You are on page 1of 10

Meaning of EconomicsThe branch of knowledge concerned with the production, consumption, and

transfer of wealth. Economics is a social science concerned with the factors that
determine the production, distribution, and consumption of goods and services.
'Political economy' was the earlier name for the subject, but economists in the late
19th century suggested "economics" as a shorter term for "economic science" to
establish itself as a separate discipline outside of political science and other social
Economics is the study of the production and consumption of goods and the
transfer of wealth to produce and obtain those goods. Economics explains how
people interact within markets to get what they want or accomplish certain goals.
Since economics is a driving force of human interaction, studying it often reveals
why people and governments behave in particular ways.
The term economics is derived from the word oeconomicus by Xenophon
in 431 B.C. It is derived from two words economy and science. Economy means
proper utilization of resources. It means economics is the science of economy or
science of proper utilization of resources. It is comprised of theories, laws,
principle related to utilization of resources so as to solve the economic problems,
satisfy the human wants or need and so on
A study of economics can describe all aspects of a countrys economy, such
as how a country uses its resources, how much time laborers devote to work and
leisure, the outcome of investing in industries or financial products, the effect of
taxes on a population, and why businesses succeed or fail.
Adam Smith, known as the Father of Economics, established the first modern
economic theory, called the Classical School, in 1776. Smith believed that people
who acted in their own self-interest produced goods and wealth that benefited all
of society. He believed that governments should not restrict or interfere in markets
because they could regulate themselves and, thereby, produce wealth at
maximum efficiency. Classical theory forms the basis of capitalism and is still
prominent today.
A second theory known as Marxism states that capitalism will eventually fail
because factory owners and CEOs exploit labor to generate wealth for
themselves. Karl Marx, the theorys namesake, believed that such exploitation
leads to social unrest and class conflict. To ensure social and economic stability, he
theorized, laborers should own and control the means of production. While

Marxism has been widely rejected in capitalistic societies, its description of

capitalisms flaws remains relevant.
A more recent economic theory, the Keynesian School, describes how
governments can act within capitalistic economies to promote economic stability. It
calls for reduced taxes and increased government spending when the economy
becomes stagnant and increased taxes and reduced spending when the economy
becomes overly active. This theory strongly influences U.S. economic policy today.
As one can see, economics shapes the world. Through economics, people and
countries become wealthy. Because buying and selling are activities vital to
survival and success, studying economics can help one understand human thought
and behavior.

Nature and Scope of Economics

During the 19th century, the social sciences emerged and separate disciplines
were carved out. Economics, psychology, sociology, politics, anthropology and
other branches of social science developed as separate fields of study. In the last
part of the 19th century, political economy became economics. Since that time,
economics has been frequently defined as the study of how scarce resources are
allocated to satisfy unlimited wants. As a professional discipline, economics is
often regarded as a decision science that seeks optimal solutions to technical
allocation problems. In this text, economics is presented from two perspectives.
One perspective is the technical analysis of the processes by which scarce
resources are allocated for competing ends. An alternative perspective is the social
context of provisioning.
Economics as A Study Of The Allocation Of Scarce Resources
Economics as A Study Of Provisioning
. However, the economics is defined in different ways by different economists.
There are mainly three definitions of economics: classical or wealth definition (Adam Smith)-1776 A.D
neo-classical or welfare definition (Alfred Marshall )-1890 A.D
modern or scarcity and choice definition (Lionel Robbins)-1932 A.D
Classical or wealth definition (Adam Smith)-1776 A.D

The famous classical economist Adam smith for the firs time defined
economics as science of wealth. The definition was given in the book an
enquiry to the nature and the causes of wealth of nations published in 1776 A.D.
the book is popularly known as wealth of nations. According to smith, labor is
the main source of income or wealth. More wealth is accumulated only if more
labor is used. Economics explains the human behavior and activities they do for
wealth. This definition was based upon the assumptions of full employment,
perfect competition, no governmental interventions, money just as a medium of
exchange and so on.
This definition has following main proposition: economics is science of wealth
Labor is the only source of income
there is perfect competition in product as well as labor market
the government should not interfere the activities of people and business
This definition is influenced by physiocracy and mercantilism.
Wealth definition has over emphasized wealth. Economics is science of
human activities rather than only wealth. Adam smith considers only material
things or wealth as subject matter of economics but human beings require some
immaterial things like self esteem or dignity, social prestige, national identity and
so on too. The immaterial things are called essential things for human satisfaction.
Wealth definition is based upon the theory of subsistence wage which is known as
iron law of wage. The law was against the workers and in favor of employers.
Adam smith doesnt explain about scarcity of resource and choice of best
alternative for the use of resources. The problem of scarcity and choice is burning
issue in the modern economics but he fails to explain about the problems of
scarcity and choice. The wealth definition is based upon assumptions of full
employment and perfect competition but none of these two is in existence. This
definition is based upon the assumption of no intervention of government in
economic activities of people and business organization but we find in every
country more or less governmental intervention.
Neo-classical or welfare definition (Alfred Marshall)-1890 A.D
In 1890, Alfred Marshall, a famous neo-classical economist
and a great contributor to micro economics defined economics as the science of
material welfare. Here, the material welfare means the quantities of physical

goods consumed by people. If the people are consuming large quantities of goods,
they are said to have high level of welfare into two types
material welfare
immaterial welfare
According to him, only the material welfare is the subject matter of economics. He
assumes every person is rational and s/he uses the resources in his/her
possession very properly so as to maximize their own welfare. Economics is
therefore the science that studies the rational behavior revealed by the people.
Major propositions of Marshalls welfare definition are: Economics is science of material welfare
Economics is social science i.e. science of mankind
Economics is the study of rational behavior of people revealed for
maximization of material welfare.
Criticisms:This definition of economics a science of material welfare was assumed correct
until the arrival of Lionel Robbins. He criticized the definition under the following
aspects: Classificatory activities of Marshall into material non material welfare,
economics and non economic goods is only classificatory not analytical
because single human cannot be material as well as non material according
to the nature and purpose of work.
Non material activities like feeling of social service, human desire also satisfy
human needs. This idea has not been prioritized
Non welfare consumption like harmful drugs, tobacco, and alcohol dont
promote social welfare but still are in the study of economics
Economics should study about total human beings but wealth definition
doesnt study about isolated people like saints, nuns, monks etc.
Modern or scarcity and choice definition (Lionel Robbins)-1932 A.D
Modern Theory
According to Lionel Robbins, economics is the science of scarcity of the resources
and the choice of best alternative for their utilization. The resources are limited in
supply. Each resource is usable for different purposes. The wants or need of people
are unlimited. The wants differ in importance. They differ from place to place, from
time to time and from person to person. Some wants are more important whereas
some are not. All wants cannot be fulfilled because of insufficiency of resources.
Therefore, we have to go on utilizing the resources in such a way, so that, our
more wants can be fulfilled leaving no one in most important wants unfulfilled. For

it, we must select best ways for the utilization of the resources. We should have
the complete information of resources available, needs of the country and their
importance and ways for the utilization of resources. This definition is given in
1930 A.D after WWI. During third decade of the twentieth century, the European
countries were badly in need of large quantities of resources for rehabilitation,
construction of infrastructures, renovation etc. they were destructed in war. This
definition is both normative and positive in nature.
The major propositions are: there is unlimited human needs or wants
there is scarce means of resources
there are alternative use of resources
there is need of choice
The definition is criticized in the following ways: economic problems arises not only due to scarcity but due to under, miss or
over utilization of resources
economic problems arises due to inequality too
there is political consideration
needs and resources may vary
Superiority of Robbins definition over Marshalls definition: the definition is scientific
the definition is universally accepted
the definition has wide scope
the definition has science of choice
Meaning of Science, Engineering and Technology

Science- The word science comes from the Latin "scientia," meaning knowledge.
How do we define science? According to Webster's New Collegiate Dictionary, the
definition of science is "knowledge attained through study or practice," or
"knowledge covering general truths of the operation of general laws, esp. as
obtained and tested through scientific method [and] concerned with the physical

What does that really mean? Science refers to a system of acquiring knowledge.
This system uses observation and experimentation to describe and explain natural
The term science also refers to the organized body of knowledge people have
gained using that system. Less formally, the word science often describes any
systematic field of study or the knowledge gained from it.

a branch of knowledge or study dealing with a body of facts or truths

systematically arranged and showing the operation of general laws
Systematic knowledge of the physical or material world gained through
observation and experimentation.
Any of the branches of natural or physical science
Systematized knowledge in general.
Knowledge, as of facts or principles; knowledge gained by systematic study.
A particular branch of knowledge.
Skill, especially reflecting a precise application of facts or principles,
Engineering - the branch of science and technology concerned with the design,
building, and use of engines, machines, and structures
The art or science of making practical application of the knowledge of pure
sciences, as physics or chemistry, as in the construction of engines, bridges,
buildings, mines, ships, and chemical plants.
The action, work, or profession of an engineer.
Digital Technology. the art or process of designing and programming
computer systems: computer engineering;
Skillful or artful contrivance; maneuvering.
Basically, to put it into simple terms, engineering is where you solve problems.
To add a bit more to it, engineers use technical, as well as scientific knowledge in
order to make judgments. By using their imaginations, they come up with
solutions to problems either new or old. It is by using the application of technical
and scientific knowledge that engineers put judgment, imagination and reasoning
to work in order to come up with new solutions to human problems or new ways to

solve old problems. So, if that has left you feeling a bit hazy, the best way to
summarize all of this is that engineers are problem solvers.
The branch of knowledge that deals with the creation and use of technical
means and their interrelation with life, society, and the environment,
drawing upon such subjects as industrial arts, engineering, applied science,
and pure science.
The application of this knowledge for practical ends.
The terminology of an art, science, etc.; technical nomenclature.
A scientific or industrial process, invention, method, or the like.
The sum of the ways in which social groups provide themselves with the
material objects of their civilization.
Managerial Economics Definition
A close interrelationship between management and economics had led to
the development of managerial economics. Economic analysis is required for
various concepts such as demand, profit, cost, and competition. In this way,
managerial economics is considered as economics applied to problems of choice
or alternatives and allocation of scarce resources by the firms.
Managerial economics is a discipline that combines economic theory with
managerial practice. It helps in covering the gap between the problems of logic
and the problems of policy. The subject offers powerful tools and techniques for
managerial policy making.
To quote Mansfield, Managerial economics is concerned with the application
of economic concepts and economic analysis to the problems of formulating
rational managerial decisions.
Spencer and Siegelman have defined the subject as the integration of
economic theory with business practice for the purpose of facilitating decision
making and forward planning by management.
Nature and Scope of Managerial Economics
The most important function in managerial economics is decision-making. It
involves the complete course of selecting the most suitable action from two or
more alternatives. The primary function is to make the most profitable use of

resources which are limited such as labor, capital, land etc. A manager is very
careful while taking decisions as the future is uncertain; he ensures that the best
possible plans are made in the most effective manner to achieve the desired
objective which is profit maximization.

Economic theory and economic analysis are used to solve the problems
of managerial economics.
Economics basically comprises of two main divisions namely Micro
economics and Macro economics.









microeconomics, as both are equally important for decision making and

business analysis.

Macroeconomics deals with the study of entire economy. It considers all the
factors such as government policies, business cycles, national income, etc.

Microeconomics includes the analysis of small individual units of economy

such as individual firms, individual industry, or a single individual consumer.

All the economic theories, tools, and concepts are covered under the scope of
managerial economics to analyze the business environment. The scope of
managerial economics is a continual process, as it is a developing science.
Demand analysis and forecasting, profit management, and capital management
are also considered under the scope of managerial economics.

Demand Analysis and Forecasting

Demand analysis and forecasting involves huge amount of decision-making!
Demand estimation is an integral part of decision making, an assessment of
future sales helps in strengthening the market position and maximizing profit. In
managerial economics, demand analysis and forecasting holds a very important
Profit Management
Success of a firm depends on its primary measure and that is profit. Firms are
operated to earn long term profit which is generally the reward for risk taking.
Appropriate planning and measuring profit is the most important and challenging
area of managerial economics.
Capital Management
Capital management involves planning and controlling of expenses. There are
many problems related to capital investments which involve considerable amount

of time and labor. Cost of capital and rate of return are important factors of
capital management.
Demand for Managerial Economics
The demand for this subject has increased post liberalization and globalization
period primarily because of increasing use of economic logic, concepts, tools and
theories in the decision making process of large multinationals.