WealthOriented Definition INTRODUCTION Wealth oriented definition is given

Wealth-Oriented Definition INTRODUCTION: • Wealth oriented definition is given by Adam Smith • Adam Smith is the Father of Economics. • The industrial revolution in England increased wealth manifold. As a result, new classes of rich landlords and industrialist emerged. • influence by this Adam Smith wrote a book entitled “Wealth of Nation”. • This book presents his thoughts of nature and causes of wealth of nation. DEFINITION: Adam Smith defined economics as ‘a science of wealth’. DETAIL EXPLAINATION: • He described economics as a study of wealth a subject dealing with producing wealth and using it. • J. B. Say, a French economist and a follower of Smith defined economics as ‘a study of the law with govern wealth’ • He has given significant weightage to wealth in the book but he has failed to show the significance of the human behaviour related to wealth Prepared by Ghanshyam M. Bhuva 1

Welfare-Oriented Definition INTRODUCTION: • Dr. Marshall has accepted Adam Smith’s Concept of Material Wealth but according to Prof. Marshall, Wealth is a means and human welfare is an end. • According to Dr. Marshall, economics is not concerned with wealth as such, but with human activity. DEFINITION: Dr. Marshall Defined “Economics is a science of welfare”. DETAIL EXPLAINATION: • Dr. Marshall write, “Economics is a study of man in the ordinary business of life. It inquires how he gets his income and how he uses it thus, it is on one side the study of wealth and on the other and more important side a part of the study of man” Three Important point 1. Marshall gives more importance to man than to the wealth. 2. Economics studies wealth getting and wealth using activities of man. Man is primary concern and wealth is secondary concern. 3. Economics is not fully but partly concern. Prepared with wealth. by Ghanshyam M. Bhuva 2

Welfare-Oriented Definition Criticize of Marshall Definition: 1. Marshall considered economics as a social science rather than as a human science. 2. It includes only Material things. 3. Important limitation of the welfare definition is that welfare cannot be quantitatively measured. 4. Prof. Robbins has also critised the connection that is sought to be established between economics and welfare. Prepared by Ghanshyam M. Bhuva 3

Scarcity-Oriented Definition INTRODUCTION: • According to Prof. Robbins, Economics is concerned neither with Material means(Wealth) nor with welfare. • In his well known book entitled an Essay on the Nature and Significance of Economic Science Published in 1932 he defined economics as ‘a science which studies human behavior as a relationship between ends and scare means which have alternative uses’ DEFINITION: According to Robbins, Economics is a science of Scarcity. DETAIL EXPLAINATION: Four Important point involved in definition are as follows 1. Unlimited Ends(Wants) 2. Urgency of Wants Differs 3. Scare Means(Natural and Mankind Capacity) 4. Alternative Uses of Scare Means Prepared by Ghanshyam M. Bhuva 4

Scarcity-Oriented Definition SUPERIORITY OF SCARCITY-ORIENTED DEFINITION 1. While earlier definitions of economics were classificatory, Robbins definition is analytical and therefore it more scientific. 2. Robbins emphasizes that Economics is a pure science. As such it is neutral between ends. The ends may be ethical and unethical, economics is not concern with it. 3. Robbins Scarcity Definition is Universal. Economic laws are applicable to a person living within society as well as to an individual living. 4. Robbins definition is superior to Adam Smith’s definition. CRITICISM OF SCARCITY ORIENTED DEFINITION: 1. According to Robbins economics is a pure science but economics is art and science. 2. Robbins since resources are scare, they are used economically, but people use optimum of resources. 3. The definition of economics as given by Robbins, is too narrow but in reality its to broad. (Some problem create by more supply: Unemployment) 4. According to Robbins Economics is a human science, it is not a social science. 5. Economics is much more than a value theory Prepared by Ghanshyam M. Bhuva 5

Growth-Oriented Definition INTRODUCTION: • During the later half of the 20 th century, views about the nature and scope of economics have changed fundamentally. • It is know believed that economics is much more than merely a theory of value or resources allocation. DEFINITION: • According to Benham, Economics is a study of the factors affecting the size, distribution and stability of a country’s national income. ” • According to Milton H. Spencer, “Economics is social science concerned with the way the society chooses to employ its limited resources which have alternative uses to produce goods and services for present and future consumption” • According to Samuelson, “Economics is the study of how man and society choose, with or without the use of money, to employ scare 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” Prepared by Ghanshyam M. Bhuva 6

Growth-Oriented Definition THE POINT FOLLOW FROM THE GROWTH ORIENTED DEFINITIONS 1. Man and society have to choose because resources are scarce in comparison with human wants. 2. Economists have to suggest how the available resources should be distributed between present and future consumption. 3. The problem of economy not at a point of time but over a period of time. 4. Man should not be content with the resources available at present Prepared by Ghanshyam M. Bhuva 7

Nature of Economics NATURE OF ECONOMICS 1. Economics a Science? 2. Economics an Art? 3. Economics as a Positive Science 4. Economics as a Normative Science 5. Economics as a Social Science SCOPE OF ECONOMICS 1. Consumption (Consumption refers to the use of wealth: Law of Diminishing Marginal Utility, Law of Demand, Elasticity of demand, Consumer’s Surplus) 2. Production (Production means creation or addition of utilities: 4 M) 3. Exchange (Exchange is connection between producer and consumer: Exchange Market, Money, Credit instruments, Banking, International Trade, Foreign Exchange) 4. Distribution (Rent, Wages, Interest, Profit) 5. Public Finance (Public finance known as the economics of government studies how the government obtains its revenue and how it spends it. : Principle of taxation: public expenditure and public debt. Prepared by Ghanshyam M. Bhuva 8

Micro Economics MEANING: Micro economics deals with the analysis of small individual units of the economy. Micro economics is that branch of economics which studies individual economic units like individuals, households, firms, industries etc. Micro economics is concern with the determination of price of commodity in the market under different conditions. IMPORTANCE: 1. Micro economics is very useful in explaining the behavior of a free market economy 2. It provides a frame work to analyze the different kinds of market situation 3. It studies how the relative prices of various products are determined in different market situations 4. Micro economics is also useful in the study of public finance 5. In recent time micro economic analysis is being which widely used in business enterprise Prepared by Ghanshyam M. Bhuva 9

Micro Economics LIMITATION: 1. Micro economic analysis is inadequate to explain the working of the whole economy 2. According to keynes, generalization of individual behavior to explain the aggregate behavior was erroneous aggregate economic behavior cannot be a sum total of individual activities 3. What is true in the case of individual economic unit may not be true in case of aggregates 4. The analysis is based on the unrealistic assumption of full employment 5. Micro economics does not throw light on the collective functioning of the economy nor does it prove to be helpful in offering suitable explanation of certain economic issues like theory of income and employment Prepared by Ghanshyam M. Bhuva 10

Goods and Services DEFINATION: In the ordinary language, the term ‘goods’ means only physical or material commodities which are tangible, that is, which can be seen, touched and transferred. In Economics all those things that have values and satisfy human wants are known as goods. CLASSIFICATION OF GOODS: 1. Material goods & Non-material goods 2. Free goods and Economic goods 3. Consumers’ goods (Nondurable & Durable goods) and Producers’ goods 4. Private goods and Public goods 5. Transferable and Non transferable Prepared by Ghanshyam M. Bhuva 11

Value and Price VALUE: The term value may be used in two sense 1. Value-in-use: Value-in-use indicates utility or usefulness which a commodity possesses, for instances air, water, furniture, fountain pen etc. have great value-use for an individual. 1. Value-in-exchange: Value-in-exchange refers to the power or capacity of a commodity to command other things in exchange. • Vale-in-exchange expresses the relationship between two things at particular place and time. • Ex: If fountain pen exchanged for ten pencils, the value of one fountain pen will be ten pencils. • It measure the purchasing power of a commodity in terms of other commodities. • In order to possess value-in-exchange, a commodity must not only posses value-in-use but it must also be scare, that is, its supply should be limited in relation to its demand In economics, the term value is used mainly in the sense of value-in exchange and not value-in-use Prepared by Ghanshyam M. Bhuva 12

Value and Price PRICE: • When value is expressed in terms of money it is called price. • Price is the money measurement of the value of a commodity in terms of another commodity. Ex: The price of book may be Rs. 75 or the price of one kilogram of sugar is say, Rs. 15 DIFFERENCES BETWEEN VALUE AND PRICE: 1. Value expresses the relationship of one commodity in terms of another. Price expresses the relationship of a commodity in terms of money 2. There can be a general rise or fall in the prices of all commodities, but there cannot be such a general rise or fall in the value of commodities. Prepared by Ghanshyam M. Bhuva 13

Want and Demand INTRODUCTION: • In the ordinary sense, the term ‘demand’ is taken to mean ‘want’ for thing. But in economics, want for a thing does not consider as ‘demand’ • May want a scooter but if he does not have the necessary resources(money) to buy it, his want will not be considered as ‘demand’ in economics DEFINITION: Desire + purchasing power + readiness to purchase at a given price and given time is demand. DEMAND IN ECONOMICS IMPLIES THREE THINGS: a. Want for a commodity b. Willingness to pay its price c. Ability to pay Prepared by Ghanshyam M. Bhuva 14

Production Possibility Curve DEFINATION: Production Possibility curve shows various alternative combinations of goods which a society can produce with the quantity of resources and technology available to it. DETAIL: • Production possibility curve(PPC) is also describe as production possibility frontier(PPF). • It is an analytical tool used to explain the problem of choice between various combinations of goods a society is capable of producing. ASSUMPTION: 1. There are only two goods: X and Y 2. The supply of factors of production is fixed 3. Production techniques is given and fixed 4. Factors of production are fully employed Prepared by Ghanshyam M. Bhuva 15

Production Possibility Curve Combinations Production of X Production of Y A B C D E 0 1 2 3 4 10 9 7 4 0 Prepared by Ghanshyam M. Bhuva 16

Economic System DEFINITION: Economic system is defined as an organization(doing Something) for the purpose of satisfying human wants through the utilization of resources available to the society KIDS OF ECONOMIC SYSTEM: 1. Planned economy (Socialist Economy) 2. Free economy (Capitalist Economy) 3. Mixed economy Prepared by Ghanshyam M. Bhuva 17

Planned Economy and Free Market Economy DEFINATION OF PLANNED ECONOMY(Socialist Economy): Planned Economy that gives the government total control over the allocation of resources. FEATURES OF PLANNED ECONOMY: 1. Collective Ownership 2. Central Economic Planning 3. Limited Economic Freedom 4. Absence of Profit Motive 5. Relatively Equal Distribution of Income DEFINITION OF FREE MARKTET ECONOMY: Free Market Economy is a system in which property is privately owned and economic decisions are privately made. FEATURES OF FREE MARKET ECONOMY: 1. Economic Man 2. Private Property 3. Inheritance 4. Freedom of Initiative/Choice (Freedom Consumption) 5. Competition 6. Profit Motive of Enterprise, Occupation, Prepared by Ghanshyam M. Bhuva 18

Mixed Economy DEFINITION: FEATURES: 1. Co-existence of public and private sectors 2. Planning 3. Limited role of market mechanism 4. Restrictions on the producer’s and consumer’s freedom Prepared by Ghanshyam M. Bhuva 19