UNIT 1

General Principles : Economics as a science and its relevance to law; Economics as

a
basis of social welfare and social justice; and Free enterprise, planned economy
and
mixed economy.

# WHAT IS ECONOMICS

- The word ‘Economics’ was derived from two Greek words, oikos (a
house) and nemein (to manage) which would mean ‘managing an household
- Economics is the science that deals with production, exchange and
consumption of various commodities in economic systems. It shows how scarce
resources can be used to increase wealth and human welfare

---

# DEFINITIONS OF ECONOMICS

---

### **1. Wealth Definition – Adam Smith (1723–1790)**

- In his book *An Inquiry into the Nature and Causes of the Wealth of Nations*
(1776), defined economics as the **science of wealth**.
- Focus: creation of national wealth.
- Idea of the **“invisible hand”** → self-interest indirectly promotes social
interest.
- He explained how a nation’s wealth is created. He considered that the individual
in
the society wants to promote only his own gain and in this, he is led by an
“invisible hand” to promote the interests of the society though he has no real
intention to promote the society’s interests.

**Criticism:**

- Too materialistic → focused only on wealth, ignored human welfare.

- Ruskin & Carlyle condemned it as a “dismal science.”
- Wealth is only a means, not the end → welfare matters more.
- Smith defined economics only in terms of wealth and not in terms of
human welfare. Ruskin and Carlyle condemned economics as a ‘dismal science’,
as it taught selfishness which was against ethics. However, now, wealth is
considered only to be a mean to end, the end being the human welfare. Hence,
wealth definition was rejected and the emphasis was shifted from ‘wealth’ to
‘welfare’.

---

### **2. Welfare Definition – Alfred Marshall (1842–1924)**

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 and with the
use of the material requisites of well being”. The important features of
Marshall’s definition are as follows:

- In *Principles of Economics* (1890): *“Economics is a study of mankind in the

ordinary business of life…”*
- Focus: economic activities connected with human welfare.
Economics studies both individual and social actions aimed at promoting
economic welfare of people.

- He Distinctionb/w: **material goods** (rice, books) vs **immaterial goods**

(skills, services).

**Criticism:**

- Ignored immaterial services like teachers, doctors.

- Treated welfare vaguely — meaning differs across time & societies.
- Did not account for goods that reduce welfare but have value (e.g., liquor).

---

### **3. Scarcity Definition – Lionel Robbins (1898–1984)**

- In *An Essay on the Nature and Significance of Economic Science* (1932):

According to him, “economics is a science which

studies human behaviour as a relationship between ends and scarce means which
have alternative uses”. The major features of Robbins’ definition are as follows

- Key points:
- Human wants = unlimited (ends).
- Resources being limited = scarce (means) in supply, scarcity of a commodity,
if its demand is greater than its supply
- Resources have **alternative uses**, forcing **choice**.

scarce means are capable of having alternative use

**Criticism:**

- Economics reduced to resource allocation only → ignored welfare & growth.

- Neutral between good and bad wants (e.g., rice vs alcohol).
- Did not consider macro issues (national income, growth, employment).

---

### **4. Growth Definition – Paul Samuelson (1915–2009)**

Prof. Paul Samuelson defined economics as “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 among
various people and groups of society”.
The major implications of this definition are as follows:
a) Samuelson has made his definition dynamic by including the element of
time in it. Therefore, it covers the theory of economic growth.
b) Samuelson stressed the problem of scarcity of means in relation to
unlimited ends. Not only the means are scarce, but they could also be put to
alternative uses.
c) The definition covers various aspects like production, distribution and
consumption.
Of all the definitions discussed above, the ‘growth’ definition stated by
Samuelson appears to be the most satisfactory. However, in modern economics,
the subject matter of economics is divided into main parts, viz., i) Micro
Economics and ii) Macro Economics.
- Defined economics as the study of how societies use scarce resources with or
without money, **over time**, to produce and distribute goods for present & future
use.
- Focus: **dynamic, growth-oriented, comprehensive**.

**Merits:**

- Includes production, distribution, consumption.

- Considers **time element** → growth & development.
- Widely accepted as the most satisfactory modern definition.

---

## **II. Scope of Economics**

### **1. Economics as a Science and an Art**

- **As a Science:**

Economicis is a systematized body of knowledge that

traces the relationship between cause and effect. Another attribute of science is
that its phenomena should be amenable to measurement. Applying these
characteristics, we find that economics is a branch of knowledge where the
various facts relevant to it have been systematically collected, classified and
analyzed. Economics investigates the possibility of deducing generalizations as
regards the economic motives of human beings. The motives of individuals and
business firms can be very easily measured in terms of money. Thus, economics
is a science.

- Systematic study of cause & effect in human behavior.

- Measurable in money terms.
- Social science → studies group behavior (interdependence in global trade).
- Science is a **systematized body of knowledge** that explains cause-and-effect
relationships and can be verified through observation and reasoning.
- Features of science:
1. **Systematic study** of facts.
2. **Cause-and-effect relations** (e.g., law of demand: when price falls,
demand rises).
3. **Universal validity** (applies in most situations).
4. **Predictive power** (forecasts outcomes).

---

**Why Economics is Considered a Science**

- **Systematic body of knowledge:** Economics studies production, distribution, and

consumption in an organized way.
- **Cause-and-effect laws:** Example → Relationship between supply and demand
determines price.
- **Measurement:** Economic activities can be measured in terms of money (e.g.,
GDP, wages, inflation).
- **Methods of inquiry:** Uses both
- **Deductive method** (theory → facts),
- **Inductive method** (facts → theory).
- **Predictive power:** Helps forecast inflation, unemployment, growth trends, etc.

👉 Hence, economics qualifies as a **social science** (studies human behavior in

groups, unlike natural sciences).

**Is Economics an Exact Science?**

---

- **Not an exact science** like Physics or Chemistry because:

- Human behavior is unpredictable.
- Economic laws are **tendencies**, not certainties (e.g., law of demand may
not hold if goods are prestige items).
- It is a **social science**, where laws are generally true, but not universally
exact.

---

## **As an Art:**

Economics - **A Social Science:** In order to understand the social aspect of

economics, we should bear in mind that labourers are working on materials
drawn from all over the world and producing commodities to be sold all over the
world in order to exchange goods from all parts of the world to satisfy their
wants. There is, thus, a close inter-dependence of millions of people living in
distant lands unknown to one another. In this way, the process of satisfying
wants is not only an individual process, but also a social process. In economics,
one has, thus, to study social behaviour i.e., behaviour of men in-groups.
b) E**conomics is also an art.** An art is a system of rules for the attainment of
a
given end. A science teaches us to know; an art teaches us to do. Applying this
definition, we find that economics offers us practical guidance in the solution of
economic problems. Science and art are complementary to each other and
economics is both a science and an art.

- Science = to know, Art = to do.

- Economics applies principles to solve real problems (poverty, inflation).
- Hence, it is **both a science and an art**.

---

### **2 Positive and Normative Economics**

Economics can be studied from two different perspectives: **positive** and

**normative**. Both are essential for understanding and solving economic problems.

---

## **1. Positive Economics**

- **Definition:**

Positive economics is the branch of economics that deals with **objective facts
and cause-and-effect relationships**. It explains **“what is”** without making
value judgments.

- **Features:**
- Descriptive in nature.
- Deals with **facts, data, and reality**.
- Statements can be tested and verified.
- Free from personal opinions or moral judgments.
- **Examples:**
 - “An increase in money supply leads to inflation.”
- “India’s GDP grew by 6.5% last year.”
- “12% of the labor force in India was unemployed last year.”

👉 Positive economics **explains the world as it is.**

---

## **2. Normative Economics**

- **Definition:**

Normative economics is the branch of economics that deals with **value

judgments, opinions, and policy prescriptions**. It explains **“what ought to be”**
to promote welfare.

- **Features:**
- Prescriptive in nature.
- Involves **ethical values** and subjective opinions.
- Cannot be tested or verified scientifically.
- Provides **policy recommendations** for achieving social justice and welfare.
- **Examples:**
- “The government should reduce unemployment.”
- “The rich should be taxed more to reduce inequality.”
- “12% unemployment is too high and must be reduced.”

👉 Normative economics **suggests how the world should be.**

---

## **3. Relationship Between the Two**

- **Complementary nature:**
- Positive economics provides the **facts and analysis**.
- Normative economics uses those facts to **recommend policies**.
- **Example:**
- Positive: “India’s unemployment rate is 12%.”
- Normative: “The government should take steps to reduce unemployment below
5%.”

## **3. Methodology of Economics**

The **methodology of economics** refers to the techniques or approaches used to

study economic problems and derive economic laws or principles. Since economics is
a **science of human behavior**, it applies both **logical reasoning** and
**empirical observation**.

There are **two major methods**:

---

## **1. Deductive Method (Abstract/Analytical Method)**

- **Definition:**

Deduction is the method of reasoning **from the general to the particular**. It

begins with general principles or assumptions and logically deduces conclusions
about specific cases.
- **Process:**
1. Begin with a **premise/assumption** (e.g., people aim to maximize utility).
2. Use **logical reasoning** to derive specific laws or outcomes.
3. Apply results to real-world situations.
- **Example:**
- General principle: *If demand > supply, prices rise.*
- Application: A trader can earn profits when market demand exceeds supply.
- **Merits:**
- Saves time and effort.
- Useful for complex problems where controlled experiments are not possible.
- **Demerits:**
- Results depend heavily on validity of assumptions.
- If assumptions are unrealistic, conclusions may be misleading.

---

## **2. Inductive Method (Empirical/Statistical Method)**

- **Definition:**

Induction is the method of reasoning **from the particular to the general**. It

begins with **observations and data collection**, then develops general laws based
on patterns.

- **Process:**
1. Observe real-world facts and events.
2. Collect, classify, and analyze data statistically.
3. Derive generalizations or economic laws.
- **Example:**
- Collect consumption data of low, middle, and high-income groups.
- Generalize: *As income rises, proportion of income spent on food decreases
(Engel’s Law).*
- **Merits:**
- Based on real evidence.
- Produces results relevant to actual conditions.
- **Demerits:**
- Time-consuming and costly.
- Requires accurate and large data sets.

---

## **3. Complementarity of Both Methods**

- Deduction provides **theories and models**, while induction tests them with
**real data**.
- Example: Keynes’ theory of employment was partly deductive, but later tested
empirically using inductive methods.
- Modern economics uses a **combination** of both (e.g., econometrics blends logic
with statistical evidence).

# **4. Subject Matter of Economics**

Economics, as a discipline, studies how societies use scarce resources to satisfy

unlimited wants. Its subject matter can be analyzed under **two main approaches**:
the **Traditional Approach** and the **Modern Approach**.

---

## **(a) Traditional Approach**

In the classical and neo-classical periods, economists divided the subject matter
of economics into **five major divisions**:

### **1. Consumption**

- **Definition:** The process of using goods and services to satisfy human wants.
- **Key Idea:** Wants are unlimited, but satisfaction comes through consumption.
- **Examples:** Eating food, using electricity, watching a movie.
- **Law of Diminishing Marginal Utility:** As more units of a good are consumed,
the additional satisfaction from each unit decreases.

---

### **2. Production**

- **Definition:** Creation of **utility** (usefulness) by transforming resources

(land, labor, capital, entrepreneurship) into goods and services.
- **Factors of Production:**
1. **Land** → natural resources.
2. **Labor** → human effort.
3. **Capital** → man-made resources (machines, tools).
4. **Entrepreneurship** → organizer & risk-bearer.
- **Example:** Producing bread requires land (wheat), labor (bakers), capital
(ovens), and entrepreneurship (bakery owner).

---

### **3. Exchange**

- **Definition:** The process of buying and selling goods and services in the
market.
- **Key Idea:** Goods are not only produced for self-consumption but also for
exchange.
- **Medium:** Earlier barter system → now replaced by **money**.
- **Example:** Farmers sell wheat in exchange for money, which they use to buy
clothes, fuel, etc.

---

### **4. Distribution**

- **Definition:** Allocation of income among the factors of production that

contributed to the production process.
- **Rewards of Factors:**
- Land → Rent
- Labor → Wages
- Capital → Interest
- Entrepreneurship → Profit
- **Example:** In a textile factory → landowner gets rent, workers get wages,
investor gets interest, and entrepreneur earns profit.

---

### **5. Public Finance**

- **Definition:** Study of how governments collect revenue and spend it for the
welfare of society.
- **Key Aspects:**
 - **Public Revenue** → taxation, fees, borrowing.
- **Public Expenditure** → education, defense, healthcare, infrastructure.
- **Example:** Government imposing GST (revenue) and spending on free school meals
(expenditure).

---

✅ **Summary of Traditional Approach:**

Economics = study of **consumption, production, exchange, distribution, and public

finance**.

---

## **(b) Modern Approach**

In modern economics (20th century onward), the subject matter is classified into
**two main divisions**: **Microeconomics** and **Macroeconomics**.

---

### **1. Microeconomics** (“Price Theory” / “Small Economics”)

- **Definition:** The study of the **economic behavior of individual units** such

as households, firms, and industries.
- **Scope:**
- Price determination (law of demand & supply).
- Consumer behavior (utility analysis, indifference curves).
- Production and costs of firms.
- Market structures (perfect competition, monopoly, oligopoly).
- **Example:**
- How does a rise in petrol price affect household budgets?
- How do firms decide output when costs rise?
- **Importance:** Helps in efficient resource allocation.

---

### **2. Macroeconomics** (“Income Theory” / “Big Economics”)

- **Definition:** The study of the **economy as a whole** and large aggregates.

- **Scope:**
- National income (GDP, GNP).
- Employment and unemployment.
- Inflation and deflation.
- Monetary and fiscal policies.
- Economic growth and development.
- **Example:**
- India’s unemployment rate = 8%.
- Government using interest rate cuts (monetary policy) to boost growth.
- **Importance:** Helps in policy-making and solving large-scale problems
(inflation, poverty).

---

### **3. Interdependence of Micro and Macro**

- Micro cannot explain the **whole economy**, while macro ignores **individual
behavior**.
- Example: Studying one farmer (micro) cannot explain the whole agriculture sector
(macro).
- Both together give a complete picture.

---

## **III. Economics and Its Relation to Law**

Economics and law are **closely interrelated disciplines**. While law provides the
**framework of rules and institutions**, economics provides the **rationale and
consequences** of those rules. Together, they shape how resources are used, how
wealth is distributed, and how justice is delivered.

---

## **1. Economics as a Science of Lawmaking**

- Many laws are framed on the basis of **economic reasoning**.

- Legislators consider **economic costs, benefits, and social outcomes** while
drafting laws.
- **Examples:**
- **Tax laws** → designed to raise revenue without discouraging investment.
- **Property laws** → ensure efficient use and transfer of resources.
- **Contract laws** → promote trade and commerce by reducing risk.
- **Competition laws** → prevent monopolies and protect consumers.

---

## **2. Law Provides Structure, Economics Provides Rationale**

- **Law provides structure:**

- Defines **property rights**.
- Establishes rules for **contracts, markets, and trade**.
- Enforces penalties against violations.
- **Economics provides rationale:**
- Examines **impact of laws** on efficiency, equity, and growth.
- Suggests **policy reforms** for maximizing welfare.
- **Example:**
- **Bankruptcy laws** → Law sets procedures for liquidation/restructuring.
- **Economics analyzes** whether such laws encourage or discourage investment.

---

## **3. Examples of Economic Impact of Laws**

1. **Minimum Wage Law:**

- Law: Sets a minimum wage below which employers cannot pay.
- Economics: Protects workers, but may reduce employment if set too high.
2. **Taxation Laws:**
- Law: Government imposes income tax or GST.
- Economics: Affects disposable income, savings, investment, and consumption.
3. **Environmental Laws:**
- Law: Regulates pollution and resource use.
- Economics: Balances industrial growth with environmental protection.
4. **Competition Law (Antitrust):**
- Law: Prevents monopoly and unfair trade practices.
- Economics: Promotes efficiency, innovation, and consumer welfare.

---
## **4. Economics of Justice**

- Law is not only about rules but also about **justice and fairness**.
- Economics studies how laws affect **social welfare and equity**.
- Example: **Progressive taxation** (law) reduces inequality (economic justice).

---

## **IV. Economics as a Basis of Social Welfare and Social Justice**

Economics is not only about production and wealth creation, but also about ensuring
that the benefits of growth are distributed **fairly and equitably**. Hence,
economics serves as a strong basis for promoting **social welfare** (improving
living standards) and **social justice** (reducing inequality and protecting
rights).

---

## **1. Economics and Social Welfare**

- **Definition:** Social welfare refers to the overall well-being and quality of

life of people in society.
- **Economic Role:**
- Provides **policies and tools** to raise living standards.
- Ensures access to **basic needs** such as food, health, education, and
housing.
- **Examples of Welfare Measures:**
- **Taxation and subsidies** → reduce cost of essentials (e.g., food subsidies,
fuel subsidies).
- **Free or affordable healthcare and education** → increases productivity and
welfare.
- **Welfare schemes** → like unemployment benefits, pensions, and public
distribution systems (PDS).

👉 Welfare economics (Pigou, Samuelson) studies how resources can be allocated to

maximize social welfare.

---

## **2. Economics and Social Justice**

- **Definition:** Social justice means ensuring **fairness, equality, and

protection of rights**, particularly for the poor and marginalized.
- **Economic Role:**
- Studies **income and wealth distribution**.
- Suggests policies to **reduce inequality and exploitation**.
- **Examples of Justice-Oriented Policies:**
- **Progressive taxation** → higher taxes on the rich to redistribute wealth.
- **Labor rights** → minimum wages, safe working conditions, right to unionize.
- **Social security systems** → pensions, disability benefits, maternity leave.
- **Land reforms and affirmative action** → to reduce historical inequalities.

---

## **3. Balancing Efficiency and Equity**

- Economics recognizes a tension between **efficiency (growth)** and **equity

(justice)**.
- **Efficiency (Growth):** Producing maximum output with limited resources.
- **Equity (Justice):** Ensuring fair distribution of income and opportunities.
- **Need for Balance:**
- Too much focus on efficiency → leads to inequality.
- Too much focus on equity → may reduce incentives and slow growth.
- **Example:**
- Progressive taxation reduces inequality (justice) but must not discourage
investment (growth).

---

## **4. Practical Examples**

- **India:**
- MGNREGA (employment guarantee) → welfare + justice.
- Right to Education (RTE) Act → social justice in education.
- Food Security Act → ensures access to food for the poor.
- **Global:**
- Nordic countries → high taxation but universal welfare, balancing growth with
equity.
- UN Sustainable Development Goals (SDGs) → economic growth tied to social
justice and equality.

## **V. Types of Economic Systems**

# **1. Free Enterprise (Capitalist) Economy**

A **free enterprise economy** (also called a **capitalist economy** or **market

economy**) is an economic system where all major decisions regarding production,
consumption, and distribution are guided by the **forces of demand and supply** in
the market.

---

## **1. Meaning**

- In a capitalist system, the government plays a **minimal role**; most economic

activities are organized by **private individuals and firms**.
- Economic freedom, private property, and profit motive are the driving forces.

---

## **2. Key Features**

1. **Private Ownership of Property** → Individuals and firms own land, factories,

machines, etc.
2. **Profit Motive** → Businesses operate to maximize profits.
3. **Market Mechanism** → Prices determined by demand and supply.
4. **Consumer Sovereignty** → Consumers influence production through their
purchasing choices.
5. **Competition** → Rivalry among firms leads to efficiency.
6. **Limited Government Role** → Government intervenes only to maintain law, order,
and basic regulation.

---

## **3. Merits (Pros)**

1. **Efficient Resource Allocation** → Market forces direct resources where they

are most valued.
2. **Innovation and Growth** → Profit motive encourages new technology and
entrepreneurship.
3. **Consumer Choice** → Wide variety of goods and services available.
4. **Economic Freedom** → Individuals free to choose jobs, businesses, and
investments.
5. **Rapid Development** → Competition spurs industrialization and economic
progress.

---

## **4. Demerits (Cons)**

1. **Inequality of Income and Wealth** → Rich get richer, poor get poorer.
2. **Exploitation of Labor** → Low wages, poor working conditions in absence of
strict regulation.
3. **Economic Instability** → Booms and recessions (business cycles) are common.
4. **Social Costs** → Pollution, resource depletion, and neglect of social welfare.
5. **Monopoly Power** → Large corporations may dominate markets and reduce
competition.

---

## **5. Examples**

- **Classical Capitalism:** USA, UK in the 19th century (laissez-faire capitalism).

- **Modern Capitalist Economies:** USA, Japan, Germany — though with some
government regulation (not pure capitalism).

---

# **2. Planned (Command) Economy**

A **planned economy** (also called a **command economy** or **socialist economy**)

is an economic system in which all major decisions regarding production,
distribution, and pricing are made by the **government or central planning
authority**.

---

## **1. Meaning**

- The government owns and controls **land, industries, and resources**.

- Production and distribution are carried out according to a **central plan**, not
by market forces.
- The main aim is to achieve **equality, social welfare, and economic justice**,
rather than profit.

---

## **2. Key Features**

1. **Central Planning** → A planning commission or authority sets economic goals

(e.g., 5-year plans).
2. **Public Ownership** → Land, factories, and resources owned by the state.
3. **No Profit Motive** → Focus is on **social welfare**, not private profit.
4. **Equal Distribution** → Efforts to reduce inequality of income and wealth.
5. **Absence of Market Forces** → Prices, wages, and production targets are fixed
by the government.
6. **Job Security** → Everyone is guaranteed employment by the state.

---

## **3. Merits (Pros)**

1. **Equality** → Reduces inequality through redistribution of wealth.

2. **Social Welfare** → Focus on healthcare, education, housing, and basic needs.
3. **Economic Stability** → Avoids recessions and inflations caused by market
fluctuations.
4. **No Exploitation** → Labor protected with fixed wages and job security.
5. **Rapid Mobilization of Resources** → State can direct resources to key
industries quickly (e.g., heavy industry, infrastructure).

---

## **4. Demerits (Cons)**

1. **Inefficiency** → Lack of competition leads to low productivity and waste.

2. **Bureaucracy & Red Tape** → Excessive government control slows decision-making.
3. **Lack of Innovation** → No profit motive → fewer incentives for research and
entrepreneurship.
4. **Shortages and Surpluses** → Poor planning may cause scarcity of essential
goods or overproduction of others.
5. **Suppression of Freedom** → Individuals have limited choice in jobs,
businesses, and consumption.

---

## **5. Examples**

- **Former USSR** (Union of Soviet Socialist Republics).

- **China (before 1978 reforms)** followed strict central planning.
- **North Korea** today still follows a command economy model.

---

# **3. Mixed Economy**

A **mixed economy** is an economic system that combines the features of both **free
enterprise (capitalism)** and **planned economy (socialism)**. It seeks to balance
**economic efficiency and growth** with **social welfare and equity**.

---

## **1. Meaning**

- In a mixed system, **both government and private sector** play important roles.
- Some industries are left to **market forces**, while others are **controlled or
regulated by the state**.
- The goal is to combine the **efficiency of markets** with the **justice of
planning**.

---

## **2. Key Features**

1. **Co-existence of Public and Private Sectors** →

- Public sector: key industries (defense, railways, energy, healthcare).
 - Private sector: consumer goods, services, small-scale industries.
2. **Economic Planning + Market Mechanism** → Planning ensures social welfare,
while markets guide efficiency.
3. **Government Regulation** → To prevent monopolies, ensure fair wages, and
protect consumers.
4. **Social Welfare Measures** → Subsidies, progressive taxation, and social
security.
5. **Property Rights with Restrictions** → Private property allowed, but subject to
laws and taxation.

---

## **3. Merits (Pros)**

1. **Balanced Growth** → Combines efficiency (private sector) with welfare (public

sector).
2. **Reduces Inequality** → Progressive taxes and welfare programs.
3. **Consumer Choice** → Variety of goods/services through private sector.
4. **Stability with Flexibility** → Planning reduces instability, while markets
ensure adaptability.
5. **Encourages Innovation with Social Goals** → Profit motive + state support for
research and welfare.

---

## **4. Demerits (Cons)**

1. **Risk of Corruption** → Bureaucracy and licensing may lead to misuse of power.

2. **Red Tape and Delays** → Excessive government intervention can slow down
decision-making.
3. **Conflict of Interest** → Public and private sectors may clash over control and
profits.
4. **Partial Inefficiency** → Public enterprises may remain inefficient, while
private firms focus only on profit.
5. **Resource Misallocation** → If planning is weak or markets are distorted.

---

## **5. Examples**

- **India** → Follows a mixed economy since independence (public sector + private

enterprise).
- **France, UK, and most European nations** → Welfare states with mixed systems.
- **Modern economies** → Almost all countries today are mixed, as pure capitalism
or socialism is rare.

---

# **Comparative Table of Economic Systems**

| **Basis of Comparison** | **Free Enterprise (Capitalist Economy)** | **Planned

(Command Economy)** | **Mixed Economy** |
| --- | --- | --- | --- |
| **Ownership of Resources** | Mainly **private ownership** of land, industries,
and capital | **Public ownership** by state | **Co-existence** of private + public
ownership |
| **Decision-Making** | Guided by **market forces** (demand & supply) | Determined
by **central authority** (planning) | **Both** government plans and markets
influence decisions |
| **Profit Motive** | Primary motive is **profit** | Motive is **social welfare** |
Profit + welfare balanced |
| **Role of Government** | **Minimal** interference (laissez-faire) | **Complete
control** over economy | **Active regulator** + planner, but allows private
enterprise |
| **Consumer Choice** | **Maximum freedom** (wide variety of goods) |
**Restricted** (consumers get what state provides) | **Moderate freedom**, mix of
choice and welfare goods |
| **Efficiency** | Generally **high** due to competition | **Low** (lack of
incentives, inefficiency) | **Moderate** → private drives efficiency, public
ensures welfare |
| **Equity / Equality** | **Low** → wide income inequality | **High** → attempts
equality | **Moderate** → balance between growth & justice |
| **Innovation** | **High** (profit motive encourages R&D) | **Low** (little
incentive) | **Moderate** → private sector innovates, state supports |
| **Examples** | USA, Japan (modern) | Former USSR, North Korea | India, France,
UK, most countries today |
| **Advantages** | Efficient, innovative, consumer freedom | Equality, job
security, stability | Balance between growth & welfare |
| **Disadvantages** | Inequality, exploitation, instability | Bureaucracy,
inefficiency, lack of freedom | Corruption, red tape, conflicts between state &
market |

---

---

# **MCQs on Economics**

### **1. Definition of Economics**

**Q1.** Who defined economics as the *“science of wealth”*?

a) Alfred Marshall

b) Adam Smith

c) Lionel Robbins

d) Paul Samuelson

✔ **Answer:** b) Adam Smith

---

**Q2.** Alfred Marshall’s definition of economics emphasized:

a) Scarcity of resources

b) Welfare of people

c) Dynamic growth

d) Wealth creation

✔ **Answer:** b) Welfare of people

---
**Q3.** Lionel Robbins defined economics as the study of:

a) Human welfare in ordinary life

b) Scarcity and choice

c) Production and consumption only

d) Distribution of wealth

✔ **Answer:** b) Scarcity and choice

---

**Q4.** Paul Samuelson’s definition is considered modern because:

a) It focused only on wealth

b) It introduced welfare

c) It included time and growth aspects

d) It studied only consumption

✔ **Answer:** c) It included time and growth aspects

---

### **2. Economics as Science and Art**

**Q5.** Economics is a science because:

a) It studies values

b) It provides practical solutions

c) It explains cause and effect using systematic methods

d) It is concerned with welfare only

✔ **Answer:** c) It explains cause and effect using systematic methods

---

**Q6.** Economics is an art because:

a) It studies unlimited wants

b) It teaches us “what ought to be done”

c) It is a descriptive science only

d) It ignores social justice

✔ **Answer:** b) It teaches us “what ought to be done”

---

### **3. Positive vs Normative Economics**

**Q7.** Which of the following is a *positive statement*?

a) “Unemployment must be reduced.”

b) “12% of the labor force is unemployed.”

c) “Government should increase subsidies.”

d) “Poverty is unjust.”

✔ **Answer:** b) “12% of the labor force is unemployed.”

---

**Q8.** Normative economics deals with:

a) “What is”

b) “What ought to be”

c) “How markets function”

d) “Measurement of GDP”

✔ **Answer:** b) “What ought to be”

---

### **4. Methodology of Economics**

**Q9.** The deductive method moves from:

a) Particular to general

b) General to particular

c) Abstract to concrete

d) Welfare to wealth

✔ **Answer:** b) General to particular

---

**Q10.** Inductive method in economics is based on:

a) Logic and reasoning only

b) Data collection and generalization

c) Invisible hand principle

d) Welfare theory

✔ **Answer:** b) Data collection and generalization

---
### **5. Economic Systems**

**Q11.** Which economy is driven mainly by *demand and supply*?

a) Planned economy

b) Mixed economy

c) Free enterprise economy

d) Socialist economy

✔ **Answer:** c) Free enterprise economy

---

**Q12.** In a planned economy, the main feature is:

a) Private ownership

b) Profit motive

c) Central planning by government

d) Free competition

✔ **Answer:** c) Central planning by government

---

**Q13.** Which economy combines both *public and private sectors*?

a) Free enterprise economy

b) Planned economy

c) Mixed economy

d) Socialist economy

✔ **Answer:** c) Mixed economy

---

**Q14.** A disadvantage of free enterprise system is:

a) Innovation

b) Economic inequality

c) Efficiency

d) Competition

✔ **Answer:** b) Economic inequality

---

**Q15.** Which of the following is a *pro* of planned economy?

a) Equality and welfare orientation

b) Innovation and efficiency

c) Free pricing system

d) Profit maximization

✔ **Answer:** a) Equality and welfare orientation

## **Section A: Definition, Origin & History (Q1–Q15)**

**Q1.** The word *Economics* is derived from the Greek word *Oikonomia* which
means:

a) Management of households

b) Wealth of nations

c) Welfare of people

d) Scarcity of resources

✔ **Answer:** a) Management of households

**Q2.** Who is called the *Father of Economics*?

a) Alfred Marshall

b) Adam Smith

c) Lionel Robbins

d) J.M. Keynes

✔ **Answer:** b) Adam Smith

**Q3.** Adam Smith’s book *The Wealth of Nations* was published in:

a) 1756

b) 1776

c) 1876

d) 1936

✔ **Answer:** b) 1776

**Q4.** Alfred Marshall’s book *Principles of Economics* (1890) focused on:

a) Welfare of people

b) Scarcity of resources

c) Business cycles

d) Money and banking

✔ **Answer:** a) Welfare of people

**Q5.** Lionel Robbins emphasized:

a) Unlimited wants vs limited means

b) Production and distribution

c) Social justice

d) Invisible hand

✔ **Answer:** a) Unlimited wants vs limited means

**Q6.** Which economist is linked with *scarcity definition* of economics?

a) Adam Smith

b) Marshall

c) Robbins

d) Samuelson

✔ **Answer:** c) Robbins

**Q7.** Who said “Economics is the study of mankind in the ordinary business of
life”?

a) J.S. Mill

b) Alfred Marshall

c) Adam Smith

d) Samuelson

✔ **Answer:** b) Alfred Marshall

**Q8.** Which economist gave the *growth definition* of economics?

a) Paul Samuelson

b) Lionel Robbins

c) Karl Marx

d) Keynes

✔ **Answer:** a) Paul Samuelson

**Q9.** The book *General Theory of Employment, Interest and Money* was written by:

a) Adam Smith

b) J.M. Keynes

c) Karl Marx
d) Robbins

✔ **Answer:** b) J.M. Keynes

**Q10.** Modern economics emphasizes:

a) Wealth creation

b) Welfare only

c) Growth, development & welfare

d) Scarcity only

✔ **Answer:** c) Growth, development & welfare

**Q11.** Which economist focused on class struggle and exploitation?

a) Keynes

b) Marx

c) Smith

d) Marshall

✔ **Answer:** b) Marx

**Q12.** *Political Economy* was the earlier name of economics up to the:

a) 16th century

b) 18th century

c) 19th century

d) 20th century

✔ **Answer:** c) 19th century

**Q13.** Economics became a separate academic discipline after publication of:

a) Keynes’ *General Theory*

b) Smith’s *Wealth of Nations*

c) Marshall’s *Principles of Economics*

d) Marx’s *Das Kapital*

✔ **Answer:** b) Smith’s *Wealth of Nations*

**Q14.** Which of the following is NOT an economic problem?

a) What to produce

b) How to produce
c) For whom to produce

d) Why to produce

✔ **Answer:** d) Why to produce

**Q15.** The central problem of economics is:

a) Employment

b) Scarcity and choice

c) Profit maximization

d) International trade

✔ **Answer:** b) Scarcity and choice

---

## **Section B: Economics as Science & Art (Q16–Q30)**

**Q16.** Economics is called a science because:

a) It studies art of living

b) It uses systematic methods

c) It gives absolute laws

d) It studies wealth only

✔ **Answer:** b) It uses systematic methods

**Q17.** Economics is NOT an exact science like physics because:

a) It deals with human behavior

b) It is too complex

c) It uses statistics

d) It studies society

✔ **Answer:** a) It deals with human behavior

**Q18.** Economics is called a normative science because:

a) It studies only facts

b) It prescribes policies for welfare

c) It ignores social problems

d) It is exact like physics

✔ **Answer:** b) It prescribes policies for welfare

**Q19.** Who said “Economics is both science and art”?

a) Marshall

b) Robbins

c) Pigou

d) Keynes

✔ **Answer:** c) Pigou

**Q20.** Economics as an art means:

a) Study of scarcity

b) Application of knowledge for solving problems

c) Generalization of laws

d) Exact measurement

✔ **Answer:** b) Application of knowledge for solving problems

**Q21.** Which is a characteristic of social science?

a) Study of natural phenomena

b) Study of human behavior in society

c) Exact predictability

d) Experiments in labs

✔ **Answer:** b) Study of human behavior in society

**Q22.** Economics differs from natural sciences because:

a) It is not systematic

b) It lacks experiments in controlled settings

c) It has no theory

d) It studies only production

✔ **Answer:** b) It lacks experiments in controlled settings

**Q23.** Economics is also called a positive science because:

a) It studies value judgments

b) It explains “what is”

c) It prescribes “what ought to be”

d) It ignores reality

✔ **Answer:** b) It explains “what is”

**Q24.** Which of the following is NOT an art aspect of economics?

a) Price control policies

b) Fiscal management

c) Social welfare schemes

d) Scarcity of resources

✔ **Answer:** d) Scarcity of resources

**Q25.** Economics is considered a social science because:

a) It deals with government

b) It deals with money

c) It deals with society and human choices

d) It is an applied subject

✔ **Answer:** c) It deals with society and human choices

## **Section C: Methodology of Economics (Q31–Q40)**

**Q31.** Deductive method is also known as:

a) Empirical method

b) Analytical method

c) Experimental method

d) Historical method

✔ **Answer:** b) Analytical method

**Q32.** The deductive method proceeds:

a) From facts to theory

b) From particular to general

c) From general to particular

d) From data to laws

✔ **Answer:** c) From general to particular

**Q33.** Which of the following is an example of deductive reasoning?

a) Studying consumption pattern of 1,000 families and generalizing

b) Stating “If demand > supply, prices rise”

c) Compiling national income statistics

d) Conducting household surveys

✔ **Answer:** b) Stating “If demand > supply, prices rise”

**Q34.** Inductive method is also known as:

a) Hypothetical method

b) Abstract method

c) Historical/empirical method

d) Logical method

✔ **Answer:** c) Historical/empirical method

**Q35.** The inductive method proceeds:

a) From general to particular

b) From particular to general

c) From assumptions to facts

d) From policy to theory

✔ **Answer:** b) From particular to general

**Q36.** Which of the following is an example of inductive reasoning?

a) “Traders earn profit when demand > supply.”

b) “Collecting data on income and generalizing inequality.”

c) “If savings rise, investment falls.”

d) “Wages depend on productivity.”

✔ **Answer:** b) “Collecting data on income and generalizing inequality.”

**Q37.** The deductive method is criticized because:

a) It is too data heavy

b) It may be unrealistic due to assumptions

c) It ignores logic

d) It cannot predict outcomes

✔ **Answer:** b) It may be unrealistic due to assumptions

**Q38.** The inductive method is criticized because:

a) It ignores data

b) It is purely theoretical

c) It is time-consuming and costly

d) It cannot explain social problems

✔ **Answer:** c) It is time-consuming and costly

**Q39.** The best approach in economics is:

a) Deductive only

b) Inductive only

c) Combination of deductive and inductive

d) Neither

✔ **Answer:** c) Combination of deductive and inductive

**Q40.** Who popularized the inductive method in economics through statistics?

a) Alfred Marshall

b) Lionel Robbins

c) Adam Smith

d) Francis Bacon

✔ **Answer:** d) Francis Bacon

---

## **Section D: Positive & Normative Economics (Q41–Q50)**

**Q41.** Positive economics deals with:

a) “What is”

b) “What ought to be”

c) Norms of justice

d) Ethical values

✔ **Answer:** a) “What is”

**Q42.** Normative economics deals with:

a) Facts only

b) Moral judgments and policies

c) Describing events

d) Pure statistics

✔ **Answer:** b) Moral judgments and policies

**Q43.** Which of the following is a positive statement?

a) “Government should reduce poverty.”

b) “Inflation is unjust.”

c) “The unemployment rate is 7%.”

d) “We must control population.”

✔ **Answer:** c) “The unemployment rate is 7%.”

**Q44.** Which of the following is a normative statement?

a) “Exports increased by 10% last year.”

b) “Per capita income is $2000.”

c) “Poverty is high and should be reduced.”

d) “India’s GDP growth was 7%.”

✔ **Answer:** c) “Poverty is high and should be reduced.”

**Q45.** Positive economics is concerned with:

a) Value judgments

b) Policy recommendations

c) Objective facts and cause-effect relations

d) Ideals of justice

✔ **Answer:** c) Objective facts and cause-effect relations

**Q46.** Normative economics is criticized because:

a) It is fact-based

b) It cannot be tested scientifically

c) It is based on logic only

d) It deals with assumptions

✔ **Answer:** b) It cannot be tested scientifically

**Q47.** Positive economics is useful because:

a) It suggests welfare measures

b) It is based on facts and data

c) It prescribes taxation policies

d) It promotes equity

✔ **Answer:** b) It is based on facts and data

**Q48.** Normative economics is useful because:

a) It helps describe inflation trends

b) It helps policymakers set goals for welfare

c) It only studies GDP

d) It ignores ethics

✔ **Answer:** b) It helps policymakers set goals for welfare

**Q49.** “India’s literacy rate must be improved for economic growth” is an example
of:

a) Positive economics

b) Normative economics

c) Deductive economics

d) Inductive economics

✔ **Answer:** b) Normative economics

**Q50.** “India’s literacy rate is 74% as per Census 2011” is an example of:

a) Positive economics

b) Normative economics

c) Welfare economics

d) Social economics

✔ **Answer:** a) Positive economics

---

Perfect 👍 Let’s keep building.

This section (Q51–Q70) will cover:

- **Traditional vs Modern Subject Matter of Economics**

- **Economics & Law**

---

## **Section E: Subject Matter of Economics (Traditional & Modern)**

**Q51.** The traditional subject matter of economics includes:

a) Consumption, Production, Exchange, Distribution, Public Finance

b) Microeconomics and Macroeconomics

c) Law and Justice

d) Scarcity and Choice

✔ **Answer:** a) Consumption, Production, Exchange, Distribution, Public Finance

**Q52.** In economics, *consumption* refers to:

a) Buying goods for resale

b) Satisfaction of human wants

c) Use of raw materials in factories

d) Export of goods

✔ **Answer:** b) Satisfaction of human wants

**Q53.** *Production* in economics means:

a) Only manufacturing

b) Creation of physical goods

c) Creation of utility by using factors of production

d) Import of goods

✔ **Answer:** c) Creation of utility by using factors of production

**Q54.** Exchange in economics implies:

a) Production of goods

b) Buying and selling in markets

c) Consumption of goods

d) Use of technology

✔ **Answer:** b) Buying and selling in markets

**Q55.** Which is NOT a factor of production?

a) Land

b) Labor

c) Money

d) Capital

✔ **Answer:** c) Money

**Q56.** Distribution in economics refers to:

a) Transport of goods

b) Division of output among consumers

c) Rewarding factors of production (rent, wages, interest, profit)

d) Allocation of resources among industries

✔ **Answer:** c) Rewarding factors of production (rent, wages, interest, profit)

**Q57.** Public finance is concerned with:

a) Household budgeting

b) Government revenue and expenditure

c) Company profit sharing

d) Private investment

✔ **Answer:** b) Government revenue and expenditure

**Q58.** Microeconomics is the study of:

a) Whole economy

b) Individual economic units (households, firms)

c) International trade

d) Government finance only

✔ **Answer:** b) Individual economic units (households, firms)

**Q59.** Macroeconomics studies:

a) Small-scale industries

b) Individual decision making

c) Aggregate economy (national income, employment, inflation)

d) Only consumption

✔ **Answer:** c) Aggregate economy (national income, employment, inflation)

**Q60.** The law of demand belongs to:

a) Macroeconomics

b) Microeconomics

c) Public finance

d) Growth economics

✔ **Answer:** b) Microeconomics

**Q61.** National income estimation is part of:

a) Microeconomics

b) Macroeconomics

c) Business economics

d) Welfare economics
✔ **Answer:** b) Macroeconomics

**Q62.** The study of price determination in a single industry falls under:

a) Microeconomics

b) Macroeconomics

c) Development economics

d) International economics

✔ **Answer:** a) Microeconomics

---

## **Section F: Economics & Law (Q63–Q70)**

**Q63.** Economics and law are related because:

a) Both study only money

b) Laws affect economic activities and economics provides rationale for laws

c) They are both natural sciences

d) They are both unrelated

✔ **Answer:** b) Laws affect economic activities and economics provides rationale

for laws

**Q64.** Laws on taxation are based on:

a) Historical needs

b) Political theories

c) Economic reasoning and revenue requirements

d) Social customs

✔ **Answer:** c) Economic reasoning and revenue requirements

**Q65.** Minimum wage laws belong to:

a) Economics only

b) Law only

c) Both law and economics (affect income distribution & employment)

d) Sociology

✔ **Answer:** c) Both law and economics (affect income distribution & employment)

**Q66.** Property rights are essential because:

a) They have no economic value

b) They encourage investment and economic activity

c) They are only legal in nature

d) They reduce profits

✔ **Answer:** b) They encourage investment and economic activity

**Q67.** Contract laws are important for the economy because:

a) They increase costs

b) They provide trust and enforceability in transactions

c) They reduce trade

d) They discourage borrowing

✔ **Answer:** b) They provide trust and enforceability in transactions

**Q68.** Competition law (anti-trust) ensures:

a) Monopoly power

b) Fair competition and consumer welfare

c) Higher inequality

d) Only government control

✔ **Answer:** b) Fair competition and consumer welfare

**Q69.** Economics provides a basis for lawmaking by:

a) Explaining only ethical issues

b) Analyzing how laws affect efficiency, growth, and fairness

c) Ignoring resource allocation

d) Supporting tradition

✔ **Answer:** b) Analyzing how laws affect efficiency, growth, and fairness

**Q70.** Which of the following is an example of interaction between economics and

law?

a) Tax exemptions for low-income groups

b) Judicial independence

c) Religious laws

d) Voting rights

✔ **Answer:** a) Tax exemptions for low-income groups

---
## **Section G: Economics as a Basis of Social Welfare (Q71–Q78)**

**Q71.** Welfare economics primarily studies:

a) How to maximize profit

b) How resources can increase social welfare

c) Only government expenditure

d) How banks earn money

✔ **Answer:** b) How resources can increase social welfare

**Q72.** Which of the following is a measure to promote social welfare?

a) Progressive taxation

b) Free public healthcare

c) Subsidized education

d) All of the above

✔ **Answer:** d) All of the above

**Q73.** Social welfare in economics refers to:

a) Welfare of only rich people

b) Collective well-being of society

c) Maximization of individual profit

d) Only government projects

✔ **Answer:** b) Collective well-being of society

**Q74.** The concept of welfare economics was popularized by:

a) Adam Smith

b) Alfred Marshall and A.C. Pigou

c) Karl Marx

d) David Ricardo

✔ **Answer:** b) Alfred Marshall and A.C. Pigou

**Q75.** Free healthcare provided by the state is an example of:

a) Economic growth policy

b) Welfare policy

c) Monetary policy
d) Trade policy

✔ **Answer:** b) Welfare policy

**Q76.** Subsidies on essential goods aim to:

a) Encourage monopoly

b) Increase inequality

c) Improve welfare of weaker sections

d) Reduce government spending

✔ **Answer:** c) Improve welfare of weaker sections

**Q77.** Which of the following is a welfare objective?

a) Reducing poverty and hunger

b) Reducing inequality

c) Improving quality of life

d) All of the above

✔ **Answer:** d) All of the above

**Q78.** Welfare economics often balances:

a) Efficiency and equity

b) Law and politics

c) Inflation and unemployment

d) Production and imports

✔ **Answer:** a) Efficiency and equity

## **Section H: Economics as a Basis of Social Justice**

**Q79.** Social justice in economics refers to:

a) Equal distribution of income and opportunities

b) Profit maximization

c) Eliminating government intervention

d) Supporting only rich class

✔ **Answer:** a) Equal distribution of income and opportunities

**Q80.** Which of the following ensures social justice?

a) Progressive taxation

b) Labor rights and minimum wages

c) Social security schemes

d) All of the above

✔ **Answer:** d) All of the above

**Q81.** The aim of social justice is:

a) To maintain inequality

b) To ensure fairness in resource distribution

c) To maximize exports

d) To remove taxes

✔ **Answer:** b) To ensure fairness in resource distribution

**Q82.** Reservation policies in education and jobs are examples of:

a) Economic efficiency

b) Social justice measures

c) Monopoly policy

d) Inflation control

✔ **Answer:** b) Social justice measures

**Q83.** Social justice is achieved when:

a) Only growth is achieved

b) Both growth and fairness are maintained

c) Only efficiency is achieved

d) Only profits are maximized

✔ **Answer:** b) Both growth and fairness are maintained

**Q84.** Which of the following is an instrument of social justice in India?

a) Public Distribution System (PDS)

b) Minimum wage legislation

c) Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA)

d) All of the above

✔ **Answer:** d) All of the above

**Q85.** Social justice policies aim to:

a) Widen economic inequality

b) Eliminate exploitation and discrimination

c) Encourage only private enterprise

d) Reduce government involvement

✔ **Answer:** b) Eliminate exploitation and discrimination

## **Section I: Free Enterprise (Capitalist) Economy (Q86–Q90)**

**Q86.** A free enterprise economy is also called:

a) Socialist economy

b) Capitalist economy

c) Mixed economy

d) Command economy

✔ **Answer:** b) Capitalist economy

**Q87.** In a free enterprise economy, decisions are guided by:

a) Central planning authority

b) Market forces of demand and supply

c) Government orders

d) Social justice principles only

✔ **Answer:** b) Market forces of demand and supply

**Q88.** Which is NOT a feature of free enterprise economy?

a) Private ownership

b) Profit motive

c) Government monopoly

d) Competition

✔ **Answer:** c) Government monopoly

**Q89.** One major advantage of free enterprise economy is:

a) Equality of income

b) Efficiency and innovation

c) Bureaucracy

d) Government welfare schemes

✔ **Answer:** b) Efficiency and innovation

**Q90.** A drawback of free enterprise economy is:

a) Economic equality

b) Risk of inequality and exploitation

c) Absence of private ownership

d) Lack of competition

✔ **Answer:** b) Risk of inequality and exploitation

---

## **Section J: Planned (Command) Economy (Q91–Q95)**

**Q91.** A planned economy is also known as:

a) Free market economy

b) Socialist/Command economy

c) Mixed economy

d) Traditional economy

✔ **Answer:** b) Socialist/Command economy

**Q92.** In a planned economy, all major decisions are taken by:

a) Consumers

b) Private entrepreneurs

c) Government or central authority

d) Foreign investors

✔ **Answer:** c) Government or central authority

**Q93.** Which of the following is a feature of planned economy?

a) Private ownership of industries

b) Central planning and public ownership

c) Profit motive as main goal

d) Price determination by market forces

✔ **Answer:** b) Central planning and public ownership

**Q94.** A key advantage of planned economy is:

a) Equal distribution of wealth

b) High efficiency and innovation

c) Consumer sovereignty
d) Competition

✔ **Answer:** a) Equal distribution of wealth

**Q95.** A major disadvantage of planned economy is:

a) Rising inequality

b) Bureaucracy and lack of innovation

c) Excessive competition

d) Monopoly power of private firms

✔ **Answer:** b) Bureaucracy and lack of innovation

---

## **Section K: Mixed Economy & Comparison (Q96–Q100)**

**Q96.** A mixed economy combines:

a) Agriculture and industry

b) Government control and free market forces

c) Socialism and communism

d) Banking and taxation

✔ **Answer:** b) Government control and free market forces

**Q97.** Which of the following countries has a mixed economy?

a) USA (pure capitalism)

b) North Korea (command economy)

c) India (public + private sectors)

d) None of these

✔ **Answer:** c) India (public + private sectors)

**Q98.** Which is a feature of mixed economy?

a) Only private sector functions

b) Only public sector functions

c) Co-existence of public and private sectors

d) Absence of planning

✔ **Answer:** c) Co-existence of public and private sectors

**Q99.** A major advantage of mixed economy is:

a) Balance between growth and welfare

b) Elimination of corruption

c) Zero unemployment

d) Absence of government

✔ **Answer:** a) Balance between growth and welfare

**Q100.** Which is a disadvantage of mixed economy?

a) Risk of corruption and red tape

b) No public participation

c) No private ownership

d) Absence of planning

✔ **Answer:** a) Risk of corruption and red tape

---

### **A. Basics & Definitions (Q1–Q10)**

1. Father of Economics → **Adam Smith**

2. Author of *Wealth of Nations* → **Adam Smith**
3. Father of Welfare Economics → **Alfred Marshall**
4. Father of Modern Economics → **Paul Samuelson**
5. Scarcity definition given by → **Lionel Robbins**
6. Study of individual units → **Microeconomics**
7. Study of economy as a whole → **Macroeconomics**
8. Central problem of economics → **Scarcity**
9. Branch dealing with government revenue/expenditure → **Public Finance**
10. Creator of utility is called → **Production**

---

### **B. Economics as Science/Art (Q11–Q20)**

1. Type of science economics is → **Social**

2. Method moving general → particular → **Deductive**
3. Method moving particular → general → **Inductive**
4. Deals with “what is” → **Positive**
5. Deals with “what ought to be” → **Normative**
6. Predictive role of economics → **Science**
7. Applied role of economics → **Art**
8. Science of choice → **Economics**
9. “Economics is both art and science” – said by → **Pigou**
10. Economics studies human → **Behavior**

---

### **C. Subject Matter (Q21–Q30)**

1. Satisfaction of wants → **Consumption**

2. Reward to land → **Rent**
3. Reward to labor → **Wages**
4. Reward to capital → **Interest**
5. Reward to entrepreneur → **Profit**
6. Buying & selling → **Exchange**
7. National income is studied in → **Macroeconomics**
8. Price determination is studied in → **Microeconomics**
9. Wealth-oriented definition by → **Adam Smith**
10. Welfare-oriented definition by → **Alfred Marshall**

---

### **D. Economics & Law (Q31–Q35)**

1. Law ensuring minimum wages → **Labor**

2. Law regulating monopoly → **Competition**
3. Legal protection for creators → **Copyright**
4. Legal protection for inventions → **Patent**
5. Economics gives rationale; law gives → **Structure**

---

### **E. Welfare & Justice (Q36–Q40)**

1. Improving living standards → **Welfare**

2. Reducing inequality → **Justice**
3. Tax increasing with income → **Progressive**
4. Scheme guaranteeing 100 days rural employment (India) → **MGNREGA**
5. Public food distribution system → **PDS**

---

### **F. Economic Systems (Q41–Q50)**

1. Another name for free enterprise economy → **Capitalism**

2. Basis of capitalist economy → **Profit**
3. Ownership in capitalist economy → **Private**
4. Ownership in planned economy → **Public**
5. Decision-making in planned economy → **Government**
6. Equality-oriented economy → **Socialist**
7. Balance of public & private sectors → **Mixed**
8. Indian economy type → **Mixed**
9. Problem of red tape occurs in → **Mixed**
10. Most innovative system → **Capitalist**

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# 📘 **Long Questions in Economics**

### **A. Basics & Definitions**

1. Define economics. Explain in detail the different definitions given by Adam

Smith, Alfred Marshall, Lionel Robbins, and Paul Samuelson.
2. Discuss the origin and historical development of economics as a discipline.
3. Explain the concept of scarcity and choice as the central problems of economics.

### **B. Economics as Science & Art**

1. Critically examine whether economics is a science, an art, or both. Give

suitable examples.
2. Explain the nature and scope of economics as a social science.
### **C. Methodology of Economics**

1. Distinguish between the deductive and inductive methods of economic analysis.

Illustrate each with suitable examples.
2. Differentiate between Positive Economics and Normative Economics with examples.
Why is economics considered both?

### **D. Subject Matter of Economics**

1. Explain the subject matter of economics under the traditional approach

(consumption, production, exchange, distribution, and public finance).
2. Discuss the modern classification of economics into microeconomics and
macroeconomics.
3. Compare and contrast microeconomics and macroeconomics with examples.

### **E. Economics and Law**

1. Discuss the interrelationship between economics and law. How does economics
provide a basis for lawmaking?
2. With examples, explain how economic policies influence legal systems (e.g.,
taxation, property rights, minimum wage laws).

### **F. Welfare and Social Justice**

1. Explain how economics serves as a basis of social welfare. Give examples of

welfare-oriented policies.
2. Discuss the role of economics in ensuring social justice. How do progressive
taxation and labor laws contribute to fairness?
3. Explain the balance between economic efficiency and social justice. Why is it
important in policy-making?

### **G. Economic Systems**

1. What is a free enterprise (capitalist) economy? Discuss its features,

advantages, and disadvantages.
2. What is a planned (command) economy? Explain its main characteristics, merits,
and demerits.
3. What is a mixed economy? Discuss its features with reference to the Indian
economy.
4. Prepare a comparative analysis of Free Enterprise, Planned Economy, and Mixed
Economy in tabular form.
5. Critically evaluate the relevance of the mixed economy model in achieving both
growth and social justice.

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