Economics: Definitions, an introduction and What is economics about?

Economics has been recognized as a special area of study for over a century. Economics and economists are words that almost everyone has heard of and used. But, what exactly is economics? Very few people can give a good definition or description of what this field of study is all about. If ordinary citizens cannot give a good definition or description of economics, they can be excused because even economists struggled long to define their own fie

What is economics?

Economics is one of the social sciences. It explains about the economic activities of a man. Any activity which is related to earning of the money and spending of the money is called economic activity. Almost all people are engaged in economic activities, because they want to earn the money.

Definitions of Economics

The term ‘Economics’ owes its origin to the Greek word ‘Oikonomia’ which means ‘household’. Till 19th century, Economics was known as ‘Political Economy.’ The book named ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ (1776) usually abbreviated as ‘The Wealth of Nations’, by Adam Smith is considered as the frst modern work of Economics.

“If economists were laid end to end, they would not reach a conclusion.”

George Bernard Shaw

It is very difficult to define economics because economics is very dynamic subject and there exists no single definition to the subject. It would not be very inappropriate to quote that there exist as many definitions of economics as there are number of economists in this universe. Each definition has an element that can not be disregarded so can the definition be not discarded. As a result, we come across a large number of definitions of economics, which appear to differ from each other.

ECONOMICS AS A SCIENCE OF WEALTH: ADAM SMITH

During the eighteenth and the early part of nineteenth century, Adam Smith, considered to be the founding father of modern Economics, along with economists like J.B. Say and Walker defined economics as the science of wealth. Adam Smith systematized the concept in the form the book which was entitled as, ‘‘An Enquiry into the Nature and Cause of the Wealth of Nations’’ published in 1776.

ECONOMICS AS A SCIENCE OF SCARCITY AND CHOICE: L.ROBBINS 

Marshall’s definition was the most popular and accepted definition of economics at one time. Lionel Robbins has however offered most scientific definition in his famous book published in 1932, titled “An Essay on the Nature and Significance of Economic Science”.

ECONOMICS AS A SCIENCE OF DEVELOPMENT & GROWTH: PAUL SAMUELSON

Samuelson has also given similar but somewhat different definition of economics as given by Robbins. He has emphasised upon the twin themes of economics—scarcity and efficiency.

Professor Samuelson offered more comprehensive definitions of economics as under.

“Economics is the study of how people and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses to produce various commodities over time and distributing them for consumption, now or in the future, among various persons or groups in society. It analyses costs and benefits of improving patterns of resource allocation”

The above definition is very comprehensive in the sense that, it does not restrict to material well-being or money measure as a limiting factor. But it considers economic growth over time

His book Economics: an Introductory Analysis, first published in 1948, was one of his famous works on economics.

Before we start with the meaning of Business Economics, it is important for us to understand what Economics is about. For this, consider the following situation:

It is your birthday and your mother gives you Rs 1000 as birthday gift. You are free to spend the money as you like. What will you do? You have many options before you, such as:

  • Option 1 : You can give a party to your friends and spend the whole money on them.
  • Option 2 : You can buy yourself a dress for Rs 1000.
  • Option 3 : You can go for a movie and eat in a restaurant of your choice.
  • Option 4 : You can buy yourself a book and save the rest of the money.

What do you notice? You have many options before you. Given a choice, you would like to spend not only on your friends, but would also like to go for a movie, eat in a restaurant, buy a dress and a book and save some money. However, you cannot have all of them at the same time. Why? Because you have only `1000 with you. Had your mother given you ` 2000, you might have satisfied more of your desires. But, she has not. Now, you find yourself in a dilemma as to which of the above options to choose. You will have to go for one option or a combination of one or more options. What do you do? You evaluate the various alternatives and choose the one that gives you the greatest satisfaction. Similar dilemma is faced by every individual, every society and every country in this world. Life is like that. Since we cannot have everything we want with the resources we have, we are forever forced to make choices. Therefore, we choose to satisfy only some of our wants leaving many other wants unsatisfied.

An acceptable definition of economics can be constructed in these words.

“Economics is a subject that studies those activities of man which are concerned worth the maximum satisfaction of wants or with the promotion of welfare and economic growth by the efficient consumption, production and exchange of scarce means having alternative uses.”

DEFINITIONS OF BUSINESS ECONOMICS

Business Economics may be defined as the use of economic analysis to make business decisions involving the best use of an organization’s scarce resources.

Joel Dean defined Business Economics in terms of the use of economic analysis in the formulation of business policies. Business Economics is essentially a component of Applied Economics as it includes application of selected quantitative techniques such as linear programming, regression analysis, capital budgeting, break even analysis and cost analysis.

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