Definitions of Economics
Marshalls
Paul Samuelson, Nobel laureate in Economics in 1970,
defines economics as the study of how a person or society
meets its unlimited needs and wants through the effective
allocation of resources.
There are other definitions of economics. Here are some:
- Economics is a science that deals with the study of the
production and distribution of a country's resources.
- Economics is a social science that deals with the study of
the utilization of a country's natural resources.
- Economics is a social science that deals with the study of
how people can be influenced by the economic system
around them. For example, if the price of certain commodity
goes up, people will try to conserve that commodity or buy
something that costs less.
- " Economics is the study of mankind in the ordinary
business of life; it examines that part of an individual and
social action which is most closely connected to the
attainment of and the use of the material requisites of well-
being."Alfred Marshall, British economist
- " Economics is a science that deals with the study of human
behavior as a relationship between ends and scarce means
which have alternative uses."Lionel Robbins, British
economist
We understand Economics is a social science.
Let us understand what is the meaning of economics.
These are the sources that i gathered from different books or
designated websites.
According to Webster Dictionary, "Economics is the science of
household affairs, or of domestic management."
According to investor words.com "Economics is the study of
how thwe forces of supply and demand allocate scarce
resources."
According to United States National Library of Medicine
"Economics is the science of utilization, distribution, and
consumption of services and materials."
According to Alfred Marshall,a British Economist defined
"Economics is the study of mankind in the ordinary business
of life; it examines that part of an individual and socail action
which is most closely connected to the attianment of the use
of material requisites of well being. Thus it is on one side a
study of wealth and on the other and more important side,a
part of the study of man.
According to Lionel Robbins, a British economist said that
"Economics is a science that deals with the study of human
behavior as a relationship between ends and scarce means
which have alternative uses."
After giving a several definition of Economics from different
authors accross the globe this time we can define Economics
as "Economics is a social science that examines how people
choose use limited or scarce resources in attempting to
satisfy their unlimited wants."
The following points highlight the top four definitions of
Economics. The definitions are: 1. General Definition of
Economics 2. Adam Smiths Wealth Definition 3.
Welfare Definition 4. Robbins Scarcity Definition.
1. General Definition of Economics:
The English word economics is derived from the ancient
Greek word oikonomiameaning the management of a
family or a household.
It is thus clear that the subject economics was first studied in
ancient Greece.
What was the study of household management to Greek
philosophers like Aristotle (384-322 BC) was the study of
wealth to the mercantilists in Europe between the sixteenth
and eighteenth centuries.
Economics, as a study of wealth, received great support from
the Father of economics, Adam Smith, in the late eighteenth
century.
Since then, the subject has travelled a long and this Greek or
Smithian definition serves our purpose no longer. Over the
passage of time, the focus of attention has been changed. As
a result, different definitions have evolved.
These definitions can conveniently be grouped into three:
(i) Smiths Wealth definition;
(ii) Marshalls Welfare definition; and
(iii) Robbins Scarcity definition.
2. Adam Smiths Wealth Definition:
The formal definition of economics can be traced back to the
days of Adam Smith (1723-90) the great Scottish
economist. Following the mercantilist tradition, Adam Smith
and his followers regarded economics as a science of wealth
which studies the process of production, consumption and
accumulation of wealth.
His emphasis on wealth as a subject-matter of economics is
implicit in his great book An Inquiry into the Nature and
Causes of the Wealth of Nations or, more popularly known as
Wealth of Nationspublished in 1776.
According to Smith:
The great object of the Political Economy of every country is
to increase the riches and power of that country. Like the
mercantilists, he did not believe that the wealth of a nation
lies in the accumulation of precious metals like gold and
silver.
To him, wealth may be defined as those goods and services
which command value-in- exchange. Economics is concerned
with the generation of the wealth of nations. Economics is
not to be concerned only with the production of wealth but
also the distribution of wealth. The manner in which
production and distribution of wealth will take place in a
market economy is the Smithian invisible hand mechanism
or the price system. Anyway, economics is regarded by
Smith as the science of wealth.
Other contemporary writers also define economics as that
part of knowledge which relates to wealth. John Stuart Mill
(1806-73) argued that economics is a science of production
and distribution of wealth. Another classical economist
Nassau William Senior (1790-1864) argued The subject-
matter of the Political Economics is not Happiness but
Wealth. Thus, economics is the science of wealth. However,
the last decade of the nineteenth century saw a scathing
attack on the Smithian definition and in its place another
school of thought emerged under the leadership of an English
economist, Alfred Marshall (1842-1924).
Criticisms:
Following are the main criticisms of the classical definition:
i. This definition is too narrow as it does not consider the
major problems faced by a society or an individual. Smiths
definition is based primarily on the assumption of an
economic man who is concerned with wealth-hunting. That
is why critics condemned economics as the bread-and-butter
science.
ii. Literary figures and social reformers branded economics as
a dismal science, the Gospel of Mammon since Smithian or a great part of economic life of man would remain outside
definition led us to emphasise on the material aspect of
human life, i.e., generation of wealth. On the other hand, it
ignored the non-material aspect of human life. Above all, as a
science of wealth, it taught selfishness and love for money.
John Ruskin (1819-1900) called economics a bastard science.
Smithian definition is bereft of changing reality.
iii. The central focus of economics should be on scarcity and
choice. Since scarcity is the fundamental economic problem
of any society, choice is unavoidable. Adam Smith ignored
this simple but essential aspect of any economic system.
3. Marshalls Welfare Definition:
Alfred Marshall in his book Principles of Economics published
in 1890 placed emphasis on human activities or human
welfare rather than on wealth. Marshall defines economics as
a study of men as they live and move and think in the
ordinary business of life. He argued that economics, on one
side, is a study of wealth and, on the other, is a study of man.
Emphasis on human welfare is evident in Marshalls own
words: Political Economy or Economics is a study of mankind
in the ordinary business of life; it examines that part of
individual and social action which is most closely connected
with the attainment and with the use of the material
requisites of well-being.
Thus, Economics is on the one side a study of wealth; and on
the other and more important side, a part of the study of
man. According to Marshall, wealth is not an end in itself as
was thought by classical authors; it is a means to an endthe
end of human welfare.
This Marshallian definition has the following important
features:
i. Economics is a social science since it studies the actions of
human beings.
ii. Economics studies the ordinary business of life since it
takes into account the money-earning and money-spending
activities of man.
iii. Economics studies only the material part of human
welfare which is measurable in terms of the measuring rod of
money. It neglects other activities of human welfare not
quantifiable in terms of money. In this connection A. C.
Pigous (1877- 1959)another great neo-classical
economistdefinition is worth remembering. Economics is
that part of social welfare that can be brought directly or
indirectly into relation with the measuring rod of money.
iv. Economics is not concerned with the nature and causes of
the Wealth of Nations. Welfare of mankind, rather than the
acquisition of wealth, is the object of primary importance.
Criticisms:
Though Marshalls definition of economics was hailed as a
revolutionary one, it was criticised on several grounds.
They are:
i. Marshalls notion of material welfare came in for sharp
criticism at the hands of Lionel Robbins (later Lord) (1898-
1984) in 1932. Robbins argued that economics should
encompass non- material welfare also. In Teal life, it is
difficult to segregate material welfare from non-material
welfare. If only the materialist definition is accepted, the
scope and subject-matter of economics would be narrower,
the domain of economics.
ii. Robbins argued that Marshall could not establish a link
between economic activities of human beings and human
welfare. There are various economic activities that are
detrimental to human welfare. The production of war
materials, wine, etc., are economic activities but do not
promote welfare of any society. These economic activities are
included in the subject-matter of economics.
iii. Marshalls definition aimed at measuring human welfare in
terms of money. But welfare is not amenable to measure-
ment, since welfare is an abstract, subjective concept. Truly
speaking, money can never be a measure of welfare.
iv. Marshalls welfare definition gives economics a
normative character. A normative science must pass on value
judgments. It must pronounce whether a particular economic
activity is good or bad. But economics, according to Robbins,
must be free from making value judgment. Ethics should
make value judgments. Economics is a positive science and
not a normative science.
v. Finally, Marshalls definition ignores the fundamental
problem of scarcity of any economy. It was Robbins who gave
a scarcity definition of economics. Robbins defined
economics in terms of allocation of scarce resources to satisfy
unlimited human wants.
4. Robbins Scarcity Definition:
The most accepted definition of economics was given by Lord
Robbins in 1932 in his book An Essay on the Nature and
Significance of Economic Science. According to Robbins,
neither wealth nor human welfare should be considered as
the subject-matter of economics. His definition runs in terms
of scarcity: Economics is the science which studies human
behaviour as a relationship between ends and scarce means
which have alternative uses.
From this definition, one can build up the following
propositions:
(i) Human wants are unlimited; wants multiplyluxuries
become necessities. There is no end of wants. If food were
plentiful, if there were enough capital in business, if there
were abundant money and timethere would not have been
any scope for studying economics. Had there been no wants
there would not have been any human activity. Prehistoric
people had wants. Modern people also have wants. Only
wants changeand they are limitless.
(ii) The means or the resources to satisfy wants are scarce in
relation to their demands. Had resources been plentiful,
there would not have been any economic problems. Thus,
scarcity of resources is the fundamental economic problem to
any society. Even an affluent society experiences resource
scarcity. Scarcity of resources gives rise to many choice
problems.
(iii) Since the prehistoric days one notices constant effort of
satisfying human wants through the scarcest resources which
have alternative uses. Land is scarce in relation to demand.
However, this land may be put to different alternative uses.
A particular plot of land can be either used for jute cultivation
or steel production. If it is used for steel production, the
country will have to sacrifice the production of jute. So,
resources are to be allocated in such a manner that the
immediate wants are fulfilled. Thus, the problem of scarcity
of resources gives rise to the problem of choice.
Society will have to decide which wants are to be satisfied
immediately and which wants are to be postponed for the
time being. This is the choice problem of an economy.
Scarcity and choice go hand in hand in each and every
economy: It exists in one-man community of Robinson
Crusoe, in the patriarchal tribe of Central Africa, in medieval
and feudalist Europe, in modern capitalist America and in
Communist Russia.
In view of this, it is said that economics is fundamentally a
study of scarcity and of the problems to which scarcity gives
rise. Thus, the central focus of economics is on opportunity
cost and optimisation. This scarcity definition of economics
has widened the scope of the subject. Putting aside the
question of value judgement, Robbins made economics a
positive science. By locating the basic problems of economics
the problems of scarcity and choice Robbins brought
economics nearer to science. No wonder, this definition has
attracted a large number of people into Robbins camp.
The American Nobel Prize winner in Economics in 1970, Paul
Samuelson, observes: Economics is the study of how men
and society choose, 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 the near
future, among various people and groups in society.
Criticisms:
This does not mean that Robbins scarcity definition is fault
free.
His definition may be criticised on the following grounds:
i. In his bid to raise economics to the status of a positive
science, Robbins deliberately downplayed the importance of
economics as a social science. Being a social science,
economics must study social relations. His definition places
too much emphasis on individual choice. Scarcity problem,
in the ultimate analysis, is the social problemrather an
individual problem. Social problems give rise to social choice.
Robbins could not explain social problems as well as social
choice.
ii. According to Robbins, the root of all economic problems is
the scarcity of resources, without having any human touch.
Setting aside the question of human welfare, Robbins
committed a grave error.
iii. Robbins made economics neutral between ends. But
economists cannot remain neutral between ends. They must
prescribe policies and make value judgments as to what is
good for the society and what is bad. So, economics should
pronounce both positive and normative statements.
iv. Economics, at the hands of Robbins, turned to be a mere
price theory or microeconomic theory. But other important
aspects of economics like national income and employment,
banking system, taxation system, etc., had been ignored by
Robbins.
Conclusion:
The science of political economy is growing and its area can
never be rigid. In other words, the definition must not be
inflexible. Because of modern research, many new areas of
economics are being explored.
That is why the controversy relating to the definition of
economics remains and will remain so in the future. It is very
difficult to spell out a logically concise definition. In this
connection, Mrs. Barbara Wottons remarks may be noted
Whenever there are six economists, there are seven
opinions!
Despite these, Cairncross definition of economics may serve
our purpose:
Economics is a social science studying how people attempt
to accommodate scarcity to their wants and how these
attempts interact through exchange. By linking exchange
with scarcity, Prof. A. C. Cairncross has added another cap to
economics.
However, this definition does not claim any originality since
scarcitythe root of all economic problemshad been dealt
with elegantly by Robbins.
That is why, Robbinsian definition is more popular:
Economics is the science of making choices. Modern
economics is a science of rational choice or decision-making
under conditions of scarcity.
Macroeconomics is the branch of economics that studies the
behavior and performance of an economy as a whole. It
focuses on the aggregate changes in the economy such as
unemployment, growth rate, gross domestic product and
inflation.
Description: Macroeconomics analyzes all aggregate
indicators and the microeconomic factors that influence the
economy. Government and corporations use macroeconomic
models to help in formulating of economic policies and
strategies.
Definition: Microeconomics is the study of individuals,
households and firms' behavior in decision making and
allocation of resources. It generally applies to markets of
goods and services and deals with individual and economic
issues.
Description: Microeconomic study deals with what choices
people make, what factors influence their choices and how
their decisions affect the goods markets by affecting the
price, the supply and demand.
Positive economics is objective and fact based,
while normative economics is subjective and value based.
Positive economic statements do not have to be correct, but
they must be able to be tested and proved or disproved.
Normative economic statements are opinion based, so they
cannot be proved or disproved.
Positive economics is the study of what and why an economy
operates as it does. It is also known as Descriptive economics
and is based on facts which can be subjected
to scientific analysis in order for them to be accepted.
It is based on factual information and uses statistical data,
and scientific formula in determining how an economy should
be. It deals with the relationship between cause and effect
and can be tested.
Positive economic statements are always based on what is
actually going on in the economy and they can either be
accepted or rejected depending on the facts presented.
Normative Economics
Normative economics is the study of how the economy
should be. It is also known as Policy economics wherein
normative statements like opinions and judgments are used.
It determines the ideal economy by discussion of ideas and
judgments.
In normative economics, people state their opinions and
judgments without considering the facts. They make
distinctions between good and bad policies and the right and
wrong courses of action by using their judgments.
Normative economic statements cannot be tested and
proved right or wrong through direct experience or
observation because they are based on an individuals
opinion.
Although these two are distinct from each other, they
complement each other because one must first know about
economic facts before he can pass judgment or opinion on
whether an economic policy is good or bad.
Ceteris paribus is the commonly used Latin phrase meaning
'all other things remaining constant.' The concept of ceteris
paribus is important in economics because in the real world,
it is usually hard to isolate all the different variables that may
influence or change the outcome of what you are studying.
is important in determining causation. It helps isolate
multiple independent variables affecting a dependent
variable.
Traditional Economic System
A traditional economic system focuses exclusively on goods
and services that are directly related to its beliefs, customs,
and traditions. It relies heavily on individuals and doesnt
usually show a significant degree of specialization and
division of labor. In other words, traditional economic
systems are the most basic and ancient type of economies.
Large parts of the world still qualify as traditional
economies. Especially rural areas of second- or third-world
countries, where most economic activity revolves around
farming and other traditional activities. These economies
often suffer from a lack of resources. Either because those
resources dont naturally occur in the region or because
access to them is highly restricted by other, more powerful
economies.
Hence, traditional economies are usually not capable
of generating the same amount of output or surplus that
other types of economies can produce. However, the
relatively primitive processes are often much more
sustainable and the low output results in much less waste
than we see in any command, market, or mixed economy.
Command Economic System
A command economic system is characterized by a dominant
centralized power (usually the government) that controls a
large part of all economic activity. This type of economy is
most commonly found in communist countries. It is
sometimes also referred to as a planned economic system,
because most production decisons are made by the
government (i.e. planned) and there is no free market at play.
Economies that have access to large amounts of valuable
resources are especially prone to establish a command
economic system. In those cases the government steps in to
regulate the resources and most processes surrounding
them. In practice, the centralized control aspect usually only
covers the most valuable resources within the economy (e.g.
oil, gold). Other parts, such as agriculture are often left to be
regulated by the general population.
A command economic system can work well in theory, as long
as the government uses its power in the best interest of
society. However, this is unfortunately not always the case. In
addition to that, command economies are less flexible than
the other systems and react slower to changes, because of
their centralized nature.
Market Economic System
A market economic system relies on free markets and does
not allow any kind of government involvement in the
economy. In this system, the government does not control
any resources or other relevant economic segments.
Instead, the entire system is regulated by the people and
the law of supply and demand.
The market economic system is a theoretical concept. That
means, there is no real example of a pure market economy in
the real world. The reason for this is that all economies we
know of show characteristics of at least some kind of
government interference. For example, many governments
pass laws to regulate monopolies or to ensure fair trade and
so on.
In theory, a market economic system enables an economy to
experience a high amount of growth. Arguably the highest
among all four economic systems. In addition to that, it also
ensures that the economy and the government remain
separate. At the same time however, a market
economy allows private actors to become extremely
powerful, especially those who own valuable resources. Thus,
the distribution of wealth and other positive aspects of the
high economic output may not always be beneficial for
society as a whole.
Mixed Economic System
A mixed economic system refers to any kind of mixture of a
market and a command economic system. It is sometimes
also referred to as a dual economy. Although there is no
clear-cut definition of a mixed economic system, in most
cases the term is used to describe market economies with a
strong regulatory oversight and government control in
specific areas (e.g. public goods and services).
Most western economies nowadays are considered mixed
economies. Most industries in those systems are privately
owned whereas a small number of public utilities and services
remain in government control. Thus, neither the private nor
the government sector alone can maintain the economy,
both play a critical part in the success of the system.
Mixed economies are widely considered an economic ideal
nowadays. In theory, they are supposed combine the
advantages of both command and market economic systems.
In practice however, its not always that easy. The extent of
government control varies greatly and some governments
tend to increase their power more than necessary.
Demand - Demand in economics is defined as consumers'
willingness and ability to consume a given good. An increase
in price will decrease the quantity demanded of most goods.
A decrease in price will increase the quantity demanded of
most goods. The inverse relationship between price and
quantity demanded of a good is known as the law of demand
and is typically represented by a downward sloping line
known as the demand curve.
Supply is the producer's willingness and ability to supply a
given good at various price points, holding all else constant.
An increase in price will increase producer's revenues, so
they'll be willing to supply more; a decrease in price will
reduce revenues, and so producers will supply less.
A benefit, profit, or value of something that must be given up
to acquire or achieve something else.
ALFRED MARSHALL - Alfred Marshall was the dominant figure
in British economics (itself dominant in world economics)
from about 1890 until his death in 1924. His specialty
was MICROECONOMICSthe study of individual markets and
industries, as opposed to the study of the whole economy. In
his most important book, Principles of Economics, Marshall
emphasized that the price and output of a good are
determined by both SUPPLY and demand: the two curves are
like scissor blades that intersect at equilibrium. Modern
economists trying to understand why the price of a good
changes still start by looking for factors that may have shifted
demand or supply, an approach they owe to Marshall.
Communism, also known as a command system, is an
economic system where the government owns most of the
factors of production and decides the allocation of resources
and what products and services will be provided.
The most important originators of communist doctrine
were Karl Marx and Frederick Engels. Like the socialists
before them, they wanted to end the exploitation of the
masses by the few. The capitalist system at that time required
workers to work under harsh and dangerous conditions for
little pay. The end goal of communism was to eliminate class
distinctions among people, where everyone shared equally in
the proceeds of society, when government would no longer
be needed.
Karl Marx agreed with Louis Blanc in how labor and income
should be managed: "From each according to his abilities, to
each according to his needs." However, it seems clear from
history that Adam Smith had the correct principle, which is
that people work in their own self-interest.
Marx and Engels believed that there was a class struggle
between the masses, which Marx referred to as
the proletariat, who could only offer their labor, and the
owners of the means of production, which included land, raw
materials, tools and machines, and especially money. Karl
Marx called these members of the ruling class
the bourgeoisie. He believed that a political revolution was
essential because the state was a central instrument of
capitalist society, and since the bourgeoisie had a
stranglehold on the government, it would, in many cases, be
necessary to use force and violence to overthrow the
capitalists.
Although Marx and Engels believed that property should
belong to society, they did not really give much thought to
how economic decisions would be made. Communist
countries, particularly Russia and China, decided on
a centrally planned economy (aka command economy). The
centrally planned economy had the following major
attributes:
The government owns all means of production, which is
managed by employees of the state.
These employees operated under party-appointed economic
planners, who set output targets in prices and frequently
interfered with the operations to satisfy personal or party
desires.
And because communist economies are not efficient and
because of the Communist Party's desire to retain power,
most economic resources were devoted to industrialization
and to the military, depriving consumers of food and other
necessary products, causing intense competition for these
limited necessities, where many people had to wait in long
lines for common consumer goods, such as toilet paper.
 Another major feature of communist economies was their pamamagitan ng pagbasa, nahahasa ang ibat ibang
emphasis on the country's self-reliance, discouraging kasanayan ng isang indibidwal. Ang pagbasa kung gayon ay
international trade and investment. napakahalaga sa isang indibidwal sapagkat ito ang tutugon sa
kanyang pagkatuto tungo sa mas malawak na kaalaman sa
Major decisions were made by the highest-ranking members kanyang kapaligiran, sa bansa at marami pang iba na
of the Communist Party, which, in the Soviet Union, was the nahuhubog ng kanyang pagkatao.
Politburo. The Politburo frequently met with the Central
Committee that consisted of the heads of the local TEKSTO- ang wika o ideyang
Communist Party factions and government ministries, the itinatawid o pinagpapalitan
military, police, and other major participants in the economy. sa diskurso.
Although the purpose of communism was to serve the needs
of the proletariat, communist governments simply became TEORYANG ISKEMA - ay prosesong ng pag-uugnay ng mga
repressive regimes that exploited their people to aggrandize kaalaman sa paksa at kaalaman sa pagkabuo ng
their own power, exploiting the masses even more so than mahahalagang salik sa pag unawa (Pearson 1987)
the capitalists. Sa bawat bagong impormasyon ay nadaragdag sa datin ng
Iskema. Ang dating paniniwala sa pagbasa ay ang pagsasabi
Capitalism ng ideya na nasa teksto.
As long ago as 1776, the Scottish philosopher Adam Smith set
down many of the main principles of capitalism in his now TEKSTO?
classic book An Inquiry into the Nature and Causes of the Ang Teksto ay isang babasahin na puno ng mga ideya ng ibat-
Wealth of Nations. ibang tao at impormasyon HALIMBAWA NG MGA TEKSTO
TUNGKOL SA
Under capitalism (aka market system), each individual or Agham Panlipunan
business works in its own interest and maximizes its own Kasaysayan
profit based on its decisions. A market economy is one where Ekonominks
the allocation of resources and the trading of goods and Sosyolohiya
services are through the decentralized decisions of many
firms and households. Prices and the willingness of the .Pang propesyunal- Ay tumutukoy sa mga tekstong may
market to pay those prices determines economic output, kinalaman sa propesyon o kursong kinuha ng isang mag-aaral
which, in turn, determines the allocation of resources. sa kolehiyo o pamantasan.
The market system fosters competition that generally
produces the most efficient allocation of resources. In pure Kaugnay dito ang tekstong pang
capitalism, also known as laissez-faire capitalism, the Medisina
government's role is restricted to providing and enforcing the Abogasya
rules of law by which the economy operates, but it does not Inhinyera
interfere with the market. (Laissez-faire means "let it be.") Edukasyon
Narsing
The essential characteristics of capitalism are that: Computer courses

the factors of production are privately owned;

economic transactions take place in markets, where buyers
and sellers interact;
businesses and employees are free to pursue their own self-
interest;
Because consumers are free to buy what they want, the
competition for their funds will require businesses to satisfy
their needs, or else they will cease to exist due to lack of
sales. This consumer sovereignty is what effects the efficient
allocation of resources.
The main purpose of the government in regard to the
economy is to promote free markets, keep inflation low and
steady, protect the rights of private property, and to
guarantee contracts.

PAGBASA- Ang pagbasa ay pagkilala, pag-unawa,

pagpapakahulugan at pagtataya ng mga ideya sa mga
nakalimbag na simbolo. Ito ay proseso ng pag-unawa sa mga
kaisipang hatid ng awtor sa mga mambabasa. Sa