What is economics?
You have heard that economics is the study of money. Economics was supposed to teach selfishness. Is it really true? Is there space for human welfare in economics?
Is economics concerned with daily human activity?
The social sciences have a branch that addresses these questions.
What should be made?
How do you make it?
Whom to produce?
When should I produce?
which gradation?
This presents another difficulty for economics. Wait! The problem still exists, right?
Are there enough resources or raw materials to produce?
Is there sufficient land, labor, and money to produce goods and services?
If the answer is yes, you are attempting to learn about free items that are worthless. I'm saying put an end to economics.
If there is are scarcity of resources, you should learn more about economics. Let's redefine economics as a social science that examines how best to use limited resources. Rare resources possess a monetary worth If you have to pay to obtain anything, it is an economic good. For instance, if you want to get an iPhone, it is economically beneficial because you have to pay for it.
The fundamental focus of economics is on meeting material needs and using those resources to fulfill human desires.
What if you want to pay for something that you want to take from yourself, like trash pickup at home?
Yes, it is economically bad, so you should avoid it.
Economics is a broad term for financial-related topics. The study of financial aspects examines how a person or society allocates its limited resources to produce significant goods and services and distribute them to other people. The study of financial issues involves looking at how people behave, including how much they work, what they buy, how much they save, and how much they give to reserve funds.
Money earned > Savings > Investment >Interest was attained
The study of financial issues involves looking at how people interact with one another.
Who chooses how to distribute resources?
Economic agents decide how to allocate resources. These are the top three economic actors:
Producers are individuals or businesses who create products or offer services.
Consumers are the people or businesses who buy goods or services.
Governments set the rules that govern economies.
Let's take a look at the economics flashback.
The name "Financial issues" derives from the Greek word "Oiknonomos," which denotes a person who manages a family.
Legislative matters, according to Aristotle (384–322 BC), were the cornerstone of state governance. It was seen as a component of other disciplines, including logic, legal concerns, morality, and so forth.
An Inquiry into the Nature and Causes of Wealth of Nations, written by Adam Smith and published in 1776, was the first methodical investigation of financial issues in a long time.
An ancient Indian work on monetary theory and military strategy called the Arthashastra was authored in Sanskrit. Researchers at Takshashila named "Kautilya" and "Vishnugupta" (350–283 BC) are credited as the founders.
Financial matters were seen as Christian values by medieval Christians, and prosperity was seen as salvation.
Scotland-born Adam Smith, known as the "Father of Economics," published his book "An Enquiry into the Nature and Causes of Wealth of Nations" in 1776.
According to Adam Smith:
• The primary source of wealth or revenue is labor.
• Only if more labor is put in will more money be created. Economics explains how people act and engage in health-related activities.
• This definition was based on the tenets of full employment, unrestricted competition, absence of governmental intervention, the use of money as a means of trade, etc.
• Free market: There must be no government meddling in the market.
• Labor division: The division of labor into tasks completed by various people under the specialization and division of labor system is how an item or service must be produced.
The process of concentrating on specific tasks for which they are well-suited within the larger production process is known as specialization.
Why Does Labor Division Promote Productivity Growth?
The economy of scale, or the decrease in the average cost of producing each unit as output rises, provides the solution.
Other classical economists, like J.S. Mill, F.A. Walker, J.B. Say, and David Ricardo, backed Adam Smith's classical economics thesis wholeheartedly.
Features/Characteristics of Wealth Definition
• The role of the economist: According to Adam Smith, economics examines how those people who have a single goal behave. The goal is to continuously increase income at all costs and use all available ways. Such a person is referred to as an "economic man."
• Material items are included in Adam Smith's definition of wealth; non-material assets are not taken into consideration. The term "material things" refers to items like pens, pencils, books, cars, and other tangible items that can be seen, touched, and moved. Non-material things, such as the capacity to sing or heal, are only felt and cannot be seen, touched, or transferred.
• The importance of wealth: Adam made the assumption that the only important aspect of human civilization is riches. Since money may satiate people's desires, human society as a whole revolves around finding ways to increase wealth. Any type of corporate organization depends heavily on wealth to function.
• An exploration of the source of wealth: According to this definition, the increase in material goods production brought about by specialization and the division of labor constitutes the source of wealth.
Arguments against the wealth definition
One and only source of money: The wages paid to engaged laborers may be the only source of wealth for the country. However, detractors contend that other sources of wealth include physical resources, human resources, capital resources, and natural resources. In real life, where love and friendship also have enormous significance, the idea of an economic guy is illogical.
The narrow definition of wealth: According to the traditional definition, wealth solely refers to tangible commodities and excludes any intangible ones.
Ignores economic well-being: According to this definition, economics is solely the study of wealth, completely ignoring the economic welfare of society.
Overemphasis on wealth: This term has been criticized for placing too much focus on wealth.
Neo-Classical Definition/Welfare Definition
By focusing on material well-being rather than material wealth, Marshall created a British school of economics.
He stated the following definition of economics in his book Principles of Economics (1890): "Economics is the study of humankind in the normal course of existence." It focuses on a man's means of earning money and his spending habits. On the one hand, it is a study of riches, but more importantly, it is a component of the study of man.
1. The study of material welfare is known as economics.
2. Economics is a branch of social science or the study of humankind.
3. Economics is the study of human reasoning as it is manifested in the pursuit of maximizing material welfare. His opinion of Marshall received considerable backing from A.C. Pigou, Cannan, and Beveridge.
Characteristics of Welfare Definition
• Welfare definition emphasizes material welfare in its study of welfare. He asserted that economics encompasses all forms of commodities and services with economic value that satisfy human needs and aspirations while ignoring non-material factors.
• Economic activity research: People participate in a variety of activities, including political, social, and religious ones. The welfare definition, on the other hand, only covers economic activities involved in paying for expenses and earning income.
• Social science: Economics is a social science that solely studies people who live in structured societies and is concerned with their economic activities. People who live in isolation like monks are not allowed to study economics.
• Main focus on humanity: Unlike the traditional definition, this definition places a greater premium on well-being than riches. It claims that wealth exists for the benefit of people rather than for its own sake.
The welfare Definition has been criticized
Economics, according to Marshall, is a social science. He believed that economics was solely the study of those who resided in a structured society. But regardless of whether a person lives in a structured society or alone, the laws of economics are always relevant.
• Using money as a yardstick for assessing welfare: Marshall used money as a yardstick for gauging welfare. Money alone, though, is hardly a reliable gauge of contentment. Even with the same amount of money, various people, such as the wealthy and the impoverished, may experience varying degrees of contentment.
• Material and intangible welfare: According to Marshall, economics is a science that examines material welfare. The same activity, however, might occasionally be both material and non-material at different moments. A doctor providing services for pay, for instance, would be considered a material activity, whereas a doctor providing services for free or without payment would be considered non-material.
• The relationship between economics and welfare: According to Marshall, economics is the branch of science that studies how to maximize human welfare. However, some economic activities that are harmful to human health, such as the manufacturing and consumption of alcohol and tobacco, also fall under the umbrella of economics.
Contemporary Definition of Scarcity/ Robbins Definition
In his book "An Essay on the Nature and Significance of Economic Science," published in 1932, Professor Lionel Robbins of the London School of Economics adopted a novel strategy to introduce a new dimension in the definition of economics. According to him, "Economics is the discipline that examines human behavior as a relationship between ends and limited resources that can be used for other purposes." After World War I, this definition was given in 1932 AD. The European nations, which had been devastated by war, were in desperate need of a lot of resources during the third decade of the 20th century for reconstruction, infrastructure building, refurbishment, etc. This definition is constructive and normative. This explanation of economics has been widely accepted and popular around the world. Robbin's theory of economics was backed by economists like Karl Manager, Peter, Stigler, Scitovosky, and others.
Characteristics of Scarcity Definition
• Unlimited Wants: Humans have limitless wants. Nobody's wants can ever be completely satiated. A person cannot be completely content since if one need is satisfied, another desire arises.
• Scarce/Limited means: Although demands are limitless, there are only so many ways that someone can satisfy them. Here, scarcity is not absolute but rather related to people's limitless aspirations.
• Alternative uses of scarce resources: According to Professor Robbins, there are other ways to use scarce resources. For instance, 300 rupees can be used for dining out or watching a movie.
• Wants' urgency: According to Professor Robbins, want to vary in their level of urgency or intensity. Priority is given to satisfying more urgent needs over less urgent needs.
• Problem of choice: People must decide which needs to satisfy now and which to put off until later because their wants are limitless in comparison to their resources. As a result, the choice problem is one that everyone struggles with. There wouldn't be a choice issue if there were sufficient resources to satisfy all desires. The economic issue that underlies the topic of economics is this decision problem.
Key characteristics of the definition of scarcity economics
1. It acknowledged that economics is a science that studies how people behave economically.
2. The best use of limited resources is another key component.
3. It outlines the three fundamental aspects of human existence—unlimited needs, few resources, and creative uses of those resources—in detail.
4. Because resources are limited, it is important to use them as effectively as possible to satisfy human needs. This is the main goal of economics.
Criticisms of the Scarcity Definition/Modern Definition
Welfare as an oblique concept: Robbins has disputed Marshall's notion of welfare. However, the definition of scarcity includes the concept of well-being by default. Making decisions to allocate limited resources to achieve maximum satisfaction is equivalent to making decisions to maximize well-being.
The abundance of pressing concerns facing the modern economy: Robbins linked the economic issue to a lack of resources compared to demand. However, there could be issues as well with plenty. Unemployment may emerge from an excessive number of people working, whereas inflation and trade cycles (which relate to changes in economic activity, particularly in employment, output, income, prices, and profits) may result from an excessive amount of money in the economy.
The dissociable of means and ends: In life, something can serve as both a means and an end, which leads to a lot of uncertainty. A student of M.B.B.S. wishes to become a medical officer. For him, it marks the end. But you can also earn an M.D. with the same degree.
Inconsistency: This definition claims that economics is a positive science that is impartial about goals. However it becomes a normative science when the notion of choosing between various applications to optimize satisfaction is introduced. Consequently, the definition contradicts itself.
Scope:
Scope means an area of study or coverage of a particular subject.
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Subject-matter of Economics:
The field that an economist studies is its subject matter. The following three points are used to study the topic of economics.
I. By the definition
II. The conventional method
III. A contemporary strategy
Considering the definition
We looked at many ideas under the various definitions Adam gave to Prof. Robbins. Three of these concepts—the traditional notion, which is wealth-oriented, the welfare concept, and the concept related to scarcity—dominate if we group them. Each definition falls short and is unable to encompass all facets of economics.
The conventional route (Based on economic activities)
Human desires are limitless. People must work hard to fulfill those desires. Satisfaction comes from having one's wishes satisfied. Various economic activities, including production, consumption, trade, and distribution, make up this process. As a result, all of these activities fall within the purview of economics.
Based on Modern Analysis
Microeconomics and Macroeconomics are the two subfields of economics that make up the modern analysis of economics. The economic behavior of single entities, such as homes, businesses, and industries, is the subject of microeconomics. The subject of macroeconomics is economic aggregates or the economy as a whole. As a result, it addresses issues like total output, national income, the general level of prices, inflation, economic growth, consumption, investment, etc.
Economics' nature
Economics' nature investigates if the field is one of science or art.
Reasons why economics is a science
As a science, economics can take one of two forms, Positive and normative economics.
Science of Economics:
It is the relationship between Cause and Effect;
It is measurable and Fact-based.
Measurable in terms of money; as it has a Scale of Measurement
For instance, the Law of Demand describes the causal connection between a commodity's price and the quantity demanded.
Its research methodology is distinct (induction and deduction).
It makes market predictions using a variety of statistical and non-statistical approaches.
HDI is used to gauge economic growth.
Positive economics
Positive Economics is also known as a science focusing on cause-and-effect correlations between variables rather than a passing value judgment. In other words, it states "what is." The present, past, and future.
Positive claims deal with the truth. They accurately convey the truth.
Economics should be objective regarding all objectives.
Economists have no business judging the morality of people's actions or making such claims. It offers economic measures like GDP, HDI, etc. As logical humans, we must have faith in economic indicators.
Economics Normative
Value judgments are a part of economics as a normative science or subject.
It describes "what ought to be" or "what should be the things," and is hence prescriptive in character.
A rational person has sentimental attachments and emotional viewpoints in addition to logical viewpoints. In this instance, economics is more concerned with how things should be than with actual facts. It is also known as prescriptive economics for this reason.
It addresses moral and ethical issues related to economics.
It examines economic developments to make judgments about what ought to be done to raise societal welfare generally. For instance, tax rates in sectors that promote exports should be lowered to increase exports and lower the BOP deficit.
Normative economics provides economic release which may not have facts. A politician gives the opinion that is an economic release.
Economics as an Art
Art is the practical application of knowledge to the pursuit of certain objectives. Science offers us the fundamental ideas of every field, but art makes these ideas a reality. Because it provides direction for finding answers to all economic difficulties, economic activity can also be considered art.
Art is a field of study that deals with how people express or use their ideas and creative abilities to carry out specific tasks.
Similar to science, economics also depends on the human imagination to put scientific rules, principles, and theories into practice to carry out a certain task.
Art is a set of guidelines for achieving a specific goal. We are aware that economics is employed to accomplish several objectives in real life.
Conclusion
The study of how humans allocate scarce resources for various purposes is known as economics. It is a branch of social science concerned with the creation, distribution, exchange, and consumption of products and services. It investigates how individuals, corporations, governments, and other organizations decide how to allocate resources to meet their objectives and needs.
In a nutshell, economics subject isn't a philosophy. It is nearly a science because it can study the psychology of producers, consumers, and government keeping in figures and graphs as science does.