Thakur Ramnarayan College of Law

F.Y.B.L.S

Economics

By-
Ms. Urmila Chauhan
Assistant Professor

Introduction to Economics

© TET’s Thakur Ramnarayan College of Law

 INTRODUCTION

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

© TET’s Thakur Ramnarayan College of Law

 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.

© TET’s Thakur Ramnarayan College of Law

 Definitions

Alfred Marshall (1842 - 1924)

– “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”.

© TET’s Thakur Ramnarayan College of Law

 Definitions

Lionel Robbins (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”
– Ends – human wants
– Means – resources with which wants are fulfilled

© TET’s Thakur Ramnarayan College of Law

 Definitions

Prof. Paul Samuelson (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”

© TET’s Thakur Ramnarayan College of Law

Nature of Economics- Science or Art?

Marshall regards it as a `study of mankind’, which is what Humanities is?

Robbins sees it as a Science

Nobel Prize winner Paul Samuelson put it, “Not only is Economics at once art
and a science, but economics as a subject can also combine the attractive
features of both the humanities and the sciences”

© TET’s Thakur Ramnarayan College of Law

Nature of Economics- As Science

It explains cause and effect It is a systematized body of It has laws which explains
relationship between various knowledge and not merely and elucidate the facts.
economic variables. a collection of facts

© TET’s Thakur Ramnarayan College of Law

Nature of Economics- As an Art

It is a general It includes It is more

study social factors practical

© TET’s Thakur Ramnarayan College of Law

 Positive and Normative Economics
Positive Economics Normative Economics

Normative economics depicts a picture

Positive economics concentrates on what
1. Meaning of what should be – the opinions, the
already are – the facts, the verifiable.
prescriptions of economists & experts.

Positive economics talks about the cause-and- Normative economics talks about the
2. What it’s all about?
effect relationship. opinions and judgments.

The nature of positive economics is factual The nature of normative economics is

3. Nature of the branch
and descriptive. prescriptive.

© TET’s Thakur Ramnarayan College of Law

 Type of argument behind positive Type of argument behind normative
4. Type of argument behind
economics is objective. economics is subjective.

Statements under positive economics can

Statements under normative economics
5. Merit of testing be tested and the right/wrong can be
can’t be tested or verified.
found.

Positive economics points out the thing as Normative economics passes opinions
6. Needed because it is so that a judgment can be passed on the facts presented in positive
based on that fact. economics.

7. Based on Facts, reality. Values.

© TET’s Thakur Ramnarayan College of Law

 Micro-Economics

In Greek, the words `micro’ and `macro’ mean small and huge, respectively.

Micro-Economics is the branch of Economics that studies economic issues in small, individual details, as if
under a microscope. In contrast, Macro-Economic studies economic issues in aggregative and overall forms,
looking at the broad picture.

Classical economists like Adam Smith, J.B.Say, and David Ricardo had been concerned with the nation or the
country as a whole and drew their conclusions on an aggregative basis. Their analysis was more macro than
micro in nature.

Neo-Classical economists like Alfred Marshall, Menger, W. S. Jevons were concerned with households and
firms as individual rather than aggregate entities and used `marginal’ (small additional or incremental) units in
their methodology.

© TET’s Thakur Ramnarayan College of Law

Macro-Economics

John Maynard Keynes- the Great Depression of the 1930s.

Keynes analyzed the phenomenon in terms of Aggregate Demand and Aggregate

Supply.

Beginning of modern Macro-Economics.

Later John Hicks, Milton Friedman, Lucas and others have developed Macro-Economics
to a very-well developed body of thoughts with many policy implications.

© TET’s Thakur Ramnarayan College of Law

 Distinguish between Micro & Macro
Economics
Point of Micro-Economics Macro-Economics
difference
1. Nature It is the study of individual units It is the study of economic system as
a whole

2. Methods It Uses Slicing method It uses Lumping method

3. Approach Partial equilibrium analysis General equilibrium analysis

4. Economic Micro variables such as individual Macro variable, such as aggregate

variables demand, individual supply, price of supply, aggregate demand, total
a particular commodity etc. consumption etc.

© TET’s Thakur Ramnarayan College of Law

 Distinguish between Micro & Macro
Economics
Point of Micro-Economics Macro-Economics
difference

5. Significance It is useful in regulating the prices of a It perpetuates firmness in the broad

product alongside the prices of factors price level, and solves the major issues
of production (labor, land, entrepreneur, of the economy like deflation, inflation,
capital, and more) within the economy. rising prices (reflation), unemployment,
and poverty as a whole.

6. Limitations It is based on impractical It has been scrutinized that the

presuppositions, i.e., in microeconomics, misconception of composition’
it is presumed that there is full incorporates, which sometimes fails to
employment in the community, which is prove accurate because it is feasible
not at all feasible that what is true for aggregate
(comprehensive) may not be true for
individuals as well.

© TET’s Thakur Ramnarayan College of Law

 Relevance of Economics to Law

– Economics helps in understanding tax laws

– Economic help in understanding the company law
– Economics helps in understanding consumer protection law
Lakhanpal National Ltd. v. MRTP Commission,1989
- Economics helps in understanding property laws

© TET’s Thakur Ramnarayan College of Law

 Relevance of Economics to Law

- Economics helps in understanding property laws

- Laws related to the limited resources can only be understood by
having a basic knowledge of Economics.
- Concept of uncertainty and expectations taught by economics in
law
- Economics act as a critical examination of lawmaking

© TET’s Thakur Ramnarayan College of Law