UNIT-1 MEANING OF ECONOMICS: Economics is the social science
that analyzes the production, distribution, and consumption of
goods and services. The term economics comes from the Ancient Greek
word oikonomia, which means "management of a household,
administration" (from oikos, "house"nomos, "custom" or "law", hence
"rules of the household"!. "urrent economic models emerged from the
broader field of political economy in the late #$th century. A
primary stimulus for the development of modern economics was the
desire to use an empirical approach more akin to the physical
sciences. Wealth and Welfare Definition: The Classical View: The
classical economists beginning with Adam %mith defined economics as
science of wealth. Adam %mith defined it as the nature and cause of
wealth of nations, whereby it &proposes to enrich both the
people and sovereign.' (is follower ).*. %ay in +rance defined
economics as &the studyof the laws which governs wealth.' ,ther
followers of classical view like -assau %enior, +.A. .alker,
).%./ill, and ).0. "airnes also defined economics as a matter of
wealth. The NeoClassical View: Marshall!s Definition: Alfred
/arshall laid emphasized on man and his welfare. .ealth was
regarded as the source of human welfare, not an end in itself but a
means to an end. According to /arshall in his book entitled
12rinciples of 0conomics, Political Economy or Economics is the
study of mankind in the ordinary business of life; it examines that
part of individual and social action which is most closely
connected with attainment and with the use of material requisites
of well being !hus it is on the one side a study of wealth; and on
the other, and more important side, a part ofthe study of man
Scarcit" Definition of #o$$ins: 3n the publication &-ature and
%ignificance of 0conomic %cience' in #$45 6obbins defined,
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 postulates7
i. 0conomics is related to one aspect of human behavior, of
ma8imizing satisfaction from scarce resources. ii. 0nds and wants
are scarce. .hen a particular want is satisfied other crop up to
take place. iii. The obvious reason for the non satisfaction of
unlimited wants is the scarcity of means of the disposal of
mankind. The time and means available for satisfying these ends are
scarce or limited. iv. The scarce means are capable of alternative
use. At a time, the use of a scarce resource for one end prevents
its use for any other purpose. v. 0conomics is related to all kinds
of behavior that involve the problem of choice. Growth oriented
Definition: %rof& Sam'elson!s View: /odern age is age of
economic growth. 3ts main ob9ective is to increase social welfare
and improve the standard of living of the people by removing
poverty, unemployment, ine:uality of income and wealth etc. of
nation. 2rof. %amuelson has given a definition of economics based
on growth aspects. According to him7 Economics is the study of how
people and society end up choosing, with or without the using of
money, to employ scarce productive resources that could have
alternative uses to produce various commodities, over time and
distributethem for consumption, now or in the future, among various
persons or groups in society Economics analyses the costs and the
benefits of improving patterns of resource use SCO%E OF ECONOMICS A
discussion about the true scope of economics includes the sub9ect
matter of economics, whether economics is a science or an art, or
is a positive or a normative science. ECONOMICS AS A SCIENCE: A
science is a systematized body of knowledge ascertainable by
observation and e8perimentation. 3t is body of generalizations,
principles, theories or laws which traces out a causal relationship
between cause and effects. +or any discipline to be a science (a!
it must be systematized bodies of knowledge; (b! have its own laws
or theories; (c! which can be tasted by observation and
e8perimentation; (d!can make predictions; (e! be selfependence on
the 3ndividual =nits 5. (eterogeneous =nits 4. /isleading
Aggregates ?. The Aggregates which "ompose a %ystem may not be
%ignificant A. /icro "hanges %ometimes are /ore 3mportant than
/acro "hanges DISTINCTION -ETWEEN MIC#OECONOMICS AND
MAC#OECONOMICSMicroeconomics #< /icroeconomics is generally the
study of individuals and business decisions. 5< /icroeconomics
is the study of decisions that people and businesses make regarding
the allocation of resources and prices of goods and services. 4<
/icroeconomics focuses on supply and demand and other forces that
determine the price levels seen in the economy.+or e8ample,
microeconomics would look at how a specific company could ma8imize
its production and capacity so it could lower prices and better
compete in its industry. ?< The bottom line is that
microeconomics takes a bottoms2 would be affected by
unemploymentrate. ?< /acroeconomics takes a
topuopoly/onopolyT"(es of Mar8et i1 2erfect /arket ii1 /onopoly
/arket iii1 /onopolistic /arket i*1 ,ligopoly /arket *1 >uopoly
/arket %erfect mar8et7 2erfect competition represents the benchmark
market structure that contains a large number of participants on
both sides of the market, and no market control by any firm.
Feat'res of %erfect Mar8et 3& There are large number of buyers
and sellers. /& Goods are homogenous. 7& 2erfect knowledge
about market conditions. 6& +ree entry I e8it of new firms.
4& 2rice remains constant. ;& A6 J /6 I remains constant.
& =nder perfect market, in short term, there may be a
possibility of normal profit or super profit or loss, but in
perfect market, in longecisions are partial over price. ;& A6 I
/6 are sloping downward, but A6L/6. I /6> represents domestic
monopoly market. 0+ is the e:uilibrium point of the foreign market,
where producer charges ,2+ price for ,G+ output. %imilarly, 0>
is the e:uilibrium point of domestic economy, where producer
charges ,2> price at ,G> 16 output. 3t means domestic market
producer charges higher price but in foreign market, the producer
charges lower price. (*ecause ,2> L ,2+!. This process is called
D'm(in+& >umping is illegal under international trade
agreements of .orld Trade ,rganization (.T,!. A nation can impose
anti dumping duties only on production that are being dumped.
#easons of D'm(in+ A firm may resort to dumping for a number of
reasons which in brief are as under7 031 %rice discrimination: The
first reason of dumping is price discrimination. 3f a firm has
monopoly of a good in home market, but faces strong competition in
foreign market, the firm will naturally charge a higher price in
home market and lower competitive price in foreign market. 0/1
%redator" (ricin+: The second ma9or reason is predatory pricing. 3t
is the practice of cutting prices of goods in an attempt to derive
rival firms out of business. 071 S'r(l's stoc8: A firm may resort
to dumping to dispose off surplus stock. 061 Economies of lar+e
scale (rod'ction: The big firms where huge fi8ed capital is
re:uired for producing the goods may resort to dumping to avail of
the economies of large scale production. References:-