INTRODUCTION TO
ECONOMICS
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Agenda
• Definition of Economics
• Nature and scope of economic theory
• Positive and normative economics
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Economics
• Economics is derived from two Greek words
• Oikos- a house
• Nemein- to manage
• Means “managing an household”
Emphasis Significant contribution
Wealth Adam Smith
Welfare Alfred Marshall
Scarcity Lionel Robbins
growth Paul Samuelson
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Definitions
Adam smith (1723 - 1790),
Father of Economics
Book “An Inquiry into Nature and Causes of Wealth of
Nations” (1776)
defined economics as the practical science of production
and distribution of wealth.
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Definitions
Alfred Marshall (1842 - 1924) wrote a book “Principles of
Economics” (1890)
Welfare definition
defined “Political Economy” or Economics is a study of
mankind in the ordinary business of life;
it examines that part of individual and social action which is
most closely connected with the attainment and with the
use of the material requisites of well being”.
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Definitions
Lionel Robbins (1889-1984)
Scarcity definition
book “An Essay on the Nature and Significance of Economic Science” in 1932.
According to him, “economics is a science which studies human behaviour as a
relationship between ends and scarce means which have alternative uses”
This definition base on three basic characteristics of human life:
Unlimited wants (ends)
Limited resources (scarce means)
Alternative uses of resources
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Definitions
Prof. Paul Samuelson (1915-2009),
Modern Father of Economics
Growth definition
defined economics as “the study of how men 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”
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SCOPE OF ECONOMICS
• Economics - A Science and an Art
• Economics - A Social Science
• Economics is both positive and normative science.
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Positive Science/ Positive
Statement/ Positive Economics
It only describes what it is
Positive science does not indicate what is good or
what is bad to the society.
It will simply provide results of economic analysis
of a problem.
A positive statement is based on facts.
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Normative science/Normative
Statement/ Normative Economics
• It makes distinction between good and bad.
• It prescribes what should be done to promote
human welfare.
• A normative statement involves ethical values.
• Policy making
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Positive vs Normative
How much will a new petrol tax Should there be a new tax
raise the price of petrol? on petrol?
Will an increase in the minimum Should there be an increase
wage increase unemployment? in the minimum wage?
Why is the price of Pop corn is What should the price of
Tk 4.20 ? Pop corn be?
Therefore, economics is a positive as well
as normative science.
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Positive vs. normative
– Positive analysis: examines the economic
consequences of a policy
– Normative analysis: determines whether a policy should
be used
– For example, if an economist is asked to evaluate the
effects on the economy of a 5% reduction in the income
tax, the response involves a positive analysis. But if
asked whether the income tax should be reduced by
5%, the economist’s response requires a normative
analysis.
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