SCOPE OF
ECONOMICS
Scope means province or field of study. In discussing the scope of economics, we have to indicate whether it is a science or an art and a positive science or a normative science. It also covers the subject matter of economics.i) Economics - A Science and an Art
a) Economics
is a science: Science is a systematized body of knowledge that traces the
relationship between cause and effect. Another attribute of science is that its
phenomena should be amenable to measurement. Applying these characteristics, we
find that economics is a branch of knowledge where the various facts relevant
to it have been systematically collected, classified and analyzed. Economics
investigates the possibility of deducing generalizations as regards the
economic motives of human beings. The motives of individuals and business firms
can be very easily measured in terms of money. Thus, economics is a science.
Economics - A Social Science: In order to understand the
social aspect of economics, we should bear in mind that labourers are working
on materials drawn from all over the world and producing commodities to be sold
all over the world in order to exchange goods from all parts of the world to
satisfy their wants. There is, thus, a close inter-dependence of millions of
people living in distant lands unknown to one another. In this way, the process
of satisfying wants is not only an individual process, but also a social
process. In economics, one has, thus, to study social behaviour i.e., behaviour
of men in-groups.
b) Economics
is also an art. An art is a system of rules for the attainment of a given end.
A science teaches us to know; an art teaches us to do. Applying this
definition, we find that economics offers us practical guidance in the solution
of economic problems. Science and art are complementary to each other and
economics is both a science and an art.
ii) Positive
and Normative Economics
Economics is both positive and normative science.
a) Positive
science: It only describes what it is and normative science prescribes what it
ought to be. Positive science does not indicate what is good or what is bad to
the society. It will simply provide results of economic analysis of a problem.
b) Normative
science: It makes distinction between good and bad. It prescribes what should
be done to promote human welfare. A positive statement is based on facts. A
normative statement involves ethical values. For example, '12 per
cent of the labour force in India was unemployed last year' is a
positive statement,
which could is verified by scientific measurement. 'Twelve
per centunemployment is too high' is normative statement
comparing the fact of 12 per
cent unemployment with a standard of what is unreasonable. It
also suggests how it can be rectified. Therefore, economics is a positive as
well as normative science.
iii)
Methodology of Economics
Economics as a science adopts two methods for the discovery of
its laws and principles, viz., (a) deductive method and (b) inductive method.
a) Deductive
method: Here, we descend from the general to particular, i.e., we start from
certain principles that are self-evident or based on strict observations. Then,
we carry them down as a process of pure reasoning to the consequences that they
implicitly contain. For instance, traders earn profit in their businesses is a
general statement which is accepted even without verifying it with the traders.
The deductive method is useful in analyzing complex economic phenomenon where
cause and effect are inextricably mixed up. However, the deductive method is
useful only if certain assumptions are valid. (Traders earn profit, if the
demand for the commodity is more).
b) Inductive
method: This method mounts up from particular to general, i.e., we begin with
the observation of particular facts and then proceed with the help of reasoning
founded on experience so as to formulate laws and theorems on the basis of
observed facts. E.g. Data on consumption of poor, middle and rich income groups
of people are collected, classified, analyzed and important conclusions are
drawn out from the results.
In deductive method, we start from certain principles that are
either
indisputable or based on strict observations and draw
inferences about individual cases. In inductive method, a particular case is
examined to establish a general or universal fact. Both deductive and inductive
methods are useful in economic analysis.
iv) Subject Matter of Economics
Economics can be studied through a) traditional approach and
(b) modern approach.
a)Traditional
Approach:
Economics
is studied under five major divisions
namely consumption, production, exchange, distribution and
public finance.1.Consumption: The satisfaction of human wants through the use
of goods and
services
is called consumption.
2.Production: Goods that satisfy human wants are viewed as 'bundles
of utility'. Hence production would mean creation of
utility or producing (or creating) things for satisfying human wants. For
production, the resources like land, labour, capital and organization are
needed.
3. Exchange:
Goods are produced not only for self-consumption, but also for sales. They are
sold to buyers in markets. The process of buying and selling constitutes
exchange.
4. Distribution:
The production of any agricultural commodity requires four factors, viz., land,
labour, capital and organization. These four factors of production are to be
rewarded for their services rendered in the process of production. The land
owner gets rent, the labourer earns wage, the capitalist is given with interest
and the entrepreneur is rewarded with profit. The process of determining rent,
wage, interest and profit is called distribution.
5. Public
finance: It studies how the government gets money and how it spends it. Thus,
in public finance, we study about public revenue and public expenditure.
b) Modern
Approach
The study of economics is divided into: i) Microeconomics and
ii) Macroeconomics.
1. Microeconomics
analyses the economic behaviour of any particular decision making unit such as
a household or a firm. Microeconomics studies the flow of economic resources or
factors of production from the households or resource owners to business firms
and flow of goods and services from business firms to households. It studies
the behaviour of individual decision making unit with regard to fixation of
price and output and its reactions to the changes in demand and supply
conditions. Hence, microeconomics is also called price theory.
2. Macroeconomics
studies the behaviour of the economic system as a whole or all the
decision-making units put together. Macroeconomics deals with the behaviour of
aggregates like total employment, gross national product (GNP), national
income, general price level, etc. So, macroeconomics is also known as income
theory.
Microeconomics cannot give an idea of the functioning of the
economy as a
whole. Similarly, macroeconomics ignores the individual's
preference andwelfare. What is true of a part or individual may not be true of
the whole and
what is true of the whole may not apply to the parts or
individual decisionmaking units. By studying about a single small-farmer,
generalization cannot be
made about all small farmers, say in Tamil Nadu state. Similarly, the general nature of all small farmers in the state need not be true in case of a particular small farmer. Hence, the study of both micro and macroeconomics is essential to understand the whole system of economic activities.
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