Topic 1
Topic 1
Topic 1
What are the various viewpoints that further justify the nature and scope of economics?
Classical Viewpoints
The fundamental principle of the classical theory is that the economy is self‐regulating,
hence, classical economists focused on the concept of wealth. The classical economists
beginning with Adam Smith defined economics as the science of wealth. Adam Smith
defined it as the “nature and causes of wealth of nations,” whereby it “proposes to enrich
both the people and the sovereign.” Among his followers, J.B. Say in France defined
economics as “the study of the laws which govern wealth;” to Nassau Senior at Oxford,
“the subject treated by political economists - is not happiness, but wealth;” whereas to
F.A. Walker in America, “Economics is that body of knowledge which relates to wealth.”
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According to J.S. Mill, “Writers on Political Economy profess to teach the nature of wealth
and the laws which govern its production, distribution and exchange.” To J.E. Cairnes,
“Political Economy is a science - it deals with the phenomena of wealth.” While B. Price
declared in 1878, “all agreed that it is concerned with wealth.”
Neo-Classical Economics
Basically, among all neoclassical idea propagators, Alfred Marshall falls on the top list. It
is believed that he has given a reputed place to Economics within the domain of Social
Science. The neo-classical school theory led by Alfred Marshall gives economics a
respectable place among social sciences. Marshall laid emphasis on man and his welfare.
Wealth was regarded as the source of human welfare, not an end in itself but a means to
an end. The meaning of A MEANS TO AN END is something done only to produce a
desired result.
Certain logical inferences can be drawn from Marshall’s definition. First, economics is
concerned with man’s ordinary business of life. It is related to his wealth-getting and
wealth-using activities or, as Marshall put it: It “deals with his [man’s] efforts to satisfy his
wants, in so far as the efforts and wants are capable of being measured in terms of wealth
or its general representative, i.e. money.” Word in parenthesis mine. Secondly,
economics is a social science. It “is a study of men as they live and move and think in the
ordinary business of life.” Overall, we can say that neo-classical Economists laid
emphasis on the overall Human development.
Scarcity
It was Lord Robbins who with the publication of his Nature and Significance of Economic
Science in 1932 not only revealed the logical inconsistencies and inadequacies of the
earlier definitions but also formulated his own definition of economics. According to
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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 the following related postulates.
2. Ends or wants are scarce. When a particular want is satisfied others crop up to take its
place. Multiplicity of wants makes it imperative for human beings to work ceaselessly for
their satisfaction but they are unable to satisfy all.
NATURE OF ECONOMICS
The nature of economics deals with the question that whether economics falls into the
category of science or arts. Various economists have given their arguments in favor of
science while others have their reservations for arts. In the simplest terms, the nature and
scope of Economics is prevalent as an art and science.
Economics as a Science
To consider anything as a science, first, we should know what science is all about?
Science deals with systematic studies that signify the cause and effect relationship. In
science, facts and figures are collected and are analyzed systematically to arrive at any
certain conclusion. For these attributes, economics can be considered as a science.
However, economics is treated as a social science because of the following features:
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• These points validate that the nature of economics is correlated with science. Just
as in science, various economic theories are also based on logical reasoning.
Economics as an Art
It is said that “knowledge is science, action is art.” Economic theories are used to solve
various economic problems in society. Thus, it can be inferred that besides being a social
science, economics is also an art.
SCOPE OF ECONOMICS
The word scope can be understood as “the extent of the area that something deals
with”. Generally, the economic scope covers all the central issues faced by society,
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including economic decline and growth, poverty, unemployment, and etc. Major things
come under the preview of Economics are considered as its nature and scope.
Economists use different economic theories to solve various economic problems in
society. Its applicability is very vast. From a small organization to a multinational firm,
economic laws come into play. The scope of economics can be understood under two
subheads: Microeconomics and Macroeconomics.
Microeconomics
Macroeconomics
• Growth: It studies the factors which explain economic growth such as the increase
in output per capita of a country over a long period of time.
• Business Cycle: This theory emerged after the Great Depression of the 1930s. It
advocates the involvement of the central bank and the government to formulate
monetary and fiscal policies to monitor the output over the business cycle.
• Unemployment: It is measured by the unemployment rate. It is caused by various
factors like rising in wages, a shortfall in vacancies, and more.
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• Inflation and Deflation: Inflation corresponds to an increase in the price of a
commodity, while deflation corresponds to a decrease in the price of a commodity.
These indicators are valuable to evaluate the status of the economy of a country.
There are numerous examples of Micro and Macroeconomics across factors, aspects and
economic activities. Here is the difference between Micro and Macroeconomics with
example:
Examples of Microeconomics
• Inflation
• GDP
• Unemployment rates
• Economic outputs
• Price Stability
• Goods
• Productivity
• Stability
Examples of Macroeconomics
• Supply
• Demand
• Prices
• Elasticity
• Competition
• Opportunity Cost
• Competitive Advantage
• Consumer Choice
• Welfare Economics
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Basis of
Difference
Between Micro & Macroeconomics Microeconomics
Macro
Economics
It aims to study the economy Focusing on an individual level,
Definition as a whole and covers different Microeconomics studies
market segments. a specific market segment
in an economy.
Takes an expansive More of an individual-centric
Central approach by studying the approach as it is concerned
Approach whole economy. with businesses and households
and analyses consumer behavior,
resource allocation and human
choices.
Also called as the income Referred to as the price theory,
theory because it describes it deals with factor pricing
Concerned with the changing levels of national such as rent, interest, wage,
income of an economy during profits, etc for land, labor, capital
a certain period of time. and enterprise and explains how
different prices are decided.
National income, GDP, Demand, supply, factor pricing,
Factors distribution, employment, product pricing, economic welfare,
general price level, money, etc production, consumption, etc.
Preserves stability in the broad Plays a significant role
price level and solves the in regulating the prices of a
major product alongside the prices of
Importance issues of the economy like various factors of production
deflation, inflation, rising prices (labor, land, entrepreneur, capital,
(reflation), unemployment and etc) within the economy.
poverty, etc.
It helps in strengthening It helps in developing policies
policies and uniform resource to facilitate appropriate
Applications distribution at the economy resource
level such as distribution at the firm level.
unemployment, inflation level
etc.
National Income & Savings; Individual Income & Savings;
Aggregate Demand; Determining the price of a
Examples Inflation Rates, GDP; specific good or commodity;
Rate of Employment, Poverty, Consumer Equilibrium;
etc. Output generated and produced
by a specific firm.
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RELATIONSHIP BETWEEN MICRO AND MACROECONOMICS
The similarities between Micro and Macroeconomics are based on the factor that they
both study the different economic problems.
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