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C)
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ECONOMICS – AN INTRODUCTION
INTRODUCTIONTRODUCTION
Economics is that branch of knowledge in which those activities of men are studied which they make
decisions about ways to use scarce means (limited resources i.e. wealth) to satisfy their unlimited
wants. In other words, the simple meaning of Economics is the study of how society uses its limited
resources.
Or
Economics is a social science concerned with the allocation of scarce means in such a manner that
consumers can maximize their satisfaction, producers can maximize their profits and the society can
maximize its social welfare.
Or
Economics is that branch of study which studies about production, consumption, investment,
exchange and distribution of wealth.

FOUR WAYS OF DEFINING ECONOMICS

1) Wealth Definition
Adam Smith defined it as “Economics is an enquiry into the nature and causes of wealth of
nations.” Wealth means all kinds of material goods capable of satisfying our wants (i) directly
through consumption, and (ii) indirectly through the production of other goods and services.

2) Material Welfare Definition

Dr. Alfred Marshall defined it as “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 use of material requisites of well being.”

3) Scarcity Definition
Lord Robbins defined it as “Economics is a science that studies human behavior as a
relationship between ends and scarce means which have alternative uses.

4) Growth Oriented Definition

Samuelson defined it as “Economics is a science that studies those activities of man which is
to undertake to maximize his satisfaction by making proper use of his scarce means which
have alternate uses.

SUNJECT MATTER OF ECONOMICS

The subject matter of economics includes the study of all the economic activities arising out of
scarce means and unlimited wants.

ECONOMIC ACTIVITY
Economic activity is the activity which is concerned with the production, consumption and
investment of all goods which possess utility, are scarce in quantity and can be the subject of
exchange and distribution of wealth.

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 BANSAL COACHING CENTRE (B.C.C)
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1) Production – It is that activity which is concerned with increasing the utility or value of the
goods and services. Producer who undertakes the production of goods or services for the
generation of income.

2) Consumption – It is that economic activity which is concerned with the use of the utility of
economic goods and services for the direct satisfaction of individual and collective wants.
Consumer is the one who consumes goods and services for the satisfaction of his wants.

3) Investment – It is that economic activity which is concerned with the production of capital
goods for further production of goods and services.

4) Exchange – Activity relating to the buying and selling of a product or a factor of production is
called exchange. This buying and selling is mostly done in terms of money. This activity is also
called price determination and it is divided into two parts:

a) Product pricing – It relates to the determination of the price of the product under
different condition of the market viz. perfect competition, monopoly and imperfect
competition.

b) Factor pricing or Distribution – It relates to the determination of the price of different

factors of production. E.g. price of land is rent, that of labour is wage.

MICRO AND MACRO LEVELS OF ECONOMIC ACTIVITY

Economic activities are performed at the individual level or at the level of the whole economy. The
study of the economic activity at the individual level is the subject matter of Micro economics. On
the other hand, macro economics covers the study of economic activities of the whole economy.

Micro Economics
It studies economic activities of an individual (economic unit). It includes the study of demand
theory, production theory, price determination, distribution, economic welfare etc.

Macro Economics
It studies economic activities related to economy as a whole. It deals with aggregates such as
national income, total employment, general price level etc.

NATURE OF ECONOMICS

1. Economics is a science: Science is an organised

branch of knowledge that analyses cause and
effect relationship between economic agents.
Further, economics helps in integrating various
sciences such as mathematics, statistics, etc. to
identify the relationship between price,
demand, supply and other economic factors.

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 BANSAL COACHING CENTRE (B.C.C)
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+91-9888666363, +91-9463706351
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o Positive Economics: A positive science is one that studies the relationship between
two variables but does not give any value judgment, i.e. it states ‘what is’. It deals
with facts about the entire economy.
o Normative Economics: As a normative science, economics passes value judgement,
i.e. ‘what ought to be’. It is concerned with economic goals and policies to attain
these goals.

2. Economics is an art: Art is a discipline that expresses the way things is to be done, so as to
achieve the desired end. Economics has various branches like production, distribution,
consumption and economics that provide general rules and laws that are capable of solving
different problems of society.

We can conclude that Economics is neither a Science nor an Art only. However, it is a golden
combination of both. Science gives us principles of any discipline however; art turns all these
principles into reality or Science in terms of its methodology and arts as in application. Hence,
Economics is concerned with both theoretical and practical aspects of the economic problems which
we encounter in our day to day life.

SIGNIFICANCE OF ECONOMICS
1) Maximization of welfare by the individuals and Households – Economics offers principles of
maximization of satisfaction by the individuals and households while they allocate their
income to the purchase of different goods and services.

2) Maximization of Profits by the producers – While consumers tend to maximize their

welfare, producers tends to maximize their profits. Economics offers principles of
maximization of profits in terms of maximizing the difference between revenue and cost of
producing a unit.

3) Choice of projects – Principles of economics help choice of projects by the producers. The
producers tend to choose those projects which offer them maximum expected returns, other
things remaining constant.

4) Domestic and International Trade – Trade (of goods and services) across different parts of
the country or across different countries of the world is determined according to the
principles of economics. Economics offers principles of specialization in the production of
those goods in which there is ‘comparative cost advantage’.

5) Maximization of social welfare – It is in accordance with the principles of economics that the
government of a country decides on the allocation of country’s resources to different uses so
that welfare of the society as a whole is maximized.

6) Taxation Policy – Economics offers principles that help the government of a country to
determine its policy of taxation. Taxation implies a burden on tax payers and at the same
implies an increase in welfare of those who benefit through.

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 BANSAL COACHING CENTRE (B.C.C)
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+91-9888666363, +91-9463706351
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7) A logical edge – Economics imparts a logical edge to its readers. Students of economics can
better understand and analyze the diverse economic problems facing an economy. It is
within their easy comprehension to understand such problems as of poverty and
unemployment.

STATISTICS
Statistics is a data interpretation tool used for collecting, classifying and analyzing data. It is an
indispensable tool for an economist to understand various business and economic problems and
formulate policies to tackle with them. Statistics means quantitative information or quantification of
the facts and findings.

STATISTICS IN SINGULAR SENSE

In singular sense, statistics refers to statistical methods i.e. collection, organization, presentation,
analysis and interpretation of data.

STATISTICS IN PLURAL SENSE

In plural sense, statistics means numerical facts systematically collected.

CHARACTERISTICS OF STATISTICS
1) Statistics are aggregate of facts.
2) Statistics are numerically expressed.
3) Statistics are collected in a systematic manner.
4) Statistics should be placed in relation to each other (for the purpose of comparison).

FUNCTIONS OF STATISTICS
Statistics helps in:
 Analysing various economic problems such as inflation, unemployment etc by looking at
numbers, trends over the years.

 Summarising mass data like income, consumption etc into measures like per capita income
and per capita consumptions which are more explanatory of how an economy is performing.

 Assessing relationship between different economic variables such as population and poverty,
price and demand.

 Evaluating the impact of various government campaigns like family planning programme,
various poverty alleviation programmes etc.

 Predicting change that might happen in a factor due to changing some other factor. For
instance, predicting how inflation would be affected if money supply is increased in the
economy.

 Decision making at micro level i.e firms, households etc with regard to production,
consumption etc.

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 BANSAL COACHING CENTRE (B.C.C)
S.C.O-11, HOUSEFED COLONY, OPPOSITE VERKA MILK PLANT, BATHINDA
+91-9888666363, +91-9463706351
“An ISO 9001-2015 Certified Institute”

IMPORTANCE OF STATISTICS
1. Statistics in Economics
a) Statistics in consumption – The data of consumption are useful and helpful in planning
budget and improving standard of living.

b) Statistics in production – It is useful and helpful for adjustment of demand and supply
and determining quantity of production of the commodity.

c) Statistics in distribution – It is used in solving the problem of distribution of national

income among various factors of production (land, labour, capital and entrepreneur.

2. Statistics in Economic Planning – Statistics helps in comparing the growth rate. It helps to
formulate plans to achieve predetermine objectives.

3. Statistics in Business – Statistical tools are very important for the detailed analysis of money
transactions in the business.

4. Statistics in Administration – Formulation of a policy involves statistics. It helps the state to

achieve targets with the help of optimum utilization of scarce resources.

LIMITATIONS OF STATISTICS
1) Statistics does not study individuals.

2) Without reference, Statistical results may be proved wrong.

3) Statistics deals with numerical facts only.

4) Statistics are true only on an average.

5) Homogeneity of data is essential.

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