Chapter. I SUBJECT MATTER OF ECONOMICcs Economics is a dynamic subject Economics is a growing and developing science. As the years pass, new ideas, discovered and the old theories are being revised rapidly. The subject aaah economics or the proper definition of economics is still controversial among economists. J. M. Keynes is right in saying that economics has strangled itself with definitions. For the sake of convenience, the various definitions given by famous economists are grouped together under four heads. (i) Economies as a science of Wealth. (ii) Economics as a science of material welfare (iii) Economics as a science of scarcity (iv) Economics as a science of growth and efficiency. 1. ECONOMICS AS A SCIENCE OF WEALTH Adam Smith and his distinguished followers called classical economists defined economics as a science of wealth, Adam Smith (1723-1790) in his famous book “An Enquiry into the Nature and Causes of the Wealth of Nations” described economics as a body of knowledge which relates to wealth. According to-him-if a nation hat larger amount of wealth, it can help in achieving its betterment. Adam Smith define’ economics “as the study of nature and causes of generating of wealth ofa nation.” Adam Smith emphasized the production and expansion of wealth as the subject matte of economies. Ricardo, another Béitish classical economist shifted the emphasis fom production of wealth to the distribution of wealth in the study of economics. J. B.S French classical economist, described economics as “the science which teat % wealth”. J. S. Mill an other classical economist in the middle of 19th century lor “pon economics “as the practical science. of production and distribution of wen tect According to Malthus “Man’ is motivated by self interest only. The desire aes wealth never leaves him till he goes into the grave”. The main points of te is the ‘omics given by the above classical economists are that (1) econ an study of wealth only. It deals with consumption, production, exchange - re distribution aspects of wealti i which are scarce ® F he” (2 1 goods whi included in wetteh (2) Only those material gChapter-1 Sul 1 Marte Criti tie ism of the defi he definiti a ions gi criticized by socint even OY A ized by social ref dam Smith pitted economics as pCa and men of es classical economists were Sev mn Smith as the “half ismal science’ and 5 of that time Ruskin and Carly definitions are as under od an half witted a “science of geting oN er: man”, The-main criticisms nitions en by classical (1) Too mueh i importance: € to wealth. The definitions of economics gi¥ to man. economists give pri sts give primary -i Thie*fact is that the Sar e to-wealth and_secondary importance (2) Narrow. meanin ly of man is more important than the study of wealth. definitions of pane wealth. The word ‘wealth’ in the classical econo™ ics means only material goods such as chair, book, Pe” etc These do not i ot include ; : ete nonmaterial goods such as services of doctors nurses, soldiers ists for his d his but a (3) Concept of economi sel See Neal eee According to wealth definitions, man works only ea cial interest is relegated in the background. Dr- Marshall an ere of the view that economics does not study @ selfish man common man. 4” definitions ignore the importance of n activities. (4) No mention of man’s welfare. The “Wealth he end all of all humal man’s welfare. Wealth is not the be all and tl on the earning ay emphasis ch are scarce (5) It does not study means. The definitions of economics ki esources Whi of wealth as an end in itself. They ignore the means or re for the earning of wealth. Defective Logie. The definitions of economics given by classical economists were unduly criticized by the literary Writers of that time. The fact is that what Adam Smith wrote in his book ‘Wealth of Nations” in 1776 even now is widely accepted. The central argument of the book that market economy enables every individual to contribute his maximum to the production of wealth of nation still not only, holds good but is also being practiced and advocated throughout the capitalistic world. wealth’ did not have” a clear meaning, therefore the definition of economies became controversial. It was regarded unscientific and narrow. At the end of 19th century, Dr- ‘Alfred Marshall gave his own definition of economics and therein he laid emphasis on man and his welfare. 2. ECONOMICS AS A SCIENCE OF MATERIAL WELFARE Alfred Marshall’s Definition of Economics (The Neo-classical.view) _ - view reese classical schoo! fed by Dr Alfred Marshall gav : “place among social sciences: Marshall was the first Boe economics a respectable from the bad repute it had fallen. Dr. Alfred Marsh nomist who lifted economics Principles of Economies” defined Economics as oa (as42-1924) in his book, . ‘study of mankind i 7 nkind in theinary business of life; ual an cranny closely connected with the attainment and with the nore og requisites of well-being”. This definition clearly states that. Economics ison metal side a study of wealth and on the other and more important side “a part Of the st One man, Marshall's followers like Pigou, Cannon and Baveridge (the Neo-classies) ny of have also defined Economies a5 “a study of causes of material welfare” por according to Cannon, The aim of Political Economy is the explanation of causes on which the material welfare of the human being depends”, ters) Mple, the Benera Characteristics of Material Welfare-Definitions The definitions ‘given by Welfare School of Economists have the followin '8 Main features: (1) Wealth is not the be all and the end all of human activities. Economics does not regard wealth as the be all and the end all-of the human activities. It is only a mean to the fulfilment of an end which is human welfare. Welfare and not wealth is, therefore, of primary importance to man. S (2) Study of an ordinary man. Economics is a study of an ordinary man who lives in society. A person who is cut away from the society is not the subject of study of Economics. : (3) It. does-not study, all activities of man. Economics does not study all the activities of man. It is concerned with those actions which can be brought directly or indirectly with the measuring rod-of money. (4) Study of material welfare: Economics is concerned with the-ways.in which man applies his knowledge, skill to the gifts of Nature for the satisfaction of his material For a long time, the definition of Economics given by Alfred Marshall was generally accepted. It enlarged the scope of economics by taking emphasis that its studies both wealth and man rather than wealth alone, However, Marshall's definition was criticized by Lionel Robbins. He in his book “Essay on the Nature and Significance of Economic Science” gave a critical review of the welfare definitions of economies, These eriticisms a summed as under, Criticism of Material Welfare- (yy Narrows down the Scope-of-economiés. According to Robbins, the use of the word Material”. in the definition of Economies considerably narrows down the scope © Economics. There are many things in the world which are not material but they a" very useful for promoting human welfare. For example, “the services of doctors lawyers, teachers, dancers, engineers, professors, etc., satisfy our wants and are mites in supply. If we exclude these services and include only material goods, the? the sphere of economics Study will be very much restricted. (2) Relation between economics and welfare. on welfare definition is on the .establishm Definition The second objection raised by Robbins ent of relation between Economics ammtleet Mater of Econ “onomieg welfare, Ag ‘cord, welfare, but they to him, there are m, __ of alcohol 80045 © re, ‘any activities which do not Pp! Barded economic oes Wh: © opiuri mic activities, e.g., the manufact 'Y not throw away the mann Here Robbin says, “Why talk of welf (3) Welfare is a y, ‘ask altogether”, of ‘welfare’, In h tiring and sale re at all? ®BUe conce is opini ese are all production of opi omics. economic activitie: fare but th ae m, liquor ete. are-not conducive to we dy of econ S. Hence, these cannot be excluded from the stu 4 i “a , asi td ee The definition of welfare is of theoretical nature. It is not possiP (© divide man’s activities into material and non-material. le in 5) It involves value judgment. Finally, the word “Welfare” in the definition involves value judgment and the economists according to Robbins, are forbidden ‘© pass | verdict. . cs, Professor f economi reson ics, which is Due to a number of weaknesses in the Marshall’s definition ©! Lionel Robbins, a British Economist, gave. his own definition of econom briefly discussed as under: 3. ECONOMICS AS A SCIENCE OF SCARCITY AND CHOICE : F ition : eas veanitic of economics remained an article of faith with all economists from 1830 to 1932. However, with the publication of Lionel Robbins book “Nature and. — Significance of Economic Science” in 1932, there developed a fresh controversy in ignificane® ‘definition of economics. Lionel Robbins, after criticizing the definitions pa i ee Sassieal and Neo-classical economists, gave his own definition of a “according to him, the definition of Economics given by him is superior to that of others because it does not contain any reference of the term material or welfare. Secondly, it applies a5 much to the case of an isolated individual as to the complicated net working of society- Thirdly, it raises the status of Economics to that of Science Fourthly, it makes Economics a positive science which deals only with facts. It forbids the economists to pass any value judgment of what is good. or bad, right or wrong, etc Lione! Robbins claiming his definition of Economics to be precise, scientific and superion defines Economics in his book ‘Nature and Significance of Economics’. H described it as a “Science which studies human behaviour as a relationship bate He ends and searce means Which have alternative uses, This dernier ee eet following four pillars. inition is based on theMain pill: lL 4 ants OF ends are un} 1 importance. carce. s have alternative Uses. _. ni a of Robbins “definition” The Human wants or ends are unlimited. Human wants referred to as ne Robbins are unlimited. They increase in quantity and quality over a period ct by pave vary among individuals and overtime for the same individual. 1 is not possiny to find a person who will say that his wants for goods and services have been cSmpletely satisfied. This is because of the fact that when one want is satisfied, iis replaced by another and there:is then no end to it. The end of wants comes only with the end of life of a person. Human The ends vary 10 Th M mean: The ends or wants vary in importance. The ends or wants are of varying’ importance. They are ranked in order of importance as-(a) necessaries (b) comforts and (c) luxuries. Man generally satisfies his urgent wants first and less urgent afterwards in order of their importance. Scarcity of resources. Resources are the inputs used in the production of things which we need. The resources which include (i) natural_resources_(land;-mineral, forest etc.) (ii) Human resources (iii) man made resources (machinery, building etc.) and (iv) enterprise are scarce. They are not found in,as much quantity as we need them. Scarcity means that we do not and cannot have.enough income or wealth to satisfy our every desire. Scarcity exists because human wants always exceed what can be produced with limited resources and time that.Nature makes available to man at any one time. Scarcity is a fact of life. It occurs among the poor and among the rich. The richest person on earth faces scarcity because he.too cannot satisfy all his wants with the limited time available to him. According to Robbins, the unlimited ends and the scarce resources provide a foundation to the field of Economics. Since the human wants are innumerable. and the means to satisfy them are scarce or limited in supply, therefore, an economic problem arises. If all the things were freely available to satisfy tle unlimited human wants, there would not have arisen any scarcity, hence no economic goods, no need to economise and no econamic problem. Scarcity, thus, can be defined as the excess of human wants over what can be actually produced in the economy. u ee Fesourees hive alfernative uses. The fourth important. proposition of alternative mee a that the scarce resources available to satisfy human wants have land is used forthe econ be put to one use at one time. For instance, if a piece of anf ea Be production of sugarcane,.it-cannot be utilized for the growth e utilizing the ne. same_time, Man, therefore, has to choose the best way © Scarce resources which have alternative uses. The scarcity of resources and choi ‘ a choices to be made by it are the-key problems confronting every society. The| ce pased on n Of economic science according to Robbins, is Bae Si a h scarce resources which have alternative uperiority of Robbin’s D, There a efinition | Te many admirers of Robbins definition. It has the following merits- be noble oF ignobl, 2M, economics has nothing to do with ends. They —. ag such. tgnoble, material or non-material, Economics is not concerned with t ics: (ii) An analytical definition. e study of econom : Robbinis definition makes the study of eco™ analytical. It studies the particular aspect of human behaviour which is ImPO® the influence of scarcity, ie : ; here. A universal definition. Robbins definition is applicable every ing i - ich is the problem fac concerned with unlimited wants and limited resources which is the P every economy socialistic or capitalistic. ; iti 0 specify (iv) Clear on the nature and scope of economics. Robbins definition eon oeomic the nature, scope and subject matter of economics. According to him, MS 4 problem is characterized by the possibility of exercising choice be scarce means which have alternative uses. i i jon i tral (v) Valuation is the central problem. According to Robbins, valuation is the ce i limited and the res > f economics. Wherever the ends are un A a irces scarce Trop ive rise to an economic problem Marshall’s definition does not identity this valuation process. Criticism on Robbins Definition of Economics Robbins definition has been bitterly criticized by eminent writers like Hicks, Longe, Durbin, Frazer, etc., on the following grounds: (1) Reduced economics merely toa theory of value. Robbin’s definition restricts the scope of economics by treating it as a positive science only while in reality it is both a positive and a normative science, (2) Scope of economics has been widened. Robbin’s defi of economics by covering the whole of economic life, part of human life which is connected with the market (3) Beonomics_has_become_a colourless economics colourless, impersonal and ab for economist only. nition has widened the scope while itis concerned with that Price, Science, Rob bin’s iti 5 stract. It is in fag definition has ct a definition of economics.A Text Book of Economics dy of economic growth process rem; . ic growth. The stu g remains outs “ study of economic growls re rough economic growth that living standards ¢ of economi improve. Summing up. The defin flaws. However, it is mor utilization. 4. ECONOMICS AS A SCIENCE OF GROWTH : AND EFFICIENCY nition of economics given by Robbins has no doubt certain comprehensive in deseribing the problem of reseun ‘After considering the various definitions of Economics, we can easily conclude that none of them is satisfactory. If we exclude man and his welfare from the study of Economies, there will be no use of studying it: If we define Economics as a science of administration of scare resources, then its scope becomes too. wide and includes the whole of economies life and-not merely that part of it which is connected with the market price. The modern economists define economics as a science of growth and efficiency. According to Samuelson, “Economics is the study of how people and society end up closing, with or without the use of money, to employ scarce productive, resources that could have alternative uses, to produce various commoditics and distribute them for consumption now or in the future among various persons and groups in society.” It analyses the cost and benefits of improving patterns of resource allocation. In the words of C.R. MeConnell, “Economics can be defined as a science of efficiency in the use of resources so as to attain the greatest or maximum fulfilment of. society’s unlimited wants. Efficiency here implies technical efficiency and economic efficiency in the use of scarce resources for producing a given level of output. The term efficiency also relates to the efficiency of whole economics system. If one section of the society is made better off without making the other section worse off, we can say the economic system is operating efficiently. After considering the various definitions, Economics ean be defined “as a social science which is concerned with the proper use and allocation of resources for the achieve i eth with stability and efficiency”, Trent and punintenance of gra 5. IS ECONOMICS NEUTRAL BETWEEN ENDS In economics the term ‘ends’ A means the goals whi i: ieve i economic aspects of his life, The goals which a man wishes to achieve in the ends. For example, the end ‘means’ are the sources which are used to achieve the living, to protect themeches or Boals of the people are to achieve a rising standard of ete. The question ares a hrough social security schemes when they are out of job remained under debate W ees 8 Concerned with means or ends or with both has * We, briefly, discuss the views of the economists in this regard.Chapter. - Piect Matter L Economie, Vi ae of Classica} oy 5 here is q diffe ‘Onomists, Economies, The werence of opi lity of " in ity or with the ends o; weicYersial Para among economists regarding the Bea eeaiis is purely . ‘ith boy Whether Ecy i ned witl i i purely a sconce, ih Seth Tecan eenames Serer rt Enon effects of an o&'° them, the main function of an economist is t study the economic phenomena, They are also of the opinion oe 2 7 ide its scope. Fo! outsi oe ends, Economics ji 'S concern, . ‘ed with means and the study of ends lies as regal tral as oe”. Seniors example, Cairne; 'S consid, cred that “Political Eéonomy stood neu ruction’ r be their ture of the economic i o says, conclusions’ says, ingle syllable f generality and thei advice”. Thus welt truth, they do not authorize man in addi concerned at all with th that according to classical economists: Economics social or anti-social, ne, 2lUe judgments or ends. The ends may PE moral oF with them. For cxarant or foalish, good or bad, the ezonomist has 2° ea increasing caveats If the government cuts taxes, imports will rise. are positive statem nt expenditure will reduce unemployment and raise es evidence and pects: These are positive statements and can De checked again jcdgmentaya 4 ved correct or incorrect. The economists as scientists cannot P J ind say that taxes should be reduced to increase imports. inst the value The Neo-classical View : : ence The above-mentioned traditional view of describing Economics as @ nut ee ia was opposed by Neo-classical economists. They introduced the concept la eres otal the study of Economies. According to them, Economies is a social science and ies cleo normative aspect. It studies man’s activities in relation to wealth which he trie produce in order to promote his welfare. Lionel Robbin’s view Lionel Robbins has upheld the view of the classical economists. He is not in favour ‘as welfare is purely of including welfare cohsiderations in the study of Economics not to exactly measured. Moreover, human welfare does subjective in character and ca not simply depend upon material goods, it also depends upon services as well. There are certain activities -which are not conductive to human welfare such as manufacture and sale of wine but they are regarded economic activities because the economist cannot atrogate to himself the role of a moralist. Robbins is, therefore, of the view that the interpretations of subjective things cannot.be admitted to scientific discussions. He believes that Economics is concerned merely with the utilization of scarce means for the satisfaction of multiple ends. As our ends are unlimited and the means to satisfy th are limited, ‘therefore @ problem of choice arises for selecting the use: ini Ae scarce resources can be effectively applied. According to him, the di ieee Pa is to study the use of the means for the realization of particular id: eal he has nothing to do with them. They may be noble or j penton tn ae Meyer: JM. Keynes has also supported ignoble. Economics is entirely theory of Economics does not furnish a body of ee view, He says, “The fd conclusions immediately10 1634 B00k of Economics ra rather than a doctrine, an apparatus of rindi an y. It is a method fy helps its possessor to, draw correct conclusion” according Economics is a pure enough many economists FIGHE from Classical School to J.M. Keynes have dest ugh rma ral science but the fact is that none of them have been able toads’ ate of mere scientist. Robbins, the chief exponent of the view. coor the ing the Government planning, He advised the Government to adopt eget aoe who is often charged as a depression economist, has ene 19 counteract cyclical fluctuations. himself ed among economists that Economics is not merely a pure simple science but has an applied aspect to. Friedman has also emphasized the fact that economics is not concerned with the economic problems in the abstract, It studies how a particular society solves its economic problems. Conclusion: We may, as with ends. If we exclude ends from the stud! of studying” Economics. For example, if a increasing prices of commodities comes to (economist) being tl cience. In short, refrain attac faire policy. 3 ‘suggested many measures t It is now increasingly recognis' that Economics deals with means as well y of Economics, then there will be no use jow paid person worried about the fast ‘an economist to know its causes and he he follower of Robbins simply discusses the causes of inflation in the country and refuses to discuss with him its consequences and suggesting remedies; naturally the poor man will not be satisfied and he will be too much disgusted with the subject of Economics. He will rather hate it. Frazer is right when he says that “an | economist who is Only an economist is a poor prety fish”. The modern economists | being more realistic also include the n in the study of Economics. | therefore, conclude jormative aspect | | 6. ECONOMIC PROBLEM , | The Problem of Economics Milton Friedman, like Robbins, is of the strong view that economic problem arises when people: try to. satisfy _their_endless-wants with limited resources which have alternative uses. These three basic facts of economic life which give rise to problem of economies are now discussed in brief. Human wants Economic problem of mankind owes its origin to the fact that human wants are unlimited. They go on increasing with the (i) rise in. standard of living of the people (it) increase in inventions and knowledge (iii) advertisements influence, (iv) biologica! requirements (food and water). “Another features of juman wants is that all of them are not equally important and urgent. They can be ranked in order of priority. The end of a person comes only with the end of his life in this world. ~~~ A1 . he se: arcit resources (j 'Y Of resources ; i res . incre Datural (land, wate ative term. Scarcity of resources meant that all the ater, mineral) (ii) human (manpower) and man made yas they are needed. wo ; satisfied ould have arisen. Economic problen pacar nother appears on the scene. We can inite or limited resources and on the other un! Fig. 1.1: The economic problem: finite resources and infinite wants Scarcity of resources and choice nt which give rise to economic problem is the allocation of resources ive uses. However, rich'a person, a society, a country may be it has etween the alternative uses of scarce resources. For example, an d capital for the production of consumer goods, for the ore of vehicles for transportation of goods and for many other purposes at any point of time. Since the capital can be allocated for more than one uses, the industrialist would invest his capital in that use which gives him the maximum-return=The dustrialist evaluates the cost and benefit of alternative options and. then employs” his-resources -which’ yield optimum earnings. Thus scarcity of resources having alternative uses necessitates choice which is fundamental to every economic problem. Basic problems of an economy The resources are scarce and human wants are endless. Th Han ae . The proble resounees and unimited wants is faced by al the economies of the orld mo oe € r ° er they developed and underdeveloped. All the nations are, therefore. making are rich and poor, efforts to-achiey. ‘e-maximumefficiency in producti i iu ion and distribution ff rom the scarce resources at their disposal. In achieving this Hi : goal they are fz i 5 lem which are called Basic Problems pe Economy OWhene three oA at to produce? kinds of problem wh Ul (ii) How do produce? and (iii) For whom to produce to make choice bi industrialist-can_use’hislimites production of capital goods, for the'purehsevun vy Economics 12 (iy e? The problem what to produce is the problem of making a ice between the commodities to be produced. Since the resources at the choice betwee” viety are scarces therefore, it has to decide which goods and disposal a to be produced and in what quantities. The decision about the services ave f0 Be Pit petween the production of consumer goods oF capita Ce ea “guns or butter’ is of utmost importance from the point of view so nomic growth. A nation should allocate the scarce resources in such a way that maximum production is achieved | from the Fimited resources, The “ete tobe achieved is t satisfy the maximum needs of the people. (i) What to produc How to produce? The problem of how to produce means_which method of production or which combination of resources is to be used for the production of goods. Since the resources are scarce, a nation should use the techniques of production which are most efficient and economical. The society, has to choose the least cost combination of producing the goods. For instance, cloth can be produced with either handlooms (labour intensive technique) or power looms (capital intensive technique). The society, depending upon its resources and the state of technology available to it should use the most efficient method of production. (iii) For whom to produce. For whom to produce means how the output of goods and services produced is to be distributed among the people in a society. Here the resource owners who have contributed to the production of goods in the economy are to be fairly rewarded. The land owner should be paid rent. The workers should get wages. The. capitalists are to receive interest and the entrepreneurs are to be rewarded in the form of profit. So deciding about whom to produce requires as to how the reward of each factors of production is determined. The answer to this question is provided by the theory of factor pricing. We thus conclude that economic problems arise because of the scarcity of resources, ever growing human want and ensuring efficiency in the production and distribution of. goods and services. of | economics we answer and a1 7. SCOPE OF ECONOMICS The sei ics i ‘ope of economics is the area or boundary of the study of economics. In scope 1 fs a nalyse the following three main i (1) What is the subject matter of economies?” i a ol et is the nature of economics at are the limitations of economics? Subject matter of i i San ny Economics, There is a difference-of opinion among economists Economie Teste fea of Economics. Adam Smith, the father of modern the study of ware eames Conomics as a subject, which is mainly concerned with ses of generation of wealth-of nation. Impressed by the13 1 Chapee lubject Matter of Economtcs —_—_—_——_ hal of Mars! Marshal | condemnatio) n of the 19th century writers, like Carlyle and Ruskins . According t© introduced the c “Economics is «cnet of Welfare in the stud: Part of in iain fa of mankind in the ordinary business ‘Sf life. It examines that requisites of well beings gees which is closely ‘connected with the material wealth to man. He ane, U,this definition, Marshall has wihifted the emphasis fF" - He gives. primary importance to man and secondary importan wealth. nomics subject-matter of Ec ras a ‘ Deere According t0 The Robbinsian’s concept of the ve ust to satisfy these “Economii 4, ‘ peconomics is a science which studies huma Robbins (i) ds and scarce means which have alternative wants are not ‘an wants are unlimited (ii) means at his disposal t© 5 : adjusting hi “only limited, (iii) but have alternative uses. Man is always busy \justing his limited resources for the satisfaction of unlimited ends. The Pro? matters of Economics- thai we 't centre “round such activities constitute the subject~ ‘ s in the | agpects of economics In.” we stud man and society Paul A Samuelson, however, includes the dy! subject matter. According to him, Economics js the study of how yous choose with or without money, to employ productive uses to produce variove Commodities over time and distribute them for consumption "OW and in fut among various people and groups of society”. onomists are also divided res nérally covered arding the nature of jn the nature © 2. Nature of economics: The ec: economics. The following questions are ge economics (i) Is economics a science or an art? (ii) _Is it a positive science or a normative science? (1) Economics as a science or an art. Economics is both a science and an art. Economics is considered as a science because it is a systematic knowledge derived from observation, study and experimentation. However, the degree of perfection of economics -laws is less compared with the laws of pure sciences. ‘An art is the practical application of knowledge for achieving definite ends. A science teaches us to know a phenomenon and an art teaches us to do a'thing. For Seample, there is an inflation in Pakistan. This information is derived from positive science. The government takes certain fiscal and monetary meas' brit level of prices in th ures to bring down the general level of prices in the country. The study of these fiscal and t bring down inflati A F monetar, ig lation makes the subject of economics as an art. y measures, tO After arriving at a conclusion that economics i: s is both a scienc “ é as well as an art, h , here arises another controversy. Is economics a positive science or a normative science? science ‘mat 3. cen eg economist or normative science, There i . Lionel Robbins, eomomists whether economics is a posit is again difference of . rand Friedman have described Ive or normative science economi tes ics as a positiveA Text Book of Keonon 14 they opined that economies is based on logic. value theor: y only, It j ‘e, neutral between ends Hy. Itis, science. therefor Atarshall, Pigou, Hawirey, Keynes and many other economists regard economies armative science. According to them, the real function of the science is 9 seiebeing of man, They have given suggestions in their works ° vuman_ welfare. For example, Malthus has given suggestions of JM, Keynes has suggested measures to remove increase the promotion of Checking the rising population. unemployment. We agree with Mr. Frazer. that an economist who is only an economist is a poor pretty fish, An economist must come forward to give advice to the problems facing ire human being like depression, unemployment, high prices, etc., for increasing his welfare. Economics, to conclude, has both theoretical as well as practical side. positive and a normative science. In other words 8. THE NATURE OF ECONOMIC LAWS nces, has drawn its own set of generalizations or laws, Economic laws, are nothing more than careful conclusions and inferences drawn with the help of reasoning or by the aid of observation of human and physical-nature. In everyday life, we see man is always busy in satisfying his unlimited ponte with limited means, In doing so, he acts upon certain principles. ‘These’ principles hlizations which an average man usually follows when he is engaged in Economic Laws”. Economic laws are the statements Economics, like all other s or gene economic activity-are named a of general tendencies. In the words of Marshall, laws which relate to branches of conduct, in which the strength of motive chiefly” concerned can be measured by money prices”. (1) Laws of Economies are less exact. The nature of economic laws is that they are less exact as compared to the laws of natural sciences like Physics, Chemistry. Astronomy, etc. An economist cannot predict with surety as to what will happen in future in the economic domain. He can only say as to what is likely to happen in the near future. The reasons as to why Economic laws are not as exact as that of natural sciences are as follows. . . First, Natural sciences deal with matter which is lifeless. While in Economics, we in whatever ee concerned with man who is endowed with a freedom of will, He may act | ner he likes. Nobody can predict with certainty his future actions. This element of than uncertainty in human behavi i i haviour results in making the laws of E ies.less exact s a s of Economies, less €xa the laws of natural sciences. * me Secondly, in i : conn ee s it is very difficult to collect factual’ data on which eee based. Even if the data is collected it may change at any en changes in the tastes of the people or their attitudes. “Economic laws are those social .course all has there are m: and th ected Marsh; discussing the mpared with any unkno o . devoted 0 us can easily fal; Wn factors which can affect the exP' Ne chapter in hi sify the economic predicti Dr. nature of ec ter in his famous book “Princi; predictions. D a OMOMiec Laws. Te nots Book “Principles of. Economies” in he laws of tides rathe writes “. The laws of economics are to be cOmPATE, reason for comparing he than with the simple and the exact law of gravitation The the laws of tides are ales con soe Eeonemies with the laws of tides Py Marshal can only be said thee ae ot es#et: The rise of tides eannot be accurate ly predicted: It Strong wind may hat the tide is expected to rise ata certain time. It may or may not Fist: So is the cna ny change its direction to opposite side. They instead of rising may fal se with the laws of Economics: : one : ccemaig laws are essentially hypothetical. Economic lass Wi Seligman, are ly hypothetical, They are true under certain given conditions. I ; se Il be true and exact a conditi : eee the’ conclusions drawn from them wi are hypothetical, we. ysical sciences. From this statement that [awe | Hyocihesieall clement should. not conclude that, they are usriee Te. eos ment is also there in the laws of physical ance, the law of gravitation. It states that bodies tend to fall to the grou! bodies may not fall immedisiely, Their fall may be retarded by SUNOS! Ty pressure, So is the case with the laws of Economics. Take for instance, the law of diminishing marginal utility, It states, “other things beings equal. {he additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has". But this may no happen. The utility of ah additional unit may increase duc to a sudden change in fashions, tastes, ete. The only difference between the laws of Economics and the laws of physical sciences is that the hypothetical element in the former is more permanent as compared to the later. In the words of Samuelson writes “Despite the approximate character of economics laws, it is blessed with m any valid principles”. ha eric laws are qualitative and not quantitative. Laws of economics are . They are not exactly stated in quantitative terms. They tell the direction of change which is expected rather than the amount of change. For example, according to the law of demand, the quantity demanded varies inversely with price, We do not say that 10% rise in price will lead to 30% fall in the quantity (3) Economic | qualitative in nature demanded. (4) Applies on the average normal conditions. Economic laws do not deal with y particular individual, firm, commodity etc. It takes an average e 7 th any lays down its economic behaviour. ge economic unit and (5) Laws of economics are more exact than th ¢ laws of other soci: i social sciences. W. » We do admit that the laws of economics ai re not 100% e ; pray aries ar Serer cay “act. They are, however, more exactA Text BOOK of Economies 16 Laws of other Sciences 4 Physical Laws. The laws of Economies are different from = ehaviours of Comparison with (3) Beonomie Lamy geiences. The economist deals with the activites or laws of phys ‘ities of men are various and uncertain and yous men in society. Te oom them, We ean only say what is likely to happen a conclusion at happen. On the other hand, natural sciences deal with Matter and not Whe constant units. They always conform to a certain behaviour. So ihe iaws derived from them are more definite, certain and universal. (2) Moral Laws and Economic Laws. Moral laws are laws of human conduct They emanate from public opinions. They guide us as to howe should live in society, The examples of moral laws are. “Thou shall not tell a lie” or “Treat your fellowmen with courtesy”. If you disobey these laws, you can be hated or at the most ex- communicated by the society. There is no punishment by a government. An economic law, on the other hand, ‘tells us as to how a man should behave when.he is engaged in an economic activity. If any body violates an economic law, be can suffer financial loss. For example, output should be produced at minimum cést. If any body breaks this law, it is then he who suffers. There is no public censure or punishment by a government. : (3) Statutory Laws and Economic Laws. Statutory laws are the laws issued by a state. It is the duty of the citizens of a country to obey these laws. If they disobey, then they are punished, For example, government issues a law that “Theft is a crime. WhoSoever breaks this law will be put behind the bar”. Economic laws are quite different from that of statutory laws. An economic law is a statement of a scientific truth about human behaviour in the matter of the allocation of scarce resources into unlimited ends. You are at liberty to violate an economic law but that is not the case with statutory laws. 9. METHODS OF ECONOMIC ANALYSIS An economic theory derives laws or generalizatio : ds (1 Desutis Mod ge ‘ations through two methods (1) i (2) Inductive Method. These two ways of deriving economic generalizations are now explained in brief, * 1. Deductive Method. The deductive method i e is also named as analytical, ab i wy qaiustive method consists in deriving conclusions frag eect or prior method. i ns from general truths. It takes a few cena aoa apolies them to draw conclusions. For instance, if we accept the therefore, the inference wilt iS entirely motivated by self-interest. Rashid is a man. ~-applying the deduct, will be drawn that Rashid is motivated by self-interest. In Particular, ve method of economic analysis, we proceed from gencral toOEE SS LS Se Chapterst ~ lubject Matter of Economics —_—_——_— The cla Ss sical and neo-classical school of economists notably, Ricardo: Cairnes, J.S. Mill, M din . JS. Mill, Malt! I i tho! ceca inser hus, Marshall, Pigou, applied the deductive me The maii i ' main steps involved in deductive logic are as under: 1 ; ( Lenton of the problem to be inquired into. In th conomic generalizations, the analyst must have a clear an Problem to be inquired into. f deriving 3 0 je process of the precise id ; technical (2) Defining of terms. The next step in this direction is to define Ca a theory terms to be used in economic analysis, Further, the assumptions ™* should also be precise. iving i in deriving (3) Deducing hypothesis from the assumptions. The third step i? generalizations is deducing hypothesis from the assumptions taken- ralizations, he real the hypothesis world an' (4) Testing of hypothesis. Before establishing laws or gene price and should be verified through direct observations of events in te Uo, through statistical methods. (Their is an inverse relationship be quantity demanded of a good is a well established generalization). Merits of Deductive Method. The main merits of deductive method are as under: , (1) This method is near to reality. It is less time consuming and less expensive. . ie ' i mic (2) The use of mathematical techniques in deducing theories of econo’ exactness and clarity in economic analysis. s brings (3) There being limited scope of experimentation in economics, the method helps in deriving economic theories. (4) The method is simple because it is analytical. Demerits of deductive method. It is true that deductive method imple and precise, if the underlying assumptions are valid. There is big, IF, in the statement. The shortcomings of the deductive approach are as under: (1) The deductive method is simple and precise only if the underlying assumptions are valid, More often ine assumptions turn out to be based on half truths or have no a va ity..The conclusions drawn from such assumptions will, therefore, be (2) Professor Learner describes the deductive met to him, the premises from which inferences times, and places. As such deductive reasoning (3) The deductive method is highly logic or faulty economic reasonit thod as ‘armchair’ an are drawn may not are not applicable uites a great deal of alysis. According hold good at all universally, Care to avoid bad abstract, It reqi ing.b 18 A Text Book of Economi he deductive method employed By the classical lassical economists led As the < ‘le conclusions due to reliance on imperfect and incorrect assumption: ac the German Historical School of economists, a sharp reaction began thod. They advocated a more-realistic method for economic analysis to many f therefore, against this me known as inductive method 2. Inductive Method. 7 Inductive method which is also called empirical method was adopted by the Historical “School. of economists. It involves-the process of reasoning from particular facts to general principle. This method derives economic generalizations ‘on the basis of (1) Experimentations (2) Observations and (3) Statistical methods. In this method, data is collected: about a certain economic phenomenon. These are systematically arranged and the general conclusions are drawn from them. For example, we observe 200 persons in the market. We find that nearly 195 persons buy from the cheapest shops. Out of the 5 which remains, 4 persons buy local products even at higher rate just to patronise their own products, while the fifth is a fool. From this observation, we can easily draw conclusions that people like torbuy from a cheaper shop unless they are guided by patriotism or they are devoid of commonsense. The main steps involved in the application of inductive method are: (i) observation (ii) formation of hypothesis (iii) generalization and (iv) verification. Merits of inductive method. (1) It is based on facts as such the method is realistic. (2) In order to test the economic principles, the method makes use of statistical techniques. The inductive method is, therefore, more reliable. (3) Inductive method is dynamic. The changing economic phenomenon are analysed and on the basis of collected data, conclusions and solutions are drawn from them. (4) Induction method also helps in future investigations. Demerits of inductive method. The main weaknesses of this method are as under:- a) ae are drawn from insufficient data, the generalizations obtained may be faulty. (2) The collection of data itself is not an easy task. The sources and methods employed in the collection of data differ from investigator to investigator. The results, therefore, may differ even with the same problem. (3) The inductive method is time-consuming and expensive. Conclusion, The abs i rely ecinieree reveals that both the methods have weaknesses. We cannot nese eotueae pence co of them. Modern economists are of the view that both Marshall hae sigh mplimentary. They are partners and not rivals. Alfred 'Y remarked, “Inductive and Deductive methods are both neededhapter-t ~ Subject for se ee can aie thought, as the right and left foot are both needed for walkine 'Y any of them or both as the situation demands. 10. ECONOMIC ANALYSIS AND ECONOMIC POLICY hs Eeonomies, like other social sciences, has two aspects. One aspe ! eo Her is practical. Both these aspects are of great importance analysis is the basis for economic policy. These are, in fact, integral pa What is economic theory? Economic an: result of logical analyse economi lytice ct is ana ies because economic rts of each other. es built up asa i - : 5 ic princip! : ‘alysis or economic theory is a body of economic princiP ists : om! reasoning. We can call ita “base of tools” with which the ri ae © Problems. Economic theory derives principles from "0° es ngmic systematically arranged and interpreted. In the words of a aie that enables theories are statements about economic behaviour of the economy Predictions of the probable effects of certain actions” a 1 . . i under:~ The main steps involved in constructing theory of economics are as . ory is the (1) Selection of problem. The first step involved in the formulation of a theory selection of problem which is related to the real world. (2) Specifying the assumptions. The second step is to specify the Scenes a which the theory is to apply. One standard assumption in all economic models is “Other things being equal”, The idea of making assumptions is to identify iB variables of specific interest and then focus.exclusively on the relationship define: among those variables assuming that nothing else of importance will change. nder (3) Identifying the key variables. The third step in building economic model is to identify and define the key variables relevant to the economic problem under consideration. The variables of concern become the basic elements of the theory. (4) Formulating hypothesis. The fourth step in constricting theory of economics is to frame relationship as to how the key variables relate to each other. For example, If the price of apples increases in the market, other t things being constant. the quantit purchased of apples will decrease, Thus the hypothesi becomes a prediction of I ‘ will happen to the quantity purchased of apples if its pr what ice increases. (5), Testing the hypothesis. The final step itivoly to test the hypothesis by confronting the Predictions oft —_—- ee eonaey ef hypothesis, we are to focus atten: idence. For uestions, keeping other fa Sa ; 0 1 me aaa fg constant The first test wi ariables in 5 ae evidence ‘ . i takes its place with better Predictions or f0 continue using the theory * u er to reject ntil anotherATe nomic Polic: . paar (B) coe policy is the course of action based on economic principles. It aims at Econom a specific economic problem or achieving certain economic goals, resolving theories are the foundations of economic policies. The creation of specific achieving economic goals of the society is not simple and easy matter, The 1 policy formulation are as under: There should he clear statement of the economic goals to policies for main steps | (1) Clear statement of goals. be achieved. . (2) Effects of alternative policies. The second step is to examine and consider the . possible effects of alternative policies designed to achieve the economic goal. For example, while considering the merits and demerits of fiscal policy in the achievement of desired level of employment, the alterning monetary policy must remain under examination. (3) Evaluation. The third step is to evaluate the effectiveness of the policies. The process of evaluation should be continuous. If any drawback is found in it at any stage, it should he improved. Economic goals If economic policies are framed to achieve certain goals, then they should be placed in order of priority. The number of goals which are generally accepted include. the following. . (i) Economic growth (ii) Providing more jobs for persons who are able and willing to work. (iii) Achieving maximum fullfilment of wants of the citizens by efficiently using the available resources. iv) Bringing stability in price level. : (v) Giving high degree of freedom in economic activities. (vi). Ensuring fair distribution of wealth in the community. (vii) Provision of economic security to disabled, handicapped and unemployed persons. (viii) Making efforts to maintain the rate of foreign exchange. con® seanomis goals to be achieved differ with the level of employment in the See fy the developed countries can aim at achieving full employment, eee n of income and price stability etc. The developing countries, on the » mostly faced with the problems of unemployment, unequal distribution of wealth, pricé instabili E of wealth, tie t iebliy etc. Each country, therefore, must devise a system of in If may, here also be noted:that an measure at one time is not applicable fo uc today may be obsolete tomorrow. economic theory formed as a basis for policy r all times to come. An economic theory whichI. Microeconomics pecific wages. Micro i ; _— nie a 2 creek Word which means small, Microeconomics is the study of | faotomie “units; particular firms, particular households, individual prices, wale income, individual industries, particular commodities. The microeconomic theory © Price theory thus is the study of individual parts of the economy. It is economic theo" na tictoscope. For instance, in microeconomic analysis we study the demand oF an individual consumer for a good and from there we go to derive the market demand "'.t good (that is demand of a group of individuals for a good). Similarly, in microeconom © theory we study the behavioir of individual firms in the fixation of prices and outpul the words of Samuelson, “in microeconomics we examine among other things how individual prices are set, consider what determines the price of land and capita’ ar enquire into the strength and weaknesses of market mechanics. In the words Pe Leftwitch. “Microeconomic theory or price theory deals with the economic behaviour © individual decision making units such as consumers, resource owners, business firms as _ well as individuals who are too small to have an impact on the national economy. Microeconomics and allocation of resource. The microeconomic theory takes the total quantity of resources as given. It seeks to explain how they are allocated to the production of goods. The allocation of resources to the production of goods depends upon the price of various goods andthe prices of factors of production. Microeconomics analyses how the relative prices of goods and factors are determined. Thus the theory of product pricing and the theory of factor pricing (rent wages, interest and profit) fall within the domain of micro economics. Micro economics and economic efficiency. The mictceco explain whethér the problems of scarcity and allocation of reso efficient. Economic efficiency involves (1) effi production. and distribtition and (3) over all economic eff nomic theory seeks toA Text Book of Economic 2 eon Micro Economic Theory Fe Product Pricing dete. theory of Theory of Rent » Wages Interest Profit demand Production and cost Importance of micro economics Before Keynesian revolution, the body of-economics mainly consisted of micro economics. The classical economics as well as the neo-classical economics belonged to the domain of micro economics. The importance and uses of micro economics in brief are as under: . . 1. Helpful in understanding the working of free market economy. The micro economics helps us to understand the working of free market economy. It tells us as to how the prices of the products and the factors of production are détermined. It throws light as to how the goods and services produced are distributed among the various people for consumption through market mechanism. 2, Helps in knowing the conditions of efficiency. Micro economics helps in ‘explaining the conditions of efficiency in consumption, production and in distribution of the rewards of factors of production. Tt highlights the factors which are responsible for the departure from achieving the optimum efficiency. It suggests policies also which help in the promotion of economic efficiency of the people. 3. Working of the economy without central control. The micro economics reveals how a free enterprise economy functions without any central control. 4, Study of welfare economy. Micro economics involves the study of welfare economics. Limitations of Microeconomics. Micro-economics despite its many advantages is not free from limitations. They in brief are (1) Assumption of full employment in the ceonomy which is unrealistic (2) Assumption of laisses fair policy whicl is no longer in Lae in any country of the world (3) It studies part of the economy and not the Summi i oa ucStmming up: microeconomics is the study of the decisions of people and eraction of those decisions in th 5 ‘trees? of the economy as distinet from the ‘forest, he market. It analyses the “trees Il. MACRO ECONOMICS The term macro’ is deri macro fi Macro-economics, eee es from the Greek word ‘uakpo’ which means large. . er half of economics, is the study of the behaviour of the23 economy a: sa wh ole. In other we gates suc ees 0 . big ans h as national income, outpin rds, macro economics deals with total or big aes" and aggregate j t and empl fe saving ate in) ployment, total , aggregat vestment andthe general Level of ries, Inte words of Boule “Macro economi ‘onomics d of these quantities snore not with individual quantities as such but with aggregates With individual eet ith individual incomes but with the national }neht not the national ougmae Te et the price level, not with Individual outputs but with Overtinn, Tal tbut studies the determination of national output and its grow’? of international stu ies the problems of recession, unemployment inflation, oF Oe “ a ” “ these problems, omens and the policies adopted by the governments to dea wed) issues in Macro economics he main issues which are addressed in macro economics are in brief as under: (1) It helps in understanding the determination of income and emplo; JM. Keynes laid great stress on macro-economic analysis. He, in his ” brought dra: yment. Late evolutionary: stic changes book, “General Theory of Employment Interest and Money Bie ailevell in economic thinking. He explained the forces or factors which determine t of aggregate employment and output in the economy.” alysis answers Macro economic 4 ‘d and what is the importance (2) Determination of. general level of prices. questions as to how the general price level is determine: of various factors which infltience general price level. : dels help us to formulate economic th with stability. The new developed (3) Economie growth. The macro-economic mot eloped countries and policies for achieving long run economic grow growth theories explain the causes of poverty in under devi suggest remedies to overcome them. es. It is in terms of macro-economics that come are analysed. It has also been possible (4) Macro economics and business cycl ., inflation and deflation. causes of fluctuations in the national in now to formulate policies for controlling business cycles i. nal trade. Another important subject of macro-economics is to analyse the various aspects of international trade in goods, services and balance of payment problems, the effect of exchange rate on balance of payment etc. (6) Income shares from the national income. Mr. M. Kalecki and Nicholas Kelder, by naking departure from, Ricardo theory, has presented a macro theory of distribution of income. According to these economists, the relative shares of wages, and fi depend upon the ratio of investment to national income. ae (7) Unemployment: Another macro economic issue i in * is to e; c unemployment in the economy. Stagflation is another eee the causes of economics. The Keynesian and post Keynesian economists are BH of eee 2 lot of efforts in explaining the causes of cyclical unem ith inflati fi ployment and hi; with inflation and suggesting remedies to Eriaer Tia high unemployment coupled em.A Text Book of Economiey 24 Fiscal and monetary policies affect the ior types of macro economic policie: mic Polic ‘These two maj the economic analysis of the economy, _ bal Economic System: In macro economic analysis, it is emphasized that Jobal a part of a global economic system. A good or we a tion’s economy can affect the performance of the cer Performance of. ro Econo (8) Mact S are central in the economy: (9) GI nation’s economy 1S performance of a na economy as a whole. Limitations of Macro Economics. ‘The main limitations of macro economics are as follows: (1) The macro economies ignores the welfare of the individual, For instance, if national saving is increased at the cost of individual welfare, it is not considered a wise policy. (2) The macro economics analysis regards aggregates as homogeneous but does not look into its internal composition. For instance, if the wages of the clerks fall and the wages of the teachers rise, the average wage may remain the same. (3) It is not necessary that all aggregate variable are. important. For instance, national income is the total of individual incomes. If national income in the country goes up, it is not necessary that the income of all the individuals in the country will also rise. There is a possibility that the rise in national income may be due to the increase in the incomes of a few rich families of the country. Interdependence of Micro and Macro Economics. The classical approach to macro economics is that individuals and firms act in their own best interest. The wages and prices adjust quickly to achieve equilibrium in the free market economy. The Keynesian approach to macro economics is that wages and prices do not adjust rapidly and unemployment may remain high for a long time’. The Keynesians are of the view that government intervention in the economy can help in improving economic performance. The micro and macro economics are interdependent. They are complementary and not conflicting. We cannot put them in water tight compartments. Both these approaches help us in analysing the working of the economy. If we study one approach and neglect the other, we are considered to be only half educated. We should integrate the two approaches for the successful analysis of the working of economic system. The macro Rare Should be applied where aggregate entities are involved and micro approach other, it wii ean are to be examined. If we ignore one and lay emphasis on the . rong or inadequate conclasions., 12. IMPORTANCE OF THE STUDY OF ECONOMICS The ii ay 5 ree eae utility of the subject of Economics can be judged from this fact to any other ae be one of the most important and useful subject as compared makes human welfare j nowledge. The reasons for gaining its importance are that it fare is direct and primary concern. It helps in raising the quality ofminds of the people. In the Oe of on of the day”. About the impor yy, y science “Political economy is perhaps the a of good but ignorance of it is not merely a deviation © Tae of Edmunt Burks is not wrong in sayite succeeded”. The that of sophisters, economists, and calculators has tudy of economics are as under. (A) _ Intellectual Value, ith The knowledge of Economies is very useful as it broadens our eetudy of Economics intellect, inculcates in us the habit of balanced thinking. The fone another for ou Uhakes us realize that we as human beings are dependent uPon One We Oo an daily needs. This feeling creates in us the intelligent appreciat the spirit of co-operation with others. (B) Practical Advantages ; : import The practical advantages of Economics are much more impor advantages. These advantages can be looked at from the in of view. Durbin “Economie: Economies Malthus remarks, it may be said that the i Produces great positive evil chivalry has gone, advantages of the st 5 our ook, sharpens ou ant than its theoretica! and community poi i view, the study of (1) Professional and Personal Application From personal point Of appreciate more Economis is useful as it enables each of us to understan Gee nioaey spending intelligently the nature and significance of our money earn rab Gener cajietibis activities. With the knowledge of Economics, the consi chil to a producer. It expenditure to his income. The study of Economics is also eT pal eet arre wa finda necrosis ving aro i roduction at his dis . ing t yaceie erecta From the study of Economics, one can easily ae as 2 why the prices have risen or fallen, The knowledge of Economics also exp! eis ce to how the reward of various factors of production is determined. Thus, we fin every individual can rightly hope to become a better and more efficient consumer, producer and businessman, if he has the working knowledge of Economics. (2) Economics for the Political Leader. The study of eco nomics is not only helpful from the individual point of view but it is also very useful for the welfare of the kinds of economic problems such as. wy nomic ble nemployment, inflation, under-production, imposition of tariffs an id control, Problem of moi roblems, if he has thorou, over production, Nopolies, etc. the igh knowledge of nance minister is also on the incomes of the nment, Economics here indispensable. He has to raise people for meeting the Nnecessay comes to his rescue an collected. revenueA Text Book of Fe 26 Development. 3) Poverty and @) Pepin traces of poverty from the cot The greatest advantage of Economics is that it helps ; untry. Take the case of Pakistan = in ine re ontronted with different,kinds of problems. For example, iow” Pakistan Tow productivity of agriculture, slow development of industries e srarease in population, under-developed means of communication and transport, a ireretudy of Economies helps in devising ways and means and suggesting practig hese problems. capita income, measures in solving t (4) Economics for the citizen. Such being the importance of study of Economies, it is rightly remarked by Wooten that “you cannot be in real sense a citizen untesg vou are also in some degree an economist”. He is perfectly right in giving the Statement. The world is so fast changing that we are completely now living in 4 world dominated by economic forces and economic ideas. If the people of any country do not have the working knowledge of an economic system, then the government of that country can easily hoodwink its citizens. But if the citizens have knowledge of Economies, then the government will be very vigilant and" spend the money in a wise manner. The importance of the study of Economies can also be judged from this fact that the daily newspapers cannot be understood without some knowledge of Economics. The newspapers often describe complicated economic problems such as inflation, balance of payment, balance of .trade, imperfect markets, dumping, co-operative farming, sub-division and fragmentation of holdings, mechanization of agriculture, etc. If you do not have working knowledge of Economics, you cannot understand these diverse problems. From this brief discussion, we conclude, that the knowledge of Economics is very useful. As such it is necessary that every citizen, worker, administrator, consumer, etc., should have at least working knowledge of it. In the words of Sir Henry Clay “Some study of Economics is at oné a practical necessity and a normal obligation”. (5) Economics for Best interest of Society: It may here be remembered that economics no doubt helps you as a voting citizen as well as benefit you professionally and Personally but that is not the primary objective of economics. In economics the problems are examined from the social point of view rather than the personal point of view. In economics, production, exchange of goods and their consumption are analysed from the view point of society’s best interest as a whole, not from the ‘viewpoint of an individual managing his personal investment decisions or protection from the effects of inflation etc. A. LONG QUESTIONS: 1. Consider the subject. . | 7 ei © subject-matter of economics with reference to any three definitions of 2. “The problem of i definition. i 7 . A . this statement, ‘on involves special difficulties to the economists”. Discuss