Meaning of economics

There are so many definitions of economics which are developed during the course of
history and it has been divided into four parts.

Wealth definition by Adam Smith

"Economics is the science of wealth"
Adam Smith believed that economics deals with the issues arising from the acquisition
and utilization of wealth by individuals. His primary focus was on exploring methods to
enhance the prosperity of all countries.

Welfare definition by Alfred Marshall

"Economics is a study of man in the ordinary bussiness of life. It enquire how he gets his
income and how he uses it"
According to Marshall, the main goal of economics is to improve human well-being by
promoting material prosperity, which leads to his shift in focus from wealth to welfare.

Scarcity definition by Lionel Robbins

"Economics is the science which studies human behavior as a relationship between ends
and scarce means which have alternative uses"
This definition is based on some characteristics which are reason of economic problems.
(i) Unlimited wants: Human wants are never ending. Once an existing want get satisfied,
another one arises.
(ii) Scarcity of resources: Scarcity is a term used to describe a situation where the amount
of a commodity that is available is limited in comparison to the demand for it. This
concept of scarcity is a universal phenomenon that affects individuals, organizations,
and countries alike.
(iii) Alternative uses: Choosing how to use resources is crucial because resources are limited
and can be utilized for multiple purposes.

Scarcity - Root of all economic problems

Scarcity is a condition where there is a shortage of resources to fulfill the unlimited
wants and needs of people. This condition is prevalent and affects every individual and
economy worldwide. The scarcity of resources is the root cause of economic issues in all
economies. If resources were abundant, there would be no economic problems to deal with.

Growth oriented definition by Samuelson

"Economics is the study of how man 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
future among various people and groups of society."
Economics is a social science that focuses on how society utilizes its scarce resources for
various purposes. This definition is an updated version of the scarcity definition and is
considered to be the most suitable and satisfactory one. It covers all the topics discussed
in previous definitions and also includes economic growth and social welfare as important
issues.

Conclusion
After so many different definitions, many economists agreed upon the following
definition.
"Economics is the study of how people and society choose to employ scarce resources that
could have alternative uses in order to produce various commodities that satisfy their
wants and to distribute them for consumption among various persons and groups in
society."

Economic and non-economic activities

Economic
Economic activities are activities people take to earn a living, such as working in a
factory, selling goods in a shop, or providing medical care to patients. These activities
involve the production, consumption, and distribution of goods and services that are not
freely available. Every economy should undertake three main economic activities:
Production: Any operations that are carried out to produce
commodities and services in order to generate revenue and
satiate human needs are referred to as production. It involves
the transformation of raw materials into final goods. The four
elements of production are land, labour, capital, and
entrepreneur. Production includes the tasks performed by a
farmer, carpenter, tradesperson, teacher, doctor, shopkeeper, etc.

Consumption: It is an economic activity that involves using

products and services to fulfil human needs. Consumption
activities include things like eating bread, drinking milk, wearing
watches, and listening to music.

Distribution: Distribution refers to the field of economics that

examines the allocation of income produced among the various
components of production. Its focus is on determining how the
overall income generated from the production process, commonly
referred to as Gross Domestic Product (GDP), is divided among
land, labor, capital, and entrepreneurship in the form of rent,
wages, interest, and profit, respectively.
 Non Economic
Non-economic activities refer to actions that do not involve the generation of money or
wealth. These may include tasks like a housewife preparing meals for her family or a
father teaching his child, which are not done with the intention of receiving any
monetary compensation. Non-economic activities are motivated by emotional factors
such as love, empathy, sentimentality, and a sense of loyalty to one's country. They are
not driven by financial gain or benefits.

Important Terms
Consumer: One who consumes good and services for satisfaction of his/her wants.
Producer: One who produces goods or provides services for generation of income.
Service Holder: A person who work for someone and get wages or salary in return. For
e.g. employee working in a company.
Service Provider: A person who provides some kind of services to others and demand
payment in return. For e.g. Lawyer, Doctor, Banker etc.

Important questions with answers

Question Define economics?

Answer Economics is the study of how people and society choose to employ scarce
resources that could have alternative uses in order to produce various
commodities that satisfy their wants and to distribute them for consumption
among various persons and groups in society.

Question Why do we study economics?

Answer The study of economics is important because it allows us to comprehend various
facets of the economy and aids in examining government policies and problems.
Nevertheless, the fundamental reason for studying economics can be boiled
down to a single concept: scarcity. This means that people have more wants
than resources, and thus there is a requirement to distribute these limited
resources in order to fulfill unlimited human wants. Therefore, economics deals
with the process of choosing resources amidst scarcity.

Question A school teacher teaching his own child, will be classified as which
type of activity?
Answer Non economic activity because even if he is a school teacher, he won't get any
payment for teaching his own child.
Question How scarcity affects our daily life?
Answer Scarcity is a common experience in our everyday life, where we encounter various
situations such as long waiting lines at train stations, crowded public
transportation, a lack of essential goods, and rising prices of commodities like
petrol, vegetables, or pulses. The reason behind this scarcity is that the resources
that fulfill our needs and wants are finite and limited in availability.

Question What are two vitals elements of an economy?

Answer In an economy, there are two vital elements: "Production" and "Consumption".
Every person in the economy is either a consumer or a producer. Consumption
refers to the act of using goods or services, while production refers to the
creation of goods or services. When someone consumes, they are acting as a
consumer, and when they produce, they are acting as a producer.

Question Define non economic activities with examples.

Answer Non-economic activities - Activities which are not done for creation of money.
It is performed out of love, sympathy, sentiments etc. For e.g.
(i) Charitable activities like donation, free education or food
(ii) Religious activities like prayer
(iii) Political activities by political parties

*NOTE : Worksheet (Important questions of all typology with answers) is provided as a

seperate PDF on website padhleakshay.com*