Scope and Nature of economics
The scope of economics
It is an area or boundary of the study of economics. Mainly we analyze the following three main questions in it.
(i) The subject matter of economics?
(ii) The nature of economics?
(iii) Major limitations of economics?
Subject matter of Economics:
A difference of opinion exists among various economists regarding the subject-matter of economics.
Adam smith -> The father of modern Economic Theory
He defined Economics as a subject, which is mainly concerned with the study of nature and causes of generation of wealth of nations
Marshall introduced the welfare concept in the study of Economics. He shifted the emphasis from wealth to man and gave secondary importance to wealth.
Later Robbins’s concept was that
“Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses”
Robbins concept held the following assumptions =>
(1) As human our wants are unlimited
(2) However means at his disposal to satisfy these wants are not only limited
(3) but have alternative uses
Man has limited resources for the satisfaction of his unlimited ends and constantly adjusts them to meet his needs. The various problems that surround such activities constitute the subject-matters of Economics.
It was Paul Samuelson who included the dynamic aspects of economics in the subject matter.
According to him, “Economics is the study of how man and society choose with or without money, to employ productive uses to produce various commodities over time and distribute them for consumption now and in future among various people and groups of society”
Nature of economics:
Economists are also divided regarding the nature of economics.
(i) Is economics a science or an art?
(ii) Is it a positive science or a normative science?
Economics as a science or an art:
Economics is both a science and an art.
Why a science ->Because it is the systematic knowledge that is derived from observation, study and experimentation. However, in a lesser degree of perfection compared to laws of pure sciences.
Why an art -> Basically an art involves the practical application of knowledge to achieving definite ends. It teaches us to do a thing. For example, inflation in India. This information is derived from positive science. Government takes various fiscal and monetary measures to bring down the general level of prices in the country. So to bring down inflation makes the subject of economics as an art.
Is economics a positive science or a normative science
What is a Normative and Positive Economics ?
A normative science studies facts not as they are but as they ought to be
A positive science studies facts as they are and not as they ought to be
Prof. Robbins is of the notion that economics is a positive science ie it studies the fact as they are. He said economics is simply to explore and explain- knowledge for the sake of knowledge—a study of cause and relationship.
Marshall and Pigou assigned to economics the role of a normative science.
Broadly the study of economics can be grouped into
(a)micro economics -> the study of individuals
(b) macroeconomics -> the study of the economy as a whole
What are Economic Laws ?
These principles or generalizations which an average man usually follows when he is engaged in economic activity (buying and selling)-are named “Economic Laws”.
Marshall defines economic laws as,
“Economic laws are those social laws which relate to branches of conduct, which the strength of motive chiefly concerned can be measured by money prices”.
Laws of Economics are less exact means they cannot be predicted with a 100% probability of happening due to the element of uncertainity in human behaviour and dynamic nature of factual data collected
Economic laws are essentially hypothetical
Economic laws are qualitative in nature
They cannot be exactly stated in quantitative terms. They may be able to give 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 demanded.
Economic laws are applicable only on an average in normal conditions.
It does not deal with any particular individual, firm, commodity but takes an average economic unit and lays down its economic behavior.