85% found this document useful (13 votes)
68K views464 pagesFRANK Economics & Ststistics ISC 11 by D.K Sethi & U Andrews (Full BOOK)
The document outlines the syllabus for an economics course, detailing two papers: a theory paper worth 80 marks and a project work paper worth 20 marks. It covers fundamental economic concepts, types of economies, Indian economic development post-liberalization, and statistical methods relevant to economics. Additionally, it encourages constructive feedback for improving the book and includes suggested projects for practical application of the theory learned.
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85% found this document useful (13 votes)
68K views464 pagesFRANK Economics & Ststistics ISC 11 by D.K Sethi & U Andrews (Full BOOK)
The document outlines the syllabus for an economics course, detailing two papers: a theory paper worth 80 marks and a project work paper worth 20 marks. It covers fundamental economic concepts, types of economies, Indian economic development post-liberalization, and statistical methods relevant to economics. Additionally, it encourages constructive feedback for improving the book and includes suggested projects for practical application of the theory learned.
Uploaded by
Demon' DhruvCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
/ 464
We are grateful to Mrs Rohini Tripathi, Former Head of the Department of Economics, Convent
of Jesus & Mary, Dehradun for going through the book and for giving her valuable suggestions,
We sincerely hope that the students and the teachers will find this book useful. Constructive
criticisms and valuable suggestions from every quarter are welcome for improving and making
this book more useful.
—Authors SYLLABUS
There will be two papers in the subject.
Paper I-Theory: 3 hours ... .. 80 marks
Paper Il-Project Work ... ... 20 marks
PAPER-I (THEORY) — 80 Marks
4, Understanding Economics
(i) Definition of Economics: Adam Smith, Alfred Marshall, Lionel Robbins, Samuelson.
Basic understanding of economics and economic phenomena to be explained especially
in the context of the concept of scarcity and allocation of resources. Students may be
introduced to the main points on which the various definitions of economics could be
analyzed. Features of definitions and two-three criticisms.
(i) Microeconomics and Macroeconomics: Meaning and Difference. Basic concepts: utility,
price, value, wealth, welfare, money, market, capital, investment, income, production,
consumption, saving, business cycle, aggregate demand and aggregate supply.
Meaning and difference between Microeconomics and Macroeconomics. A conceptual
understanding of the terms: Human wants - classification; factors; factors of production;
utility — types and features, total utility, marginal utility and diminishing marginal utility;
price - definition and general rise and fall in price; value — real vs nominal value; wealth
= explanation of the term, classification (personal and social); welfare — economic welfare,
social welfare and relation between wealth and welfare; money — barter economy vs
money economy; market ~ meaning and size; capital ~ meaning; investment — meaning,
investment as a process of capital formation; income — meaning, factor incomes;
production - meaning; consumption — meaning; Saving - meaning; individual saving and
aggregate savings.
The above terms to be explained with the help of relevant examples.
(ii) Basic problems of an economy: what to produce, how to produce; for whom to produce;
efficient use of resources,
The basic problem of scarcity and choice must be emphasized. As this problem is
universal in character, 1.., faced by all economies, irrespective of the economic system
they follow, it must be explained using the concept of Production Possibility Curve. The
three problems — what to produce, how to produce and for whom to produce — must
be highlighted. The role of technology and a shift in the Production Possibility Curve
(assumptions and features) must be explained.
(iv) Types of Economies: Developed and developing; Economic systems: capitalism, socialism
and mixed economy; mechanism used to solve the basic problems faced by each economy.
Characteristics of developed and developing economies; India: introducing regional
and global economic grouping such as SAARC, European Union, ASEAN, G-8, G-20 (basic knowledge); different types of economic systems; definition, features, merits and
demerits of capitalism, socialism and mixed economic system; mechanisms used to
solve the basic problems under each economic system to be explained with the help of
‘examples. The role of goverment along with the price mechanism to be emphasized.
Price mechanism as a too! to solve economic problem.
2. Indian Economic Development
(Introduction
Indian economy post liberalisation. Main features, problems and policies of agriculture,
industry and foreign trade.
(ii) Parameters of Development
Parameters of development: Per capita income (definition and limitations); meaning and
construction of Human Development Index (HDI) India and HDI as per the UNDP Report.
(ii) Planning and Economic Development in India
Planning and economic development in India: A brief explanation. Major objectives of
all the Five-Year Plans. NITI Adyog: Objectives and Role.
iv) Structural Changes in the Indian Economy after Liberalization
Need, meaning, significance and features of liberalization, globalization and privatization
of Indian Economy; disinvestment; meaning.
(v} Current Challenges Facing Indian Economy
Poverty — absolute and relative, vicious circle of poverty, main programmes for poverty
alleviation: A critical assessment of PAPs (Poverty Alleviation Programmes), Rural Credit
(need, purpose and sources); Agricultural marketing: defects and government measures
fo improve agricultural marketing; role of cooperatives, agricultural diversification,
altemate farming/organic farming; meaning and importance.
Human Capital Formation: How people become resource; role of human capital in
economic development; Growth of education sector in India; Education—Formal
and informal (meaning only); unemployment - types of unemployment, causes for
unemployment, Policy to measures (after 2000).
(vi) Economic Growth and Development
Economic Growth and Development - Meaning and diference.
(vii) Sustainable Development
Effects of Economic Development on Resources and Environment.
Understanding the concept of sustainable development, need for sustainable development
for improving the quality of Iit—looking at the deteriorating quality of air, water, food
over time, developing an appreciation of sustain at least what exists for the generations
to come.
Global warming - meaning and effects.
3. Statistics .
(0) Statistics: Definition, scope and limitations of statistics,
Statistics: Definition, scope and limitations of statistics. Special emphasis to be laid on
importance of statistics in economics. (ii) Collection, organization and presentation of data
Collection of data - Sources of data: primary, secondary. Methods of collecting data:
Some important sources of collecting secondary data; ways of collecting primary data;
organization of data: meaning and types of variables frequency; presentation of data:
tabular and diagrammatic presentation (bar diagram, pie, line, histogram, polygon and
ogive curve).
(iif) Measures of Central Value: Average defined; type of averages: arithmetic mean; simple
and weighted; median and mode; ungrouped and grouped data; numericals, relationship
between mean, median and mode.
Measures of Central Value: Average defined; type of averages: arithmetic mean; simple
and weighted; median and mode; ungrouped and grouped data. Numericals only on
mean, median and mode for both ungrouped and grouped data. Relationship between
mean, median and mode - the nature of the frequency distribution - symmetrical,
positively skewed and negatively skewed.
(iv) Measures of dispersion: Definition, methods of studying variation — range; standard
deviation; quartile deviation; the mean or average deviation; coefficient of variation.
Numericals on measures of dispersion required.
(v) Correlation: Introduction, scatter diagram; Karl Pearson's coefficient of correlation;
Spearman's coefficient of correlation.
Meaning and significance of correlation to be explained along with types and degrees.
Scatter diagram, Karl Pearson's method (two variables, ungrouped data); Spearman's
Rank Correlation to be explained with the help of numerical.
(vi) Index numbers: Simple and weighted — meaning, types and purpose. Problems involved
in constructing a Price Index Number.
What does an Index number show, measure or indicate (like a Price Index Number).
Difference between simple and weighted — Price weighted or quantity weighted.
Laspayre's, Paasche and Fisher's methods of index numbers to be explained with help
of numericals). Wholesale price index, consumer price index and index of industrial
production should be explained uses of index numbers. Problems involved in constructing
Price Index Number — the choice of the base year, the number of commodities to be
included (coverage), choice of prices and the method to be used.
(vil) Some Mathematical Tools used in Economics.
Equation of a straight line and slope of a straight line.
PAPER Il: PROJECT WORK — 20 MARKS
Candidates will be expected to have completed two projects from any topic covered in Thoery.
Mark allocation for each project (10 marks):
Overall format 4 mark
Content 4 marks
Findings 2 marks
Viva-voce based on the Project 3 marks A list of suggested projects is given below:
a
Study consumer awareness amongst households through designing a questionnaire and
collection of primary data.
. Prepare a report on productivity awareness among enterprises through use of statistical
data from statistical tables published in Newspapers/RBI Bulletin/Budget/Census report)
economic survey, etc.
. Make a study of two cooperative institutions (example milk cooperatives, etc.) with a view
to compare the organizational and financial structure of the organizations, production
capacity and output, marketing strategies, sales, market share, etc.
. Study in detail the South Asian Association for Regional Cooperation (SAARC) and its
impact on Indian economy.
Prepare a report on the various poverty alleviation and employment generation programmes.
started in India, with special focus on MNREGA.
Compare the status of women of your state with that at the National level for the last ten
years, on the basis of educational level, employment, etc.
. Prepare a report on the forest cover in India, highlighting the following aspects:
(a) Five States/Union Territories having higher and lower forest cover and compare the
extent of forest coverage.
(b) Causes for decrease in forest cover in the Country.
(c) Measures adopted by the Central/State Governments to increase the forest cover. CONTENTS
SECTION I : UNDERSTANDING ECONOMICS
1. Definition of Economics
1.1 Introduction
1.2 Evolution of Economic Thought
1.3 Major Definitions of Economics
1.3.1, Wealth Definition— Adam Smith
13.2. Welfare Definition— Alfred Marshall
1.33 Scarcity Definition—Lionel Robbins
13.4 Growth-Oriented Definition—Samuelson
14 Subject Matter of Economics
1.4.1 Microeconomics
1.4.2 Macroeconomics
1.4.3. Differences between Microeconomics and Macroeconomics
1.4.4 Interdependence of Microeconomics and Macroeconomics
Summary
Test Yourself Questions
R
Basic Concepts of Economics
2.1 Introduction,
2.2 Human Wants
2.2.1 Classification of Human Wants
2.2.2 Features of Human Wants
23 Consumption
23.1 Sustainable Consumption
2.3.2. Significance of Consumption
24 Utility
24.1 Features of Utility
24.2 Total and Marginal Utility
2.5 Production
2.6 Factors of Production
2.6.1 Characteristics of Factors of Production
27 Price
2.7.1 General Price Level
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BREBBRE 28 Inflation
2.8.1 Demand-Pull and Cost-Push Inflation
29° Value
2.10 Market
2.10.1 Types of Markets
2.11 Money
212 Income
2.12.1 Per Capita Income
213. Saving
2.14 Investment
2.15. Wealth
216 Welfare
217 Business Cycle
2.18 Aggregate Demand and Aggregate Supply
2.19 Basic Economic Entities in an Economy
220 Stock and Flow Variables
Summary
Test Yourself Questions
RREBBRESSSRBBYURRIK
. Basic Problems of an Economy
3.1 Introduction
3.2 Economic Problem
3.2.1 Why Does Economic Problem Arise?
33 Basic or Central Problems of an Economy
34 Production Possibility Curve and Central Problems
34.1 Meaning of Production Possibility Curve
34.2. Assumptions of Production Possibility Curve
343 Characteristics of Production Possibility Curve
3.44 Basic Problems on a Production Possibility Curve
Summary
Test Yourself Questions
. Types of Economies
4.1 Introduction
4.2 Developed and Developing Economies
42.1 UN Classification Sl
4.22 Developing (Underdeveloped) and Developed Economies
4.23 Characteristics of Developing (Underdevelo
4.24. Differences between Developed and Under
4.3 Types of Economic Systems
A2BS BHKFESESSRBSB 4.4 Capitalism (Capitalistic Economy)
4.4.1 Features of Capitalism (Capitalistic Economy)
44.2. Merits of Capitalism (Capitalistic Economy)
4.4.3. Demerits of Capitalism (Capitalistic Economy)
4.5 Socialism (Socialistic Economy)
45.1 Features of Socialism (Socialistic Economy)
4.5.2. Merits of Socialism (Socialistic Economy)
4.5.3. Demerits of Socialism (Socialistic Economy)
46 Difference Between Capitalistic and Socialistic Economies
47 Mixed Economy System (Mixed Economy)
47.1 Features of Mixed Economic System (Mixed Economy)
4.7.2. Merits of Mixed Economic System (Mixed Economy)
4.7.3. Demerits of Mixed Economic System (Mixed Economy)
4.8 Other Types of Economies
48.1 Simple and Complex Economies
4.8.2 Closed and Open Economies
4.83 Agricultural and Industrial
‘onomies
4.9 Regional and Global Economic Grouping
Summary
Test Yourself Questions
. Solutions to the Basic Economic Problems Under Different Economic Systems
5.1 Introduction
5.2 Solutions to the Basic Problems Under Capitalism (Capita
5.2.1 What Is Price Mechanism?
5.2.2 Functions of
5.2.3. Price Mechanism as a Tool to Solve Economic Problems
5.24 Conditions Required for Price Mechanism to Play Its Role
tic Economy)
e Mechanism
5.2.5 An Evaluation of Price Mechanism
5.2.6 Limitations of Price Mechanism
53 Solutions to the Basic Problems Under Socialism (Socialistic Economy)
5.4 Solutions to the Basic Problems Under Mixed Economic System (Mixed Economy)
Summary
Test Yourself Questions
. Economic Growth and Development
6.1 Introduction
6.2 Current Interest in Development Economics
6.3 Economic Growth
53.
53
55
56
58
58
59
62
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67
67
69
71
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64 Economic Development
64.1 Traditional View of Economic Development
64.2. New View of Economic Development
65 Growth versus Development
6.6 Quality of Life
6.7 Sustainable Development
Summary
Test Yourself Questions
’. Parameters (Indicators) of Development
7.1 Introduction
7.2 Per Capita Income Index
7.2.1 Limitations of Per Capita Income Index
73 Quality of Life Index
7.4 Human Development Index (HDI)
7.4.1 What Is Human Development?
7.4.2 Construction of Human Development Index
743. Evaluation of Human Development Index
744 Human Development Index and India
Summary
Test Yourself Questions
Sustainable Development
8.1 Introduction
8.2 Meaning of Sustainable Economic Development
83 Need for Sustainable Development
84 Effects of Economic Development on Resources and Environment
84.1 Economic Development and Environmental Degradation
84.2 Causes of Depletion of Resources and Environment Degradation
85 An Appraisal of Sustainable Development—A Challenge
85.1 Strategies for Sustainable Development
Summary
Test Yourself Questions
Planning and Economic Development in India
9.1 Introduction
9.2 Era of Development Planning in India
9.3 Objectives of Economic Planning in India
9.4 Appraisal of Planning in India
9.4.1 Achievements of Planning in India
94.2. Main Failures of Planning in India
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94.3 Factors which Inhibited Successful Implementation of the Plans 133
9.5 NITI Aayog—A New Policy Making Body 134
95.1 Role of NITI Aayog 135 |
9.5.2. Objectives of NITI Aayog 135 |
Summary 136
Test Yourself Questions 136
10. Indian Economy Post Liberalisation 139
10.1 Introduction: Strategy of Planning 139
10.2 Features of Pre-1991 Phase or Pre-liberalisation Phase 139
103. Features of Post Liberalisation Phase 140
10.4 Agriculture Sector in the Post Liberation Period 140
10.4.1 Agricultural Policies 142
10.4.2. Features of Agricultural Development 45
104.3. Problems of Indian Agriculture 146
105 Industrial Sector in the Post Liberalisation Period 149
105.1 Industrial Policy 149
105.2 Recent Industrial Reforms 150
105.3 Problems of Industrial Development in India 151
10.6 India’s Foreign Trade in the Post Liberalisation Phase 152
106.1 Features of India’s Foreign Trade 152
10.62 Trade Policy 153
10.63 Problems of India’s Foreign Trade 153
Summary 154
Test Yourself Questions 155
11, Structural Changes in the Indian Economy after Liberalisation 156
11.1 Introduction 156
11.2. Need for Economic Reforms 156
113 Policy of Liberalisation of Indian Economy 157
11.3.1 Meaning of Liberalisation 158
11.3.2 Features of Liberalisation Policy 158
11.3.3. Significance of Liberalisation Policy 159
11.4 Policy of Privatisation 159
11.4.1 Meaning and Rationale of Privatisation 160
11.4.2 Arguments against Privatisation 162
11.4.3 Features of the Policy of Privatisation in India 162
115 Policy of Globalisation 166
11.5.1 Meaning of Globalisation 166
11.5.2 Effects of Globalisation 166
11.6 Globalisation of Indian Economy 167 {
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12,
13.
11.6.1 Features of Globalisation Policy
11.6.2. Effects of Globalisation on Indian Industry
11.7 Changes in the Indian Economy after Liberalisation
Summary
Test Yourself Questions
The Problem of Poverty in India
12.1 Problem of Poverty
12.1.1 Concept of Poverty —Absolute and Relative Poverty
12.12. Concept of Poverty and Poverty Line in India
122. Various Estimates about the Magnitude of Poverty in India
12.3. Nature and Extent of Poverty in India
124 Vicious Circle of Poverty—An Explanation of Poverty
125 Causes of Poverty
12.6 Government's Policy of Poverty Eradication
12.7 Programmes for Poverty and Unemployment Alleviation Since 1991
128 Efficacy of Poverty Alleviation Measures— A Crit
Summary
Test Yourself Questions
| Assessment
Profile of Indian Agriculture/Rural Development
13.1 Role of Agriculture in Indian Economy
13.2 Agricultural Marketing
13.21 Defects of Agricultural Marketing in India
13.2.2 Measures Taken by the Government to Improve Agricultural
Marketing System
13.23 Cooperative Marketing
13.2.4. Progress of Cooperative Marketing in India
133. Rural Credit
13.3.1 Need and Purpose of Agricultural Credit
1332. Non-Institutional Sources of Rural Credit
1333 Institutional Sources of Rural Credit
1334. Cooperative Credit Societies
1335 Land Development Banks
13.3.6 Cooperative Credit: An Evaluation
13.3.7 Commercial Banks
13.38. Regional Rural Banks
13.4 Agricultural Diversification in
134.1 Meaning of Agricul
1342 Agricultural Diversific
Green Revolution
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13.4.3. Green Revolution and Its Impact
13.44. Agricultural Diversification During the Post-Green Revolution
135 Organic Farming
13.5.1 What Is Organic Farming?
13.5.2 Need for Organic Farming in India
135.3. Benefits of Organic Farming
13.5.4 Development of Organic Farming in India
Summary
Test Yourself Questions
Human Capital Formation in India
14.1 Introduction
14.2 Meaning of Human Capital Formation—How People become Resource
143 Role of Human Capital in Economic Development
144 Education—A Source of Human Resource Development
145 Growth of Education Sector in India
145.1 Educational Profile and Growth of Education Sector in India
14.5.2. Shortcomings in Education
145.3 Public Expenditure on Education
14.54 National Education Policy 2020
14.6 Growth of Health Sector in India
Summary
Test Yourself Questions
Unemployment in India—Problems and Policies
15.1 Introduction
15.2 Unemployment—Meaning and Types
15.2.1 Meaning of Unemployment
15.2.2 Types of Unemployment
15.3 Extent and Magnitude of Unemployment in India
15.4 Consequences of Unemployment
155 Causes of Unemployment
15.6 Measures to Remove Unemployment
15.6.1 Government Policy for Reducing Unemployment
15.6.2 Long-run Remedies for Unemployment
15.6.3. Special Employment Generation Programmes (Policy Measures after 1990)
15.7 The Concept of Full Employment
Summary
Test Yourself Questions
Appendix: Impact of Covid on Indian Economy
215
216
218
218
219
219
220
220
222
224
224
224
224
25
226
27
233
233
238
238
241
241
241
241
242
247
249
251
BRRER
258
259
261 B
SECTION 3 : STATISTICS
16. Definition, Scope, Importance and Limitations of Statistics Jom
16.1 Introduction
16.2. Meaning of Statistics
163. Definition of Statistics
16.3.1 Plural Definition of Statistics
1632 Singular Definition of Statistics
164 Scope of Statistics
165 Importance of Statistics in Economics
166 Limitations of Statistics
Test Yourself Questions
17. Collection, Organisation and Presentation of Data 2 oe
17.1 Statistical Inquiry
17.2 Sources of Data
17.2.1 Data
17.22 Primary and Secondary Data
17.23 Methods of Collection Primary Data
1724 Sources of Collecting Secondary Data
173 Techniques/Methods of Data Collection
174 Organisation of Data
174.1 Meaning and Types of Variables
175 Classification of Data
175.1 Objectives of Classification
1752 Types of Classification
17.5.3 Classification of Statistical Series
175A Types of Frequency Distribution Series
17.6 Presentation of Data
Test Yourself Questions
, Measures of Central Value ot®
181 Introduction
18.2 Measure of Central Value or Average
182.1 Average Defined
18.22 Objectives of Averages
18.2.3. Characteristics of a Good Average
18.24 Types of Averages
183. Arithmetic Mean
18.4.1 Calculation of Arithmetic Mean in Individual Series
184.2 Calculation of Arithmetic Mean in a Discrete Series (Frequency Array)
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18.4.3 Calculation of Arithmetic Mean in a Continuous Series
(Frequency Distribution Series)
18.4.4 Some Special Types of Problems Related to the Calculation of Arithmetic Mean
18.4.5 Calculation of Weighted Arithmetic Mean
18.4.6 Properties of the Arithmetic Mean
18.4.7 Merits and Demerits of Arithmetic Mean
Numericals
18.5
Median
185.1 Calculation of Median in Individual Series
185.2 Calculation of Median in a Discrete Series— (Frequency Array)
1853 Calculation of Median in a Continuous Series (Frequency Distribution Series)
185.4 Some Important Observations Relating to the Calculation of Median
185.5 Graphic Method of Determination of Median
18.5.6 Merits and Demerits of Median
Numericals
18.6
Mode
18.6.1 Calculation of Mode in Individual Series
18.6.2. Calculation of Mode in Discrete Series/Frequency Array
18.63. Calculation of Mode in a Continuous Series—Grouped Frequency
Distribution Series
1864 Some Important Observations Relating to Special Types of Problems
18.6.5 Locating Mode by Graphic Method
18.6.6 Calculation of Mode from the Mean and the Median— Relationship
between Mean, Mode and Median
186.7 Merits and Demerits of Mode
Numericals
18.7
Choice of an Average
Test Yourself Questions
Measures of Dispersion 5%
19.1
19.2
193
19.4
195
Introduction
What Is Dispersion of Data?
19.2.1 Objectives of Measuring Dispersion
19.22. Usefulness of Dispersion
19.23 Characteristics of a Good Measure of Dispersion
‘Measures of Dispersion (Variation)
Range
19.4.1 Estimation of Range
19.4.2 Merits and Demerits of Range
Quartile Deviation
195.1 Estimation of Quartile Deviation
195.2 Merits and Demerits of Quartile Deviation
301
304
308
310
312
315
315
317
318
319
320
321
322
324
325
325
328
329
331
332
335
337
337
337
338
339
339
eesess 21.
Numericals
19.6 Mean/Average Deviation
196.1 Calculation of Mean Deviation
196.2. Merits and Demerits of Mean Deviation
197. Standard Deviation
197.1. Calculation of Standard Deviation
197.2. Merits and Demerits of Standard Deviation
198 Relative Measure of Dispersion—Coefficient of Dispersion
198.1 Coefficient of Range
19.82 Coefficient of Quartile Deviation
1983 Coefficient of Mean Deviation
198.4 Coefficient of Standard Deviation
1985 Coefficient of Variation
Numericals
199. Lorenz Curve
Test Yourself Questions
Correlation 1%
20.1 Introduction
202 What Is Correlation?
20.2.1. Significance of Correlation
122 Types of Correlation
2023 Degree of Correlation
203. Measures of Correlation
204 Scatter Diagram
20.4.1 Merits and Demerits of Scatter Diagram
205 Karl Pearson's Coefficient of Correlation
205.1 Direct Method of Calculating Correlation
2052. Short-Cut Method of Calculating Correlation
2053 Merits and Demerits of Karl Pearson's Coefficient of Correlation
206 Spearman's Rank Coefficient of Correlation *
206.1 When Ranks Are Given
2062 When Ranks Are Not Given
2063 When Ranks Are Equal
20.6.4 Merits and Demerits of Rank Correlation
Numericals
Test Yourself Questions
Index Number “|
21.1, What Is an Index Number?
212. Definition
213 Types of Index Numbers
214 Salient Features or Characteristics of Index
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21.6 Limitations of Index Numbers 392
21.7. Problems Involved in Constructing Index Numbers 392
21.8 Methods of Constructing Price Index Numbers 394
21.8.1 Simple (Unweighted) Index Numbers 394
Numericals 396
21.8.2 Weighted Index Numbers 397
Numerical 400
21.9 Consumer Price Index Numbers 402
21.9.1 Steps for Constructing Price Index 402
21.9.2. Method of Constructing Consumer Price Index (CP!) 402
21.9.3. Uses or Advantages of Consumer Price Index (CPI) 403
21.10 Wholesale Price Index (WPI) 404
Numericals 404
Test Yourself Questions 405
22, Some Mathematical Tools Used in Economics 407
22.1 Introduction 407
22.2. Functions and Equation of Line 407
22.2.1 Functional Forms—Equation of a Straight Line 408
22.3. The Slope of a Straight Line 410
Test Yourself Questions 412
SECTION 4 : PROJECT WORK
Appendix: Project Work for Economics 414
Project 1: Study consumer awareness among houscholds through designing a questionnaire
and collection of primary data 414
Project 2: Prepare a report on productivity awareness among enterprises through use of
statistical data from statistical tables published in Newspapers/RBI Bulletir/
Budget/Census Report/Economic Survey, ete. 416
Project 3: Make a study of two cooperative institutions (example milk cooperatives) with a
view to compare the organisational and financial structure of the organisations,
production capacity and output, marketing strategies, sales, market share, etc. 418
Project 4: Study in detail the South Asian Association for Regional Cooperation (SAARC)
and its impact on Indian economy. 422
Project 5: Prepare a report on the various poverty alleviation and employment generation
programmes started in India, with special focus on MGNREGA 424
Project 6: Compare the status of women of your state with that at the national level for the
last ten years on the basis of education level, employment etc. 425 Project 7: Prepare a report onthe forest cover in India,
Model Test Papers
Sapte Questiow Parer =I
Sart Question Pare =I]
Sapte Questiow Pare =IIL
Glossary NDING ECONOMICS
I. Definition of Economics
2. Basic Concepts of Economics
3. Basic Problems of an Economy
4. Types of Economies
5. Solutions to the Basic Economic Problems Under Different Economic
Systems RELUee!
Economics is often regarded as the ‘quae of socal
sciences’ It has acquired a place of unprecedented
importance in recent years in view of the fact
that it explains some of the very important issues
faced by individuals as well as by the society: It is
essential and appropriate, as a starting point, to
know what economics is all about or what the
subject matter of economics is. In fact, every
science is concerned with a particular subject.
Thus, biology is concerned with biological issues
like the constitution and evolution of living
organisms; physics deals with matter and energy;
political science deals with political issues like the
nature of state and government. Therefore, it is
natural for us, as students of economics, to ask the
basic question: ‘What do we study in economics?”
or “What is the subject matter of economics?”
(Economics, as a social science, is concerned
with economic questions. It seeks to explain
systematically a large variety of questions
pertaining to economic behaviour of individuals,
the society and the economy)Let us enumerate
some examples of the econofnic questions with
which we are concemed in economics.
As individuals, we face innumerable economic
questions in our daily life. How do we as
‘consumers decide the amount of our income we
should spend on the purchase of various goods
and services? How do producers decide ‘which
commodities to produce’, ‘how to produce’
and ‘at what prices to sell’? What determines
DEFINITION OF ECONOMICS
the level of wages? Why do the government
employees demand higher dearness allowance
when prices go up? Then there are bigger issues
faced by the entire economy. What determines
the level of national income? Why is India
facing the problem of unemployment? How do
wwe explain the existence of massive poverty in
our country? Why did many of the advanced
countries experience recession during the period
2008-2010? Why is China able to achieve a
higher rate of economic growth than India?
What are the effects of government's taxation
and expenditure policies? Why has the Indian
government followed the policy of privatisation
and globalisation? Why do the developing
economies face the problem of deficits in their
balance of payments? What policies need to be
followed to curb inflation or to step up exports?
These are some of the questions which we
study in economics. Economists are deeply
concerned with such questions. Such a listing,
of questions may give you some idea about the
subject mater of economics. It may also make you
realise why the subject of economics has acquired.
such a place of preeminence these days. Study
of economics is important because it deals with
economic questions that concern each one of us
in our daily lives as individuals and as citizens of
2 country. We study economics because it sheds
light on various economic issues and it enables
us to understand current economic problems and
‘consequences of various economic policies pursued
by the goverment. (Economics seeks to develop principles, theories and models that identify the
most important determinants or causes of various
economic events, The goal is to evolve policies that
might solve varfous problems like unemployment,
inflation, underdevelopment, waste of resources in
the economy, etc.
EVOLUTION OF ECONOMIC
THOUGHT
It is important to understand how economics has
developed as a discipline. Economic questions are
as old as mankind. It implies that the prehistoric
man too must have faced some of these economic
issues. In the past, Economics or Political Economy,
as it was called before 1890, formed part
of other disciplines like logic, psychology,
politics, ethics, etc. Aristotle, the famous Greek
philosopher (384-322 nc), who is regarded by
some writers as the first economist, was basically
preoccupied with the general philosophy of state
and society. But while doing so, he did refer to
the definition and scope of economics. He defined
economics as the science of management of family,
and state. During the ancient and medieval times,
economics developed as a science of statecraft.
The mercantilists, the advocates of economic
thought which prevailed between the 16th and
mid-18th centuries, believed that wealth was of
Paramount importance as a means of making a
powerful state. This type of economic thinking
resulted in making economics as a science of
wealth-earning activities of the individuals as
well as the state. Economics became a science
of wealth much more clearly in the hands of
the classical (traditional) economists. In fact, it
emerged as a separate discipline for the first
time in the writings of classical economists. Ever
since then, economists have started defining the
subject matter of economics much more clearly,
though somewhat in different ways.
3_ MAJOR DEFINITIONS OF ECONOMICS:
We can have some idea of the nature and scope
of economics or the subject matter of economics
by enumerating various definitions of economics.
Ever since the emergence of economics as a
separate discipline more than two centuries
ago, economics has been defined differently
by different economists. This is not surprising
because economics covers a wide range of
economic activities faced by human beings
and the society. Keynes has aptly remarked,
‘Political economy is said to have strangled
itself with definitions.’
For the sake of clear-cut understanding
and logical exposition, we can group various
definitions of economics under four heads:
(1) wealth definition, (2) welfare definition,
(3) scarcity definition and (4) growth-oriented
definition.
1.3.1 Wealth Definition—Adam Smith
Classical economists like Adam Smith, J.S. Mill,
Ricardo, Senior and others defined economics
as a science of wealth.(Adam Smith, who is
generally regarded as the father of economics,
defined economics as “A science which enquires _
into the nature and causes of wealth of nations.” _)
In his famous book, Art Enquiry into the Nature
and Causes of the Wealth of Nations, he emphasised
the production, growth and distribution of
wealth as the subject matter of economics.
Adam Smith (1723-90)
Adam Smith, a Scottish
philosopher and economist,
is often considered as the
father of modern economics. ay
He is well known for his ZL
classic work An Enquiry into
the Nature and Causes of the
Wealth of Nations, generally
known as Wealth of Nations. It is considered
to be the first modern work of economics and
remains the most important book on the subject
of economics till the present day. Adam Smith
is considered as the founder symbol of free
market economies and supporter of laissez-faire
(which in French means ‘leave alone’) policies.
He laid the intellectual framework that explains
how rational self-interest and competition
through ‘the invisible hand’ lead to the most
efficient use of resources in an economy and
thereby promote social welfare. The writings
of Adam Smith have had a profound impact on
modern economics.
DEFINITION OF ECONOMICS Besides Adam Smith, other dassical economists
also regarded economics as a science of wealth
Thus,
J.B. Say, the noted French economist,
regarded economics: “As the science which treats
of wealth”. Similarly, N.
wrote
Economy,
au William Senior
that “The subject treated by the Political
js not happiness but wealth.”
The main features of wealth definition of
econor
ics are:
tudy of Wealth: According to the wealth
definition, economics is the study of
wealth only.)The main object of economics
is to examine how people eam wealth
and spend it. Wealth has been made the
focal point of study in economics by the
classical economists.
Fi Causes of Wealth: Economics seeks to
ae
examine causes which lead to an increase
of wealth) Wealth can be increased by its
production and accumulation.
Economic Man: The wealth definition of
‘economics considers an ‘economic man’ who
is aware of his self-interest.(The economic
man tries to achieve his self-interest by
increasing his material gains through
acquisition of wealth. >)
Criticisms
The classical economists were vehemently
attacked from various quarters for considering
economics as a study of wealth. The wealth
definition has been criticised on the following
grounds:
1
Too Much Emphasis on Materialis
Classical economists came in for bitter
criticism from many thinkers of that
time, particularly Thomas Carlyle and
John Ruskin. They dubbed economics
so defined as a pig science, a dismal
science, bread and butter science, gospel of
mammon, etc. They alleged that by defining
economics as a science of wealth, classical
economists have i the higher values
of life such as haj love, affection,
etc, They emy ed that happy living,
and not y should be the end
of human’ What matters most is a
happy life and not wealth.
However, this criticism is unwarranted
and misplaced. Classical economists never
advocated worship of wealth. They have
emphasised wealth because it is the basis
of physical existence and the basic means
of raising the standard of living and
achieving economic growth.
2, Narrow View of Wealth: Major criticism
levelled against classical economists is that
they have defined wealth in a very narrow
and restricted sense. Wealth, according
to them, consists of material or tangible
goods. They have excluded non-material
{goods or services like health and education
from the definition of wealth. By taking
such a restricted definition of wealth, the
dassical economists have narrowed down.
the subject matter of economics to material
goods only.
3. Secondary Place to Man: Another
shortcoming of the ‘wealth definition’
of economics is that it has given undue
emphasis on wealth and, in the process,
has reduced man to a secondary place
in the study of economics. In fact, the
ultimate objective of economics is to
promote human and social welfare and
wealth is only a means to achieve this
end, This problem was taken care of by
Alfred Marshall.
4. It Ignores the Problem of S.
‘wealth definition of economics ignores the
basic cause of economic activity, namely
relative scarcity of economic resources.
2 Welfare Definition—Alfred Marshall
The subject of economics had fallen into
disrepute towards the close of the 19th century
due to overemphasis on the study of wealth
by the classical economists. Marshall was the
first economist who tried to raise the status
of economics in the public mind. He made
a fundamental change in the definition of
economics.(He gave the ‘welfare definition’ of
economics. He defined economics as follows:
“Political Economy or Economics is a study
of mankind in the ordinary business of life; it
examines that part of individual and social
UNDERSTANDING ECONOMICS Alfred Marshall (1842-1924)
Alfred Marshall, who was a
Professor of Political Economy
at Cambridge University, is
known as one of the founders
of modern economics. His
most famous student,
IM. Keynes, described Marshall
as the greatest economist of
the 19th century. Marshall's book, Principles
of Economics (1890), was considered as the
most influential textbook in economics with
world-wide reputation for many years. It
decisively shaped the teaching of economics
in English-speaking countries. Marshall's main
contributions to economics relate to the issues of
demand and supply, marginal utility, consumer
surplus, economies of scale, cost of production,
etc.
action which is most closely connected with the
attainment and the use of the material requisites
of well-being. Thus, it is, on the one side, a study
of wealth and, on the other and more important
side, a part of the study of man.”
The main features of Marshall's definition are:
study of Mankind: Marshall placed
primary emphasis on the study. of
mankind. No doubt, he emphasised both
mankind and wealth in his definition.
He agreed with the classical economists
that economics is concerned with wealth,
as wealth constitutes material requisites of
well-being. Wealth provides the means for
existence, comfort and enjoyment of life.
(ite believed that wealth is not an end by
itself, but only a means to human welfare.
Thus, according to Marshall, itis the study
of man which occupies the central place
in the study of economics.
Study of Ordinary Business of Life:
Economics is a study of ordinary business
of life. An individual has several aspects
of life, namely economic, social, religious
and political. Economic is concerned
only with the economic aspect of human
life.(Economics, according to Marshall, is
not concerned with the social, religious
and political aspects of man’s life. The
ordinary business of life is concerned with
the income-earning and income-spending
activities of mankind.) Economics studies
how people earn maferial means of their
livelihood and how they spend these for
the satisfaction of their well-being.
& Study of Material Welfare: Marshall
emphasised material welfare as the
primary concern of economics. (According,
to him, economics is not concerned with
total human welfare, but is concerned
with material welfare only, ie,, that part
of human welfare which is related to
wealth,)Economics studies those activities
which“are most closely connected with
the attainment and the use of the material
requisites of well-being.
4, Emphasis on Requisites of Well-bein;
There is also emphasis on material
requisites of well-being. Obviously, the
material things like food, clothing and
shelter are very important economic
objects. Material needs are very basic
needs which must be fulfilled before one
can think of other needs.
Exclusion of Non-economic Activities:
Marshall has limited the scope of
economics to those forces and activities
which are amenable to measurement in
terms of money.)That is why political,
social, cultural “and religious activities
of human beings are excluded from the
purview of economics as they are not
subject to measurement in terms of money.
Following Marshall, many other economists
like Pigou and Keynes also defined economics
as a study of economic welfare.
“economics as a study of economi
which is that part of social welfare |
brought directly or indirectly into
with the measuring rod of money”.
DEFINITION OF ECONOMICS
\
| Criticisms
The welfare definitions of Marshall and Tigou
were generally and widely accepted. It was
generally believed that welfare definitions were
successful in identifying the correct subject matter
of economics. But this acceptance proved to be
shortived. Soon, welfare definitions came to be
criticised, particularly by Lionel Robbins. The main
criticisms levelled against welfare definitions are:
1. Economics Regarded as 2 Social Science
Only: Marshall has been criticised for
treating economics as a social science rather
than a human science. A social science
studies the actions of the individuals living
in organised communities as members of
the society, whereas a human science
studies the human being irrespective
of whether he is living as a member of
an organised community or living in
isolation. In terms of welfare definition
the activities of an isolated individual like
Robinson Crusoe or a Himalayan saint lie
outside the orbit of economics because
both of them are cut off from rest of the
society. Thus, welfare definition restricts
the scope of economics to the study of
Persons living in organised communities
only. This is something unacceptable
because some of the important laws of
economics are relevant to an individual,
Whether he is a member of a community
or not,
2. Impractical Classification of Activities: A
second criticism against welfare definition
pointed out by Robbins is that distinction
between economic and non-economic
activities is unscientific, illogical and
illusory since all human activities have
an economic aspect as well. Moreover,
welfare is composite and it is very dificult
to separate material weliae age the total
welfare.
3. Materialistic Aspect: Robbins has criticised
welfare definitions on the ground that
these definitions include only material
things within their purview. They exclude
like the services of
doctors, lawyers, teachers, etc., from
their orbit, These services have nothing
material in them. However, these services
also satisfy our urgent needs and thereby
promote welfare. Hence, it is incorrect
to say that economics is concerned with
material things only.
4. Restricted Scope of Economics: Robbins
has also criticised welfare definitions
as they restrict the scope of study of
economics. Economics studies several
hardly promote economic
welfare, Many goods like liquor, cigarettes
and guns do not promote economic
welfare, yet production of these goods
constitutes economic activity and hence
it is studied in economics.
3. Vague Concept of Material Welfar
The welfare definitions are also subject
of criticism on the ground that material
welfare cannot be quantitatively measured.
Welfare is a subjective thing; it is psychic
in nature. It relates to the mental make-up
of a person. It differs according to time,
place and individual. Thus, welfare cannot
be measured in objective terms.
1.3.3 Scarcity Definition—Lione! Robbins
Robbins was not only a critic of the welfare
definition of economics, but he also gave a new,
definition of economics, which has come to be
known as ‘scarcity definition’.
Qccording to Robbins, “Economics is the
science which studies human behaviour as a
relationship between ends and scarce means
which have alternative uses.”
Robbins’ definition emphasises four
fundamental characteristics of human life:
1. Unlimited Ends (Wants): Ends here refer
to human wants. A fundamental fact of
economic life is that ends or human wants
are unlimited, Human wants are not only
large in number, but they tend to multiply
‘over time, As one want is satisfied, another
want crops up. In view of the multiplicity
of wants and the increase in their number
over time, it is not possible to satisfy all
the wants. However, an important fact
UNDERSTANDING ECONOMICS Lionel Robbins (1898-1984)
Lionel Robbins was one of the
leading and most influential
" English economists of the 20th
century. He was associated
_ with the London School of
"Economics and Political Science
(popularly known as LSE) for
over 30 years, both as the
Professor of Economics and as the Chairman
of the Board of Governors. He wrote on wages,
| inflation, the economics of war and the history
- of economic thought. However, his major work
_was his Essay on the Nature and Significance
| of Economics, in which he gave the famous
| definition of economics. His Report on Higher
Education (1963) became a landmark in the
- development of higher education in UK in the
_ 1960s and 1970s, which led to the formation
| of modern British University System.
about human wants is that all wants are
not of equal intensity. They differ in their
importance; some wants are more intense
than others. Since wants are unlimited,
we have to make a choice between the
more important and less important wants.
Obviously, priorities have to be laid down
among various wants. It is because of
difference in the intensity of different
wants that people are able to make a
choice between different wants,
2, Scarce Means: The second fundamental
fact of economic life is that means to satisfy
human wants are limited. Means refer to
various productive resources such as land,
labour, capital, etc., which are needed to
produce and procure goods needed to
satisfy human wants. Resources are said
to be scarce in the sense that the supply of
resources is limited as compared to their
demand. It should be noted here that the
term scarcity is used not in the absolute
sense but in the relative sense, ie., in
relation to demand. Although supply of
resources has increased over time, yet
the demand for resources has always
outpaced their supply. Thus, resources are
4.
limited. Labour is limited by the size of the
population; land is limited by area of the
country, and so on. In view of the scarce
means, only a limited quantity of goods
can be produced. As such, goods are scarce
relation to their demand. Since the
resources are scarce, all the wants cannot
be satisfied. Hence, we have to decide
which of the wants can be fulfilled now
and which ones should be left unfulfilled
for the time being. This problem would not
have arisen if the resources were available
in unlimited quantity. In the words of
Prof. Milton Friedman, “If the means are
not scarce, there is no problem at all; there
is Niroana.” Scarcity is at the root of most
of the human economic problems.
which Robbins’ definition emphasises is
that resources can be put to alternative
uses. For example, a piece of land can be
used to produce wheat, vegetables, etc.
Likewise, a labourer can be used on the
fields or in the factories. The use of scarce
resources in the production of one
commodity prevents its use for any other
commodity. Therefore, the society has to
make a decision as how to allocate the
scarce resources for the production of
different commodities. The problem of
allocation of resources for the production
of different commodities would not arise in
case the resources were of specific use or
of single-use because in that case resources
can be used for the production of that
specific commodity only. For example,
as the film stars are adept in acting, they
would prefer to act in films only.
Choice: Since the resources are scarce
and are also capable of alternative uses
and the human wants (ends) are endless,
people have to make a choice in allocating
these resources for producing different
commodities on the basis of their relative
importance. Human behaviour, therefore,
involves some form of choice in using the
scarce resources for producing different
DEFINITION OF ECONOMICS
ce goods in such a way $0 as to maximise
the gains (in the form of mote goods)
from the use of these resources, i,
optimal allocation of resources. Robbins
hhas described this problem as the protlem
of ecomomising scarce resources.
The need for choice arises because of
scarcity. If everything were available in
plenty, there would have been no need for
choice. But the harsh reality of life is that
all of us face the problem of scarcity and
hence have to make choice. We face the
Problem of choice at all levels— individual,
social, national or intemational,
5. Economics as a Science: According
to Robbins, economics is a science.
It provides a systematic knowledge
with regard to human efforts in solving
economic problems arising out of scarce
means and unlimited wants. Economics
is about making choices in the backdrop
of scarcity. Economics formulates various
economic laws which help in solving
economic problems.
Merits
Robbins’ definition of economics is generally
and widely accepted by the economists in view
of its superiority over the earlier definitions in
@ number of ways:
‘Logical Explanation of Economic Problem:
Robbins’ definition very dearly brings
out the root cause of economic problem,
which forms the foundation of economics
as a soxial science (According to Robbins’
definition, economic problem arises due
to scarcity of means in relation to their
demand. »
A Universal Ss
“of economics emy
nature of the the sense that
Gearcity of means, to ends is
3 universal problem—everywhere and at
all times) Rich ‘as well as poor, traditional
as well“as modern economies face the
Problem of choice, Scarcity definition
of economics is as much appliceble to
ve: The scarcity definition
the universal
a Robinson Crusoe economy as to a
capitalist economy of a socialist economy.
Ai Wuman ScienceCRobbins points out that
economics is a human science and not
merely a social science. This is because the
problem of choice and resource allocation
is faced by an individual irrespective of
whether he is a member of an organised
community or is living in isolati
A. Wider View of Economic Activity:
(CAccording to Robbins, economics studies
all economic activities—whether they
relate to the production of tangible
(material) commodities or services—
provided they involve scarcity of means
in relation to unlimited wants.)
& Positive Science: Robbins emphasises that
economics is a positive science. Economics
is a systematic body of knowledge which
provides the framework within which one
‘an analyse economic problems faced by
the society’ Robbins’ definition imparts
economics the nature of a positive science
because it regards economics to be neutral
between ends. According to Robbins,
economics does not tell the individuals
as to what ends should be achieved
and what ends should be sacrificed.
Economics enlightens the individuals,
enabling them to make rational decisions,
but the decisions have to be made by the
individuals themselves,
Criticisms
But despite the superiority of Robbins’ definition,
it has been criticised on several grounds:
\ i Robbins’
‘definition has been criticised on the ground
that it regards economics as a positive
Science by making it neutral between ends.
Many contemporary economists believe
that they as economists are required to
tell what is good or bad about certain
choices (There is general agreement among
economists at present that economics
is not only a positive science but also
4 normative science. Positive science
UNDERSTANDING ECONOMICS is concerned with ‘what is’, whereas
normative science is concerned with
‘what should be’ or ‘what ought to be’.\Thus,
critics consider the ‘scarcity defi tion’
as narrow and restrictive in nature. As
economists have to advise on policy
matters, economics cannot remain neutral
between ends.
2, Restricted Subject Matter of Economic
A serious objection against Robbins’
definition is that it has restricted the
subject matter of economics by restricting
it tothe theory of resource allocation,
ie, the theory of product and factor
pricing. Robbins’ definition is inadequate
because it does not take account of many
other important economic problems
which are also part of the subject matter
of economics these days. It does not
focus on the important economic issues
of economic instability, unemployment,
income determination and economic
growth and development, ete.
3, Static Definition: The greatest defect in
Robbins’ definition, as pointed out by
critics, is that it is static in its contents
According to the critics, Robbins has taken
a static view of the scarcity problem.
Robbins’ definition does not take into
account the possibility of increase in
resources over time. With economic growth,
availability of resources and their efficiency
increases. Economics is not only concerned
with the present economic problems but
also with the future problems. Robbins’
definition is regarded as static as it takes
into consideration presently available
means only.
4. Economics as_a Science: Robbins has
treated economics as a science only. But,
in fact, economics is both a science and
an art. Scarcity definition of economics has
reduced economics into a pure science, a
science that is concerned with formulation
of economics laws only. But economists
these days believe that economics is also
concerned with the solution of economic
problems. Economists these days are
considered as not only ‘tool-makers’ but
also ‘tool-users’.
5. Economic Problem May Not Always
Arise from Scarcity: Some critics point
out that economic problem does not
always arise from scarcity as suggested
by Robbins. It can sometimes arise
from abundance as well. For example,
during the Great Depression of 1930s, it
was not the scarcity but abundance of
goods (overproduction) which created an
economic problem in various capitalist
countries of the world.
1.3.4 Growth-Oriented Definition—
Samuelson
As pointed out above, Robbins’ definition of
scarcity does not indicate adequately the subject
matter of economics as it does not cover many
issues, particularly the issue of economic growth.
Paul A. Samuelson (1915-2009)
Paul Samuelson was an
American economist at the
Technology (popularly known a
as MIT), who became the first ZA \q
‘American to receive the Nobel
Prize in Economics (1970).
Professor Samuelson is often
considered as the father of modern economics,
He became the most influential and the foremost
economist of the second half ofthe 20th century.
He made fundamental contributions to economic
science in the fields of welfare economics,
public finance, international economics,
macroeconomics, consumer theory, etc. He
was the author of the best-selling economics
textbook of all times entitled Economics, An
Introductory Analysis (1948). This book has
sold nearly 4 million copies in 41 languages.
DEFINITION OF ECONOMICS Therefore, some modem economists have tried to
redefine economics by emphasising the problem
of economic growth.
Professor Paul A. Samuelson has given a
to be known as ‘growth-oriented’ definition,
(According to Samuelson, “Economics is the
Study of how people and society choose, with or
without the use of money, to employ the scarce
productive resources, which have alternative
uses, to produce various commodities over time
and distribute them for consumption now or in
the future among various people and groups in
the society.” ~)
ths definition of economics emphasises
the following
Emphasis on Economic Problems: Like
Robbins, Samuelson also emphasises the
problem of choice arising out of scarce
resources and unlimited wants. Thus, this
definition gives a realistic explanation of
economic problems.
Long-term Perspective: The problem
of scarcity of resources is not merely
confined to the present time but also to
the future. Wants are not static; they are
dynamic. Wants grow and multiply over
time. Along with expansion of wants,
resources also increase over time. Hence,
we are not merely concerned with the
allocation of given resources but also
with how the expansion and growth of
resources is to be used to cope up with
increasing human wants. Thus, Samuelson
has taken the long-term perspective
of economic problems. Herein lies the
superiority of Samuelson’s definition over
that of Robbins.
4 Dynamic Approach: Prof. Samuelson has
adopted a dynamic approach to the study
of economics by taking economic growth
as an integral part of economics. As such,
his definition has imparted dynamism to
economic problems. This has widened the
subject matter of economics.
Universal Problem: Samuelson’s definition
is not only dynamic in content, it is also
wider in scope. Prof. Samuelson has
rightly emphasised that the problem of
resource allocation is a universal problem,
both for barter economies as well as for
money-using exchange economies.
Hf Comprehensive: Samuelson’s definition
of economics is very comprehensive. It is
growth-oriented as well as future-oriented.
It has incorporated Marshall’s welfare
aspect as well as Robbins’ scarcity and
choice aspect.
§f Broader Perspective: Samuelson’s
definition has broadened the subject
matter of economics so as to include
consumption, production, exchange,
distribution, economic growth, etc.
Of all the definitions of economics discussed
above, Samuelson’s definition is considered
to be the most satisfactory. It presents the
problem of choice in its dynamic setting. It has
also widened the subject matter of economics.
Besides, Samuelson’s definition has also a
universal appeal. It is applicable to all types
of economies—capitalist, socialist and mixed.
That is why Samuelson’s definition is the most
accepted definition of economics today.
It is obvious from the above analysis that
economics has been defined differently by
different economists and the definition of
economics has changed over time. There is no
universally accepted definition of economics. This
is primarily because economics is a fast growing,
science, and the subject matter of economics
has grown so vast that it is not possible to
give a precise definition of economics for all
times. The boundaries of economics have been
expanding continuously because ‘Economics is
(still) an unfinished science’ (Zeuthen). That is why
modem economists have stopped giving any
precise definitions of economics. Therefore, the
best way to know what economics is all about
‘or what is the subject matter of economics is to
find out what sort of questions economists have
been discussing. Jacob Viner very aptly says,
“Economics is what economists do.”
en
UNDERSTANDING ECONOMICS Peon eased 9, CO Ces)
The subject matter of economics is presently
divided into two major branches: Microeconomics
and Macroeconomics. These two terms have now
become of general use in economics.
1.4.1 Microeconomics
‘The prefix ‘micro’ is derived from the Greek word
‘mikros’, meaning ‘small(Microeconomics studies
the economic behaviour of individual economic
units and individual economic variables./The unit
of study in microeconomics is individual unit
rather than the entire economy, such as individual
households, firms and_ industries. Thus, the
study of economic behaviour of the households,
firms and industries forms the subject matter of
microeconomics. In other words, microeconomics
is a microscopic study of the economy.
For example,(microeconomics is concerned with
how the individual consumer distributes his
income among various products and services so
as to maximise his utility. Microeconomics also
seeks to explain how the individual firms decide
at what price to sell the product, how much to
produce, what amount of product will maximise
their profit, and how to minimise the cost of
production. In other words, microeconomics
examines how resources are allocated among
various individual firms and industries, how
the prices of various products are determined,
and how the output produced is shared among
those who cooperate in the production of this
output. Microeconomics also examines whether
resources are efficiently allocated. It spells out the
conditions for the optimal allocation of resources
80 as to maximise the output and social welfare.
Thus, microeconomics is concerned with the
theories of product pricing, factor pricing and
economic welfare. ~)
The prefix ‘macro’ is derived from the Greek word
“makros’, meaning ‘large’. Macroeconomics is the
study of the economy as a whole, The unit of
study in macroeconomics is the entire economy
rather than a part of it. Macroeconomics deals
with the problems faced by the entire economy.
Thus (macroeconomics deals with the functioning
of the economy as a whole.) For example,
(macroeconomics seeks to explain how the
“economy's total output of goods and services and
total employment of resources are determined
and what explains the fluctuations in the level
of output and employment. Macroeconomics
explains why sometimes the economy is
operating at near-about full employment level
and why, at some other times, there is a high
degree of unemployment; why sometimes there
is full utilisation of the economy's productive
capacity and why at some other times there is
underutilisation of the economy's productive
capacity. It also seeks to explain why the
economy experiences a high rate of economic
growth sometimes and a lower rate of economic
growth at some other times; why sometimes
the economy faces the problem of a sharp rise
in prices, i.e,, problem of inflation, and why at
some other times the price level remains stable or
even falls. In short, macroeconomics deals with
the broad economic aggregates or ‘bigger’ issues,
such as full employment or unemployment, full
capacity or undercapacity production, a low
or high rate of growth, inflation or deflation.
In other words, macroeconomics is concerned
with the theory of national income, employment,
aggregate consumption, savings and investment,
general price level, economic growth, etc.)
each other in the following important ways:
1. Unit of Study: Microeconomics and
macroeconomics differ from each other in
terms of the unit of study. Microeconomics
studies the economic behaviour of
individual economic units. It is concerned
with how the individual units make
decisions and what affects these decisions.
The main individual economic units are
individual households, firms, industr
and individual markets. The unit of study
{in macroeconomics, on the other hand, is the entire economy rather than a part of
the economy. Macroeconomics is concemed
with the behaviour of the economy
as a whole. Speaking metaphorically,
Microeconomics examines trees, not the
forest, while macroeconomics examines
the forest and not the tree
Focus of Study: Microeconomics
differs from macroeconomics in terms
of the nature of economic problems
studied. Microeconomics deals with
the determination of prices and output
in individual markets. It is concerned
with allocation of resources among
individual firms and industries.
It examines how the output produced is
shared among various resource-owners
who cooperate in the production of this
output. Thus, microeconomics deals with
the functioning of various markets—
both commodity markets and factor
markets—and the relationship among
these markets. Macroeconomics, on the
other hand, deals with broad economic
aggregates like national income, total
employment, aggregate consumption,
aggregate savings and investment, general
Price level, economic growth and balance
of payments.
Boulding has defined macroeconomics
precisely from the angle of nature
of the problems studied. He state:
“Macroeconomics deals not with
individual quantities as such but with
aggregate of these quantities; not with
individual incomes but with national
income; not with individual prices but
with the price level; not with individual
outputs but with the national output.”
. Basic Parameter of the Subject Matter:
One of the main differences between
microeconomics and macroeconomics is
in terms of the basic parameters of the
subject matter of the two. While price is
the basic parameter of the subject matter
of microeconomics, national income is
the basic parameter of macroeconomics.
In case of microeconomics, economic
units like households and producers take
economic decisions on the basis of prices
in different markets. On the other hand,
in macroeconomics, economic decisions
relating to aggregate consumption,
aggregate investment, etc, are taken on
the basis of national income.
. Different Perspectives: Microeconomics
and macroeconomics look at the economic
issues from different perspectives,
According to Stiglitz, “Microeconomics
is the bottom-up view of the economy;
macroeconomics is the top-down view.”
“
