
•Welfare Concept
•Scarcity Concept
•Growth Concept
Wealth Concept
“Economics is the
Science of wealth”. • Adam Smith was an 18th-century Scottish
philosopher.
• He is considered the “Father of Modern
Economics”.
• Smith is most famous for his 1776
book, The Wealth of Nations.
• Smith's writings were studied by
20th-century philosophers, writers, and
economists.
Cont….
•Smith's ideas—the importance of Free Markets,
Assembly-line Production methods, and Gross Domestic
Product (GDP)—formed the basis for theories of classical
economics.
•Published a book titled ‘An Inquiry into the Nature and
Causes of the Wealth of Nations’ in 1776.
• According to Wealth Concept, “Economics is an Enquiry
into a Nature and Cause of Wealth Of Nations”.
Features of Wealth Concept
⚫ Consider only material goods. For eg., tangible goods
like cars, shoes, cloth, machines, buildings, wheat,
etc.
⚫ Science of study of wealth only, not concerned about
welfare of society.
⚫ Inquires the causes behind creation of wealth.
⚫ Study of Economic Man (a rational person who
pursues wealth and avoids unnecessary work by
Criticism of Wealth Concept
⚫ Considered economics as a dismal or selfish Science.
⚫ Defined wealth in a very narrow and restricted sense.
⚫ Considered only material and tangible goods.
⚫ Gave emphasis only to wealth and reduced man to
secondary place.
Welfare Concept
⚫ Alfred Marshall (1890)
⚫ “Economics is a study of mankind in the
ordinary business of life”.
⚫ Enquires how he gets his income and how he
uses it.
⚫ On one side, the study of wealth and on the other
side, a part of the study of man.
•Welfare Economics is the study of how the structure
of markets and the allocation of economic goods and
resources determine the overall well-being of society,
and….
•Welfare Economists seek to provide tools to guide
public policy to achieve beneficial social and economic
outcomes for all of society.
Features of Welfare Concept
◻ Paramount importance to Man
◻ Promote Human Welfare
◻ Study of Real Man (the figurative human being
characterized by the infinite ability to make rational
decisions).
◻ Normative Science (The price of milk should be $6 a
gallon to give dairy farmers a higher living standard and
to save the family farm)
Criticism of Welfare Concept
⚫ Welfare is a subjective term and it varies from person to
person.
⚫ It ignores immaterial activities like services of an actor, singer
etc.
⚫ Economy also includes harmful activities which are not good
for an individual. For eg. purchase and sale of liquor
etc…
Scarcity Concept
⚫ Lionel Robbins (1932)
⚫ “Economics is the science which studies
human behavior as a relationship between
ends and scarce means which have
alternative uses”.
Features of Scarcity Concept
⚫ Unlimited wants
⚫ Scarce means
⚫ Alternate uses of means.
⚫ Emphasis on choices
Criticism of Scarcity Concept
⚫ Does not focus on many important economic issues of Cyclical
Instability, Income Determination and Economic Growth &
Development.
⚫ Does not talk about social welfare.
⚫ Does not take into account the possibility of increase in
resources over time.
⚫ Economics has been treated as a Science of Scarcity only.
Growth Concept
⚫ Paul a. Samuelson (1948)
⚫ “ Economics is the Science which
studies human behaviour as:
⚫ A relationship between end and
scarce means
⚫ Means/Resources have alternative
uses and
⚫ Analyses Costs and Benefits of
improving patterns of recourse
allocation”.
Features of Growth Definition
⚫ Efficient Allocation of Resources
⚫ Adds dynamism by adding the problem of growth
⚫ Problem of Choice
⚫ Sustainable Development
Criticism
⚫ Does not take into account socio-economic and political
factors (for eg. Development Index like HDI, Gender
Development Index, Gender Inequality Index, Physical
Quality of Living Index etc..)
⚫ Neglected the role of service sector in the growth
trajectory of a nation.
Summary
• Scope of Economics
Micro: Individual
Macro: Aggregate
•Key Economic concepts (Features and Criticism)
•Wealth: Science of Wealth
•Welfare: Science of Mankind.
•Scarcity: Science of Ends and Means
•Growth: Science of Resource Allocation
To Conclude
Though each definition has its own essence and
importance, economics cannot be summed up in just a
“nutshell” of few words.
As economist Jacob Viner beautifully summed up,
“Economics is what Economists do.”
Video Links
https://youtu.be/2YULdjmg3o0
https://youtu.be/VxGwVEqPm_k
https://nptel.ac.in/courses/109/104/109104125/
https://onlinecourses.nptel.ac.in/noc21_hs52/preview
https://www.coursera.org/lecture/microeconomics/2-1-what-is-economics-oG
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