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Scope of Economics

Scope of Economics. “Whenever six economics gather, there are seven opinions,” Mrs . Barbra Wootton. What is the Scope of Economics?.

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Scope of Economics

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  1. Scope of Economics

  2. “Whenever six economics gather, there are seven opinions,” Mrs. Barbra Wootton

  3. What is the Scope of Economics? • Prominent economist, J.N. Keynes, in his book: “The Scope and Method of Economics”, has included the following three points under the study of the scope of Economics: • Nature of Economics • Subject Matter of Economics • Relationship of Economics with other sciences, and Limitations

  4. NATURE OF ECONOMICS Nature of Economics Nature of body of knowledge implies whether it is science or art, or both science and art. SCIENCE Arts APPLIED POSITIVE PURE NORMATIVE

  5. What is Science? • Science is the systematic body of knowledge in which scientific laws are applied. The subject which has validated laws and have universal acceptability. • Systematic study is that study in which interdependent facts about subject are studied. • Scientific laws are those laws which show the relationship between the causes and effects of an event. • Validity of the laws can be verified in two ways: • (a) a law applies on the real events, it will be considered valid. • (b) If a prediction based on a law, comes true, that law will also be considered valid. • Universal Laws are applicable in every country in every condition with/ without any assumption .

  6. . • (1) Systematic Study: In Economics, only subject in which systematically studied aboutwealth and its relationship with interdependent activities, such as, consumption, production, exchange, corruption, Inflation, Black Marketing etc. is done. • (2) Scientific Law: Laws of Economics, like the law of demand, law supply, etc., are scientific laws. These laws establish relationship between cause(Price) and effect (Change in demand) of an economic event. • (3) Validity of the Laws: Laws of Economics, such as, law of diminishing returns, law of diminishing marginal utility, are considered valid because they apply to the real event. • Law multiplier effect, CRR Theory, Multiplier are also valid because we can predict on the basis of these laws about future economic phenomena.

  7. (4.)Universal Laws :- • Every pure Science Laws’ have Universal nature and they are applicable in every country in every condition with/without any assumption . • The discussion above proves that Economics is a social science.

  8. Economics is a Positive Science: • A Positive science is that science in which the exact and real state of a subject is studied. Its study shows • A) what the facts of a subject are, • B) what the facts were, • C) and what these would be. • A positive science does not give any kind of suggestion regarding the facts. Its study does not show what the acts should be • According to Robbins, “Economic only a positive science.” • According to Lord Robbins,“If Economics remains only a positive science, there will be many benefits from it, such as: • (1) Greater certainty (2) greater efficiency (3) greater concurrence and (4) greater impartiality.”

  9. Economics is also a Normative Science: • A normative science is that science, the study of which relates to: what ought to be? • Its objective is to determine the norms or aims. This science also offers suggestions for solving the problems. • As a normative science, Economics will offer several kinds of suggestions, Economics does not deal only with the study of facts; rather it also determines the economic facts.

  10. A normative Science or a regular science is a body of systematized knowledge related to criteria of ‘What ought to be’ and concerned with the ideal as distinguished from the actual. The object of normative science is the determination of IDEALS----------------------- Keynes • “ Economics which decide about Ideals of the Nation is normative in Nature.” A.C. Pigou • “The theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, technique of thinking, which help its possessor to draw correct conclusion”. Keynes

  11. Economics is also a Normative Science: • Many economics like Marshall, Pigou, etc., think that economics is also normative science. • Following arguments can be given in favour of Economics as a Normative science: • (1) More practical • (2) more useful • (3) more economical • (4) more realistic.

  12. Economics an Art • ‘Knowledge is science, action is art.’ Т.К. Mehta. • Art is the practical application of knowledge for achieving some definite aim. • “An Art is a system of rules for the attainment of given end.”J. M. Keynes. • Modern economists use the term, “Economic Policy” for “Art”. • Roscherthinks that , “Economics is also an art because it’s study provides us with the knowledge of those rules and policies by which we can achieve the target of full employment, economic development, price determine and maximum profit, etc. Economics is both a positive and normative science and an art.”

  13. As an art, Economics proves helpful in solving our practical problems. • (1) More practical • (2) more useful • (3) more economical • (4) more realistic.

  14. Chapman has rightly averred about the nature of Economics that • Economics is a positive science which is related to the state of the economic facts; • it is a normative science which inquires about what type of facts ought to be there, and • it is an Art which seeks to find those ways and means by which the desired objectives (ends) could be achieved.

  15. What is the Scope of Economics? Subject Matter • Prominent economist, J.N. Keynes, in his book: “The Scope and Method of Economics”, has included the following tow points under the study of Subject Matter of Economics: Area of Activities Level of Study

  16. Economic Activities: • “Economics in that branch of knowledge which studies the consumption, production, exchange and distribution of wealth” …………Chapman

  17. Lord Robbins has further extended the subject – matter of Economics. According to him, the subject – matter of Economics deals with those activities of human beings which they perform • (a) as an attempt • (b) to get the scarce means • (c) which satisfy their unlimited wants. When the • (d) economic goods or wealth, thus obtained, satisfy any one want, another want immediately crops up. In this way, an Economic Circle, as Wants – Efforts – Wealth – Satisfaction …… continues to operate. This economic circle is the very beginning and end of the subject – matter of Economics.

  18. Prof. Boulding has divided the economic activities into four parts: • (1) Consumption: Consumption is that economic activity which deals with the use of the utility of goods and services for the direct satisfaction of wants. • (2) Production: Production is that economic activity which is linked with the increase in the utility or price of goods and services.. There are five main means of production: (i) Land (ii) Labour (iii) Capital (iv) Organization and (v) Entrepreneurs. • (3) Exchange: Exchange is that activity which is related to the sale-purchase of a thing. This sale and purchase is made in terms of money. This activity is also called as Price Determination. • (4) Distribution: It deals with the price determination of the means of the production, i.e. the prices of land as rent, price of labour as wages, price of capital as interest and the price of the entrepreneur as profit. This activity is also called Factor Pricing.

  19. Parts of Economics: • Prof. Ragner Frisch has studied the subject-matter of Economics in two parts: • (i) Micro Economics: It studies, the economic activities of an economics unit or a small group of more than one unit. In this part of Economics, demand theory, production theory, price determination, factor pricing or distribution, economic welfare, etc., are studied. • Individual Demands • Individual Supply • Income of a firm • Per capita, Utility, Indifference curve, • Laws of Market, Laws of returns, Production Costs, Wage and Rent Theories. • Factor of Production • Savingetc.

  20. Parts of Economics: • (ii) Macro Economics: In it, various economic activities of the entire economy are collectively studied. Macro Economics deals with national income, revenue, total employment, price level, money, banking, international trade, economic development, etc., • National Demand ( Aggregative Demand) • National Employment, Monetary Policy, Fiscal Policy, Budgeting • Money and Banking • Inflation, Trade Balance • Development Economics and Planning • Public Finance, Agriculture Economics • Human Resource Development, • Research, Statistics etc.

  21. Limitations of Economics • In order to know the extant of the scope of Economics, it is essential to know about the limitations of Economics. Major limitations of Economics are following: • 1) Study of Human Actions only: In Economics, only the human actions are studied. It does not study birds, animals or inanimate things. • 2) Study of Real Man: In Economics, the activities of real men are studied. Under it, the activities of an economic man are not studied. The concept of the economic man was given by the classical economists. Economic man is that which acts only for his own selfish ends. • 3) Study of Average Man: In Economics, a study of average man is made. Under it, activities of the abnormal persons like mad persons, mister criminals, etc., are not studied.

  22. 4) Study of Social Man: • Difference of opinions exists among the economists as to whether Economics should study the activities of one those people who live in society, or should it study the economic activities of all people whether they live in society or not? • According to Dr. Marshall only the social man should be studied in Economics. • Lord Robbins hold the view that the actions of all people should be studied in Economics. • 5) Study of Economic Activities: In Economics, only those activities of man should be studied which are related to the scarce means or wealth.

  23. 6) Social Science: • Economics is a social science. Economics is both positive and normative science and an art. • 7) Economic Law: • The laws of Economics are scientific laws but these laws are less definite than those of the natural sciences. • In short, Boulding has rightly observed regarding the limitations of Economics that “The subjects which are included in Economics at a given time, may not possibly be its limits at some other time

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