WHAT IS ECONOMICS?

Let it be noted at the outset that there is no universally accepted definition of economics. The eminent economists of different generationsright from Adam Smith, the father of economics, down to modern economistshave defined economics differently as per their own perception of the central theme of economics. For example, Adam Smith defined economics as an inquiry into the nature and causes of the wealth of the nations. According to Alfred Marshall, a great economist of the 20th century, Economics is the 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. WHAT IS MICROECONOMICS? Microeconomics is fundamentally the study of how individual economic entities including individual consumers, producers (firms) and resource owners find solution to the problem of maximizing their gains from their limited resources and how their decisions affect market conditions, prices and production. To maximize their gains, individuals have to make a number of choices between the endless wants and alternative uses of their resources. Microeconomics studies how individuals make their choices. How consumers make their choices as to what to consume and how much to consume to maximize their total utility from their limited income? Similarly, it analyses how individual firms decide what to produce, how to produce, for whom to produce and what p....micro level, i.e., at the level of individual decision makers. It makes a microscopic study of the various elements of an economic system, not the system as a whole. As Lerner puts it, Microeconomics consists of looking at the economy through a microscope, as it were, to see how the millions of cells in the body economic the individuals or households as consumers, and the individuals or firms as producersplay their part in the working of the whole economic organism. From the microscopic analysis point of view, decision makers are classified on the basis of their economic activity as consumers, producers and resource owners. Microeconomics studies economic behaviour of consumers, producers and factor owners at individual levelindividual consumer, individual producer, and individual resource ownerowners of labour and capital. In addition, microeconomics studies how economic behaviour of economic activities affect the production of goods and services and their prices. Methodology

IS MICROECONOMICS A POSITIVE OR A NORMATIVE SCIENCE? Before we answer the question whether microeconomics is a positive or a normative science, let us understand what is a positive science and a normative science. According to J.N. Keynes, a positive science is a body of systematized knowledge concerning what is [and] a normative or regulatory science is a body of systematized knowledge relating to criteria of what ought to be and is concerned therefore with ideal as distinguished from actual. Friedman has defined positive science more elaborately and clearly. In his words, The ultimate goal of a positive science is the development of a theory or hypothesis that yields valid and meaningful (i.e.,
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not truistic) predictions about phenomena not yet observed. Jud ged against these definitions, economics as a social science turns out to be both a positive and a normative science as it deals with both positive and normative economic questions: what is and what ought to be. Thus, microeconomics is both a positive and a normative science.

Positive vs. Normative

The questions economics asks and attempts to answer fall into two categories. Positive economics is an assertion about economic reality that can be supported or rejected by reference to the facts. It is used to understand the behavior and operation of economic systems, rather than passing judgments on them. Normative economics reflects opinions and values, judging whether the outcomes are good or bad. Simply speaking, positive economics deal with what is while normative economics is concerned with what should be.