ECONOMICS

Economics is a social science which studies how human beings make choices to use scarce resources to satisfy their unlimited wants.
The term ‘Economics’ in English language has its origin in two Greek words- Oikos and Nemein. Oikos means household and nemein means management. Thus, economics means management of household. Wants of each household are unlimited but resources to satisfy those needs are scarce. So, people have to make choices among various available alternatives.
Economics is the study of how human beings make choices to allocate scarce resources to satisfy their unlimited wants in such a manner that consumers can maximize their satisfaction, producers can maximize their profits and the society can maximize its welfare.

Definitions of Economics

1)      Wealth Definition- According to Adam Smith (the father of modern economics ), “Economics is an enquiry into the nature and causes of wealth of nations.”
Criticism- This definition is not acceptable by everyone because it lays importance on wealth rather than welfare of man.

2)      Material welfare Definition- According to Dr. Marshall, “Economics is study of mankind in the ordinary business of life. It examines that part of individual and social action which is most closely connected with the attainment and use of material requisites of well-being.”
Criticism- Dr. Robbins criticised this definition because it is study of all human beings, not only of social beings and it studies all economic activities- material or non-material.

3)      Scarcity Definition- According to Lord Robbins, “Economics is a science that studies human behavior as a relationship between ends and scarce means which have alternate uses”.
Criticism- This definition focuses on theory of value determination or science of choice making rather than welfare of man.

4)      Growth Oriented Definition- According to modern economists like Samuelson, Peterson, Ferguson etc., “Economics is a science that studies those activities of man which he undertakes to maximize his satisfaction by making proper use of his scarce means.”


Economic Activity

Economic activity is that activity which is related to use of scarce resources for the satisfaction of human wants. Some important economic activities are:

1)      Production- Production is that activity which is concerned with increasing the utility or value of the goods and services.

2)      Consumption- It is concerned with using the utility of goods and services for the direct satisfaction of wants. For example, eating of biscuits, drinking soft drinks etc.

3)      Investment- It is concerned with the purchase of capital goods for further production. It enhances production capacity of the producers.

4)      Exchange- It is concerned with buying and selling of products or a factor of production is called exchange. It involves
·         Product Pricing- It refers to determination of the price of the product under different conditions of the market (Perfect competition, monopoly, imperfect completion).
·         Factor Pricing- It refers to determination of the price of different factor of production (land, labour, capital and entrepreneurship).
Price of land- Rent
Price of Labour- Wages
Price of Capital- Interest
Price of Entrepreneurship- Profit





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