➖The word ‘Economics’ was derived from two Greek words oikou (a house) and nomos (to manage).
➖Adam Smith is known as the father of Economics.
🔸WHAT IS ECONOMICS
There are mainly three definitions of economics:-
A. Classical or wealth definition (Adam Smith)-1776 A.D :-
Adam smith (1723 – 1790), in his book “An Inquiry into Nature and Causes of Wealth of Nations” (1776) defined economics as the science of wealth. He explained how a nation’s wealth is created.
B. Neo-classical or welfare definition (Alfred Marshall )-1890 A.D :-
Alfred Marshall (1842 – 1924) wrote a book “Principles of Economics” (1890) in which he defined “Political Economy” or Economics is a study of mankind in the ordinary business of life;
➖According to Marshall, economics is a study of mankind in the ordinary business of life, i.e., economic aspect of human life.
➖Economics studies both individual and social actions aimed at promoting economic welfare of people
C. Modern or scarcity and choice definition (Lionel Robbins)-1932 A.D
Lionel Robbins published a book “An Essay on the Nature and Significance of Economic Science” in 1932. According to him, “economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”.
🔸BRANCHES OF ECONOMICS
➖Micro Economics
➖Macro Economics
♦Micro Economics
(a) In order to satisfy various wants an individual buys good and services. To buy goods and services the individual has to pay some price from his limited amount of income. So the individual has to make a decision with regard to quantity of the good to be purchased at given price. He/she has to also decide the combination of different goods to buy given his/her income so that he/she can get maximum satisfaction as a buyer.
(b) An individual also sells goods and services as a seller. Here he has to take decision regarding the quantity of good to be supplied at a given price so that he/she can earn some profit.
(c) All of us pay price to buy a good? How does this price get determined in the market? Micro economics provides answer to this question.
(d) In order to produce a good an individual producer has to take decision as to how to combine the various factors
♦️Macro Economics
The word macro means very large. In comparison to an individual, the society or the country or economy as a whole is very large. So the economic decisions taken at the level of the economy as whole are subject matter of macro economics. Take the example of the economic decisions taken by the government. We all know that the government represents the whole country, not just any individual. So the decisions taken by the government are meant for solving the problems of the whole society. For example government makes policies with respect to collection of taxes, expenditure on public goods and welfare activities etc. which affect the whole economy. “How do such policies work” is the subject matter of macro economics.
In micro economics we study the behavior of an individual as a buyer and seller. As buyer the individual spends money on goods and services which is called his/her consumption expenditure. If we add consumption expenditure of all individuals then we get idea of aggregate consumption expenditure of the whole society. Similarly aggregating incomes of individuals becomes total income of the country or national income.
Another example of macroeconomic issue is the study of inflation or price rise.
Inflation or price rise does not affect an individual only, but it affects the whole economy. So knowing its causes and effects as well as controlling it, come under the study of macro economics.
Similarly, problem of unemployment, economic growth and development etc. concern with the whole population of the nation and hence are covered under the study of macro economics.
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