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Nature and Scope of Economics

Economics is the study of how scarce resources are used to satisfy unlimited wants. It examines individual industries, firms, and households (microeconomics) as well as whole economies and aggregates on a national scale (macroeconomics). Positive economics objectively describes economic behavior while normative economics evaluates outcomes and may recommend policy. Key areas of study include production, prices, income, employment, growth, and development. Different economic systems allocate resources in various ways based on market forces or government intervention.

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17 views

Nature and Scope of Economics

Economics is the study of how scarce resources are used to satisfy unlimited wants. It examines individual industries, firms, and households (microeconomics) as well as whole economies and aggregates on a national scale (macroeconomics). Positive economics objectively describes economic behavior while normative economics evaluates outcomes and may recommend policy. Key areas of study include production, prices, income, employment, growth, and development. Different economic systems allocate resources in various ways based on market forces or government intervention.

Uploaded by

Aishwarya Kapoor
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Nature and Scope of

Economics
Introduction
• The word Economics is derived from
the Greek word ―OKIOS NEMEIN‖
meaning household management
• Man is a bundle of desires. Goods and
services satisfy these wants. But almost all
the goods are scares
• To produce goods factors of production
are needed and these are all scarce
• Goods have alternative uses
The Study of Economics
• Economics is the study of how individuals
and societies choose to use the scarce
resources that nature and previous
generations have provided.
Economic Definitions

• Adam Smith gave the Wealth


Definition
• Alfred Marshall gave the Welfare
Definition
• Lionel Ribbons gave the Scarcity
Definition
• Paul Samuelson gave the Growth
Definition
Science of growth and
development

 ―Economics is the study of how men and society


chose, 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 future amongst various people and groups of
society‖ (Paul A. Samuelson)
The Scope of Economics
• Microeconomics is the branch of economics
that examines the functioning of individual
industries and the behavior of individual
decision- making units—that is, business firms
and households.
• Macroeconomics is the branch of economics
that examines the economic behavior of
aggregates—
income, output, employment, and so on—on a
national scale
The Diverse Fields of Economics
Examples of microeconomic and macroeconomic concerns
Production Prices Income Employment

Microeconomics Production/Output Price of Individual Distribution of Employment by


in Individual Goods and Services Income and Wealth Individual
Industries and Businesses &
Businesses Price of medical Wages in the auto Industries
care industry Jobs in the
How much steel Price of Minimum wages steel industry
How many offices gasoline Food Executive salaries Number of
How many cars prices Poverty employees in a
Apartment rents firm

Macroeconomics National Aggregate Price National Income Employment and


Production/Output Level Total wages Unemployment in
and salaries the Economy
Total Industrial Consumer prices
Output Producer Total corporate Total number of
Gross Domestic Prices Rate of profits jobs
Product Inflation Unemployment
Growth of rate
Output

5/5/2012 Arihant Jain P.G.D.M.


The Method of Economics
• Positive economics studies economic behavior
without making judgments. It describes what
exists and how it works.
• Normative economics, also called policy
economics, analyzes outcomes of economic
behavior, evaluates them as good or bad, and
may prescribe courses of action.
Contd…

• Positive economics includes:


– Descriptive economics, which involves
the compilation of data that describe
phenomena and facts.
– Economic theory, which involves
building models of behavior.
 An economic theory is a general statement of
cause and effect, action and reaction
Contd…

• Empirical economics refers to the


collection and use of data to test
economic theories.
• Many data sets are available to facilitate
economic research. They are collected
by both government agencies and private
companies,
Criteria for economic outcomes
• Economic growth, or an increase in the total
output of an economy.
• Economic stability, or the condition in which
output is steady or growing, with low inflation and
full employment of resources.
• Efficiency, or allocative efficiency. An efficient
economy is one that produces what people want at
the least possible cost
• Equity, or fairness of economic outcomes
Economic System
• The manner or the structure through which the
economy of a country operates is known as
Economic System
• Variety of Economic Systems
• They differ from each other not only in details but
also in broader outlines
• Types of Economic Systems:
– Capitalist
– Socialist and
– Mixed Economy
Capitalism

• All economic activities are guided by


market forces
• Policy of laiseez-faire (absence of state
intervention). Privately owned resources
• What to Produce, how to produce and for
whom to produce power rests with the
producers
• Profit maximization is the main aim
• E.g. USA, UK
Merits and Demerits

Capitalism

Merits Demerits

Fast Hides
Self impleme- real High rate of Inequalities
ntation need of obsolescence
regulatory in income
of the and wealth
efficient
decisions society
Socialism
• Originated due to drawbacks of
capitalism
• Just opposite to capitalism (govt.
owned)
• The merits of capitalism become the demerits
and merits thus become the demerits
• It aims at removing the inequalities of income
and wealth, inequalities of economic
opportunities, unemployment and waste of
productive resources
• E.g. North Korea
Mixed Economy

• Merits of capitalism and Socialism are


taken and a Mixed economy is formed
• Generally adopted by countries with low
per capita income and is
underdeveloped or is developing (India)
• Some sectors are kept in
Government control

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