Notes of economics Chapter 1

Nots of Economics for BBA

Topic In This Chapter

  • Meaning and definition of economics (bv Adam Smith,Alfred Marshal, Robins) and its criticisms.
  • Scope of economics
  • Importance of study of economics
  • Micro and macro economics concepts
  • Various Economics  concepts

 Definition of Economics  

  • Science of wealth (Adam smith)...classical view
  • Science of welfare (Marshal).. classical view
  • Science of scarcity (Robbins)... modern view
  • Science of efficiency

Science of wealth

Adam Smith (father of economics) definition of economics:

In f 776, in his book "An inquiry into the nature and causes

of the wealth of nations"

"a science which inquires into the -nature and causes of wealth of nations"

Science of wealth definition has two dimensions.

1-Definition of wealth, and

2-Causes of wealth

Meaning of wealth

Around the industrial revolution, merchants were the most powerful class in Western Europe, and wealth for them meant money only.

Sin money at that time was in the shape of gold, merchants declared gold as the only wealth.

Activities which did not result in production of material goods production were unproductive.

Causes of wealth

Human being are born selfish

They have self-interest

It is not the benevolence but self interest that guides economic activity

so left to themselves , each individual would maximize his self intrest (wealth / economic)

When all the  adults of the nation maximize their self interest the wealth of nation grow the faster.

Adam Smiths Definition

Production and growth of wealth as the subject matter of economics.

Wealth is preferred over human.

He considered how individual prices are set and prices of land, labor, and capital are determined

Economic benefits come from self-interested action of individuals.

Criticisms on Adam smith definition

considered economics as a dismal OF selfish science.

defined wealth in a very narrow and restricted sense Which considers only material and tangible goods while ignored the services of a doctor and teacher etc.

Have given emphases only to wealth and reduced man to secondary pace in the study of economics.

Adam Smith emphasis only to earn the wealth.

Wealth is more important the human welfare.

Science of Welfare by Alfred Marshal

Adam Smith’s prophesy that  self-interest would be beneficial to all did not materialize after the industrial revolution.

The revolution divided the society into haves and have - not -including unemployed.

Marshal attempted to offer a compromise and a new definition of economics as

“a study of mankind  ordinary business of life its examines that part of individual and social action which is most closely with the attainment and with the use of material requisites of wellbeing . Thus it is one side a study of wealth; and on the order and more important side, a part of a study of man”.

Main Point of Marshal Definition

  • It studies daily life of ordinary human beings.(rich + poor)
  • Economics is not a useless study of wealth or wasting time exercise BUT
  • It has aim to find out how wealth promotes human Welfare.
  • Wealth is not as importance for the economists as the man himself.
  • The objective of the study of economics is not wealth but behavior and activities to produce and consume maximum number of goods and services.
  • Economics a science which discuss only the people in society not isolated individuals.

 Drawback of Marshal Definition

  • Marshal definition was comprehensive and powerful but had few drawbacks like:
  • It does cover all economic problems. Discuss only material things while ignores
  • Welfare is idea ….
  • Welfare is not measurable.
  • Question of Moral judgment arises.

Criticism on Marshal Definition

  • Economics is not restricted to material good only, non-material things like health, education, entertainment etc.
  • welfare is subjective and form person to person
  • Concept of welfare is vague and not clear.
  • It differs from place to place and people to people.

 Science of Scarcity……Robins definition

In t 93 1, in his book "nature and significance of economic science" as “economics is a science which studies behavior as a relationship between ends and scarce means which have alternative uses”

"ENDS"……. refers to human wants………which are unlimited and hence {main has to make a choice of

more urgent and least urgent wants.

Economic is also called a science of CHOECF.


Resources to satisfy unlimited wants are scarce/limited except few.

Resources have alternative use.

Had the resources been unlimited, there would have no economic problem.

 Merits of Robbins definition

  • Wider scope…….. both material and non- material.
  • More scientific.
  • Universal definition.
  • No charge of selfishness.
  • Positive science.
  • No responsibility selecting ends.

Criticism on Robbins definition

  • Not a pure science.
  • Only a valuation theory.
  • Human-love missing.
  • Ignores macro aspects.
  • No normative aspects.
  • Does not cover economic planning or development.
  • Much wider concept.

 Importance of ECONOMICS

  • Useful for the producer.
  • Useful for the consumer.
  • Poverty-and development.
  • Useful for the leader.
  • Useful for the finance minister.
  • Useful for the distribution of national income.
  • Importance for a common man.
  • Economic planning.
  • Importance for labor.

Fundamental problems facing an economy

  • What to produce.
  • How to produce.
  • For whom to produce.
  • Are the resources economically used.
  • Problem of full employment.
  • Problem of growth.


  • Subject matter of economics
  • Economics as positive or normative science
  • Economics is a science or an art
  • Economics is a social science.

Subject matter of economics

  • Adam smith says “Science of Wealth”
  • Marshal says “Science of material goods of wellbeing”
  • Robbins says “the science of scarcity and choice”.

Economics is science or an art?

Economics is both science and art.

Eco is science because economists use scientific methods in their analysis.

Establishes relationship between cause and effect.

Scarcity of resources compels people to make a choice about goods and services and to make a good choice is an ART.

Economics needs more than just theories and laws.

The knowledge which is gained by experiment or observation.

 Micro and Macro economics

MICRO Economics

“microeconomics is the study of a particular firm, particular household, individual price, wage, income,

industry-and particular commodity “

Also called the price theory.

Macro Economics

“macroeconomics refers to the study of economic system as a whole or its major aggregates”

i.e total income, total expenditure, general price kevel and national output.


 Consumer behavior

"The behavior of the people with regard to purchase and consumption of goods and services for satisfaction of their wants is known as consumer behavior”

 Human Wants

A want is desire to get goods and services, which provide utility.

Wants are the roots cause of all human activity.

 Human wants are of two types:

Economic and non-economic wants

  1. Economic wants are those which can be satisfied only by using goods and services or by spending money i.e buying cycle or cigarettes etc.
  2. Non-economic Wants are those which can be satisfied without the use of goods and services or money like friendship, love, or breathing air etc

 Characteristics of wants

  • Unlimited
  • Re-appear
  • Compete with each other importance
  • Alternative methods of satisfaction
  • Wants are complementary
  • Wants may become habits
  • Present wants may be more important
  • Wants of various people are different due to age and
  • Collective satisfaction like house for the whole family.
  • Wants change with time , space and age etc.

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Notes of economics Chapter-1