Definition of economics

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Geoffrey Hutchinson
6 years ago
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1 Definition of economics The word Economics was derived from the Greek words Oikos means a house and Nemein is to manage. Thus the term Economics meant managing a household, using the limited money or resources a household has. There is no unanimity of opinion as regards the formal definition of economics. Different writers have defined it differently at different times. And all these definitions differ widely from each other because of difference of opinions among the economists as to the ultimate aim of economic activities. However for the sake of simplicity and clarity we will classify the definition into different categories. Economics is social science, which is concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants. Majority of today s political problems have important economic aspects. For example, what level of taxes should we have, how can we increase rate of economic growth, how can we reduce poverty etc. A basic understanding of economics is essential for well-informed people. An understanding of fundamentals of economic decision-making and the operation of economic system enables an entrepreneur to increase profit. In economics we examine situations in which individuals can choose how to do things, when to do things and with whom to do them. Ultimately the purpose of economics is to understand choices. Economics is about making efficient uses of scarce resources. It is about learning how people in their daily lives make decisions of allocating scarce amount of resources time and budget they possess, to meet their numerous desires. At times you may have wished you had more income and more time. For instance, during exams students wish they had more time to prepare for exams. Income and time are not plenty, they are scarce. But, the number of wants that one seeks to satisfy from his/her limited income or time are numerous or unlimited. The scarcity of resources, therefore, forces everyone to make choices from their long list of wants. Just as the resources of an

2 individual are scarce, the resources of the society are also scarce in comparison to what the people in the society might collectively want to have. The scarce resources of the society have to be allocated properly in the production of different goods and services in keeping with the likes and dislikes of the people of the society. Any allocation of resources of the society would result in the production of a particular combination of different goods and services. The goods and services thus produced will have to be distributed among the individuals of the society. The allocation of the limited resources and the distribution of the final mix of goods and services are two of the basic economic problems faced by the society. DEFINITION OF ECONOMICS: Robins Definition of Economics: Robbins gave a more scientific definition of Economics. According to Robbins, scarcity is the foundation of Economics. Nature has provided us limited resources to fulfill all our needs. Therefore, we have to choose for which wants or needs the resources are to be utilised. The way in which priorities are allocated, or the way in which the choice between the satisfaction of various wants is made, is the essence of Economics. Robbins defines Economics as, the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. 1 We can draw following facts from the above definition: Economics is a science: According to Robbins, Economics is not a mere social science, it a human science. It focuses on man when he is faced, with the problem of allocating scares resources to satisfy his unlimited wants. Robbins 1 L Robbins, Essay on the Nature and Significance of Economic Science, london1932, p 15.

3 asserts that economics is a positive science i.e. it explains the cause and effect relationship between economic variables. It explains the things as they are and not what they ought to be. For example, in positive macroeconomics we are basically concerned with how the level of national income is determined and distributed. But at the same time, we are not worried whether that distribution is even or not or what should be the distribution of income. Unlimited Wants: The basic fact of economic life is that wants are unlimited. If wants were limited then the economic problem would have not arisen. But, since wants are unlimited, we have to make a choice among them. At the same time wants are not of equal intensity. Some wants are more intense than others. Because of this difference in intensities of wants, we are able to make a choice amongst them. Scare Mean or resources: Another important element which gives rise to economic problem is that means or resources which are capable of satisfying the wants. If the resources were abundant and unlimited then the necessity of choosing between satisfaction of one want and that of another would have disappeared, and with it would disappear the science of Economics. Alternative Uses of Means: According to Robbins definition resources are capable of alternative uses. For example, cloth material can be used for making garments; it can be used for so many other purposes. The society has to decide for which purposes cloth material is to be used. If cloth material had a single use, the problem of choice would have not arisen, but since it is capable of alternative uses, we have to make a choice among these uses and decide about the best allocation of cloth. Similarly, we have to decide about the allocation of other resources time, money, capital, land, labour, etc. It is to be noted that Robbins does not distinguish between material and non-material, between welfare and non- welfare. According to him, any human activity, whether material or immaterial, will be studied in economics, provided it satisfies

4 human wants. Robbins also claims that economics is silent as to the question of which ends are to be satisfied and which not. Economics only indicates the way with which given ends or wants can be achieved with minimum possible resources. Which ends should be selected is not the job of economist. In other words, according to Robbins, economics is neutral between ends. Besides Robbins, many other economists have defined economics in terms of scarcity of resources and choice. These include Prof. Wicksteed, Stigler, Scitovsky, etc. Critical evaluation: Robbins has made economics a scientific study. His definition highlights the fundamental economic problem, which the society faces such as scarcity of resources and the resultant problem of allocation of these resources among various uses. He has broadened the scope of economics by including virtually everything that satisfies human wants. He has made economics as a science of choice. Thus definition has become one of the most popular definitions of economics. But Robbins definition is also not free from flaws. They are as follows - i) Robbins has ignored the social welfare character of Economics. The study of human welfare is the true scope and objectives of economics. However, a close analysis of Robbins definition implies optimum allocation of resources for the maximum satisfaction of wants. It is believed that the maximum satisfaction of wants of society would generally lead to its maximum welfare. ii) Robbins has ignored the normative aspect of economics by making economics neutral between ends. If economics has to play a positive role in promoting social welfare and economic growth, it will have to leave its

5 neutrality between ends. It will serve as an engine of social betterment only when it helps in deciding what is good and what is bad for achieving various objectives. iii) Robbins definition concentrates on microeconomics and has kept macroeconomics outside the scope of economics. He concentrates on the theory of product and factor pricing. But now-a-days, the importance of macro economics has increased wherein we study how national income is determined, how it is distributed, why economies have period of boom and depression, why there is instability in the levels of output, income and employment, etc., As Robbins has ignored these aspects, sis definition is not comprehensive. vi) An important problem faced by a large number of economies in the world is unemployment of manpower. This is due to the excess of supply in relation to its demand. This is not a problem of scarcity but of plenty and it is the job of economist to study the causes of unemployment and to suggest ways of reducing it. Robbins definition has totally ignored this aspect. v) Robbins definition does not cover the theory of economic growth and development also. He explained the allocation of given resources, but not how to minimize the scarcity of resources. The theory of economic growth and development includes the study of how with the given scarce resources the level of national income and accumulation of more wealth can be maximised. Thus Robbins definition is incomplete as it ignores an important topic like economic growth and development.

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