LECTURE NO.

Presented by
Farzana Yeasmin
Assistant Professor
Department of Agricultural Economics
Bangladesh Agricultural University, Mymensingh-2202
 Outlines
Economics- Meaning, Definitions and Subject
Matter

Division of Economics – Microeconomics and

Macroeconomics, its Subject Matter, Scope and
Importance

Agricultural Economics – Definitions, Meaning,

Importance and Scope of Agricultural Economics
Meaning of Economics
The word ‘Economics’ originates from the Greek word
‘Oikonomikos’ which can be divided into two parts:
• (a) ‘Oikos’, which means ‘Home’, and

(b) ‘Nomos’, which means ‘Management’.

• Thus, Economics means ‘Home Management’.
• The head of a family faces the problem of managing the
unlimited wants of the family members within the limited
income of the family. In fact, the same is true for a society also.
If we consider the whole society as a ‘family’, then the society
also faces the problem of tackling unlimited wants of the
members of the society with the limited resources available in
that society.
DEFINITIONS OF ECONOMICS
We have now formed an idea about the meaning of
Economics. This at once leads to a general definition of
Economics. Economics is the social science that studies
economic activities.
These definitions can be classified into four groups:
1. Wealth definitions,
2. Material welfare definitions,
3. Scarcity definitions, and
4. Growth-centered definitions.
Adam Smith’s Definition
• Economics as a science evolved in 1776 when Adam Smith published his
famous book, “An Inquiry into the Nature and Causes of the Wealth of
Nations.”. Actually Economics was called “Political Economy” at that
time and it continued up to middle of nineteenth century. The subject
started to be recognized as “Economics” in the late nineteenth century.
• Adam Smith, considered to be the founding father of modern Economics,
defined Economics as the study of the nature and causes of nations’
wealth or simply as the study of wealth.
• The central point in Smith’s definition is wealth creation. Implicitly,
Smith identified wealth with welfare. He assumed that, the wealthier a
nation becomes the happier are its citizens. Thus, it is important to find
out, how a nation can be wealthy. Economics is the subject that tells us
how to make a nation wealthy. Adam Smith’s definition is a wealth-
centered definition of Economics.
Alfred Marshall’s Definition

• Alfred Marshall also stressed the importance of wealth. But he

also emphasised the role of the individual in the creation and
the use of wealth. He wrote: “Economics is a study of man in
the ordinary business of life. It enquires how he gets his income
and how he uses it. Thus, it is on the one side, the study of
wealth and on the other and more important side, a part of the
study of man”.

• Marshall, therefore, stressed the supreme importance of man in

the economic system. Marshall’s definition is considered to be
material-welfare centered definition of Economics.
Lionel Robbins’ Definition

• The next important definition of Economics was due to Prof.

Lionel Robbins. In his book ‘Essays on the Nature and
Significance of the Economic Science’, published in 1932,
Robbins gave a definition which has become one of the most
popular definitions of Economics. According to Robbins,
“Economics is a science which studies human behaviour as a
relationship between ends and scarce means which have
alternative uses”. A long line of economists after Robbins,
including Scitovsky and Cassel agreed with this definition and
carried on their analysis in line with this definition. It is a
scarcity-based definition of Economics.
Modern Growth-Oriented Definition of Samuelson

• In relatively recent times, more comprehensive definitions of Economics have

been offered. Thus, Professor Samuelson writes, “Economics is the study of

how people and society end up choosing, with or without the use of money, to
employ scarce productive resources that could have alternative uses to produce
various commodities over time and distributing them for consumption, now or
in the future, among various persons or groups in society. It analyses costs and
benefits of improving patterns of resource allocation”.

• A large number of modern economists subscribe to this broad definition of

Economics.
 Major economic problems

From the definition of economic problem we can derive the following

fundamentals problems which an economy has to tackle.

1) What to produce: The first major decision relates to the quantity and the
range of goods to be produced since the resources are limited we must
choose between different alternative collections of goods and services that
may be produced. It also implies the allocation of resources between the
different types of goods e.g. consumer goods and capital goods.

2) How to produce: Having the decided quantity and type of goods to be

produced we must next determine the techniques of production to be used
e.g. labor intensive and capital intensive.

3) For whom to produce: This means how the national product is to be

distributed, i.e. who should get how much. This is the problem of the
sharing of the national product.
 Major economic problems
3) Are the resources economically used? : This is the problem of economic
efficiency or welfare maximization. There is to be no waste or misuse of
resources since they are limited.

4) Problem of full employment: Fullest possible use must be made of the

available resources. In other words, an economy must endeavor to
achieve full employment not only of labor but of all its resources.

5) Problem of growth: Another problem for an economy is to make sure

that it keeps on expanding or developing so that it maintains conditions of
stability. It is not to be static. Its productive capacity must continue to
increase. If it is an under-developed economy. It must accelerate it process
of growth.
Division of Economics – Microeconomics and Macroeconomics, its Subject Matter, Scope and Importance

Nature of economics: scope and method:

The subject matter or the study of economics has been

divided by modern economists into two parts:
Microeconomics and Macroeconomics.
These two terms were first coined and used by Ragnar
Frisch. The term microeconomics is derived from the Greek
word mikros, meaning‘small’ and the term macroeconomics
are derived from the Greek word makros, meaning ‘large’.
Microeconomics
Microeconomics is that branch of economics which is concerned with the
decision-making of a single unit of an economic system.
• How does an individual (or a family) decide on how much of various

commodities and services to consume?

• How does a business firm decide how much of its product (or products) to

produce? These are the typical questions discussed in microeconomics.

• Determination of income, employment, etc. in the economic system as a

whole is not the concern of microeconomics.

• Thus, microeconomics can be defined as the study of economic decision-

making by micro-units.
Macroeconomics

Macroeconomics is that branch of economics which is concerned

with the economic magnitudes relating to the economic system as
a whole, rather than to the microeconomic units like individuals
or firms.
It has, therefore, been called ‘aggregative economics’. In the
picturesque language of Kenneth Boulding, “Macroeconomics
deals not with individual income but with national income, not
with individual prices but with the price level, not with individual
outputs but with national output”.
Differences between Microeconomics and Macroeconomics
We can now indicate some of the important differences between Microeconomics and
Macroeconomics. This is shown in Table 1.1 and Chart 1.
 Scope of economics
• Scope mean sphere of study. We have to consider what
economics studies and what lies beyond it. The scope
can be studies through 4 important parts.

• (a) Subject matter of economics.

• (b) Whether economics is a social science?
• (c) Whether economics is a science or an art?
• (d) If economics is science, whether it is positive science or
normative science.
 (a) Subject matter of economics
• Economics has subject matter of its own. Economics studies,
only one aspect of man’s life and work. It only tells us how a
man utilizes his limited resources for the satisfaction of
unlimited wants. He must spend the money and time to derive
maximum satisfaction. This is subject matter of economics.

• Economic activities- It we look around we see that farmers,

doctors, traders, teachers, etc. do their work. They are all
engaged in what is called an economic activity.
 (a) Subject matter of economics
• We may say that when man is engaged in economic activity, he
is busy in earning money. He needs money to satisfy his wants.

• A man want food, clothes and shelter. To get these things he

must have money. To get money he must work or make an
effort. Efforts lead to satisfaction.

• Thus wants, effort, satisfaction sum up the subject matter of

economics. When one want is satisfied another one crop up or
some wants occur after some period of time and again man has
to satisfy that want he has to make some effort.
 (a) Subject matter of economics
• So, we can say that subject matter of economics is:

1. Consumption: It means the use of wealth to satisfy human wants.

It also means the destruction of utility.

2. Production: It is defined as the creation of utility. It involves the

processes and methods employed in transformation of tangible

inputs (raw materials, semi-finished goods, or subassemblies) and
intangible inputs (ideas, information, know-how) into goods or
services.
 (a) Subject matter of economics
3. Exchange: It implies the transfer of goods from one person to the other. It may
occur among individuals or countries. The exchange of goods leads to an increase in
the welfare of the individuals through creation of higher utilities for goods and
services.
4. Distribution: Distribution refers to sharing of wealth that is produced among the
different factors of production. It refers to personal distribution and functional
distribution of income. Personal distribution relates to the forces governing the
distribution of income and wealth among the various individuals of a country.
Functional distribution or factor share distribution explains the share of total income
received by each factor of production viz. land, labour, capital and organization.
b. Is economics a science?
• Economics is not only a science but also an art. It is a science in its

methodology and an art in its application. It has a theoretical aspect

and is also an applied science in its practical aspects. Science is a
systematized body of Knowledge.
• A branch of knowledge becomes systematized when facts are

collocated and analysed to find out a relation between cause and

effect. It lays down general principles which help to explain things
and guide us. It is to be called science. E.g. Nitrogenous fertilizer
increases rice field.
b. Is economics a science?
• Economics is also an art which is also a systematized
body of knowledge. An art lays down percepts or
formulae to guide people who wants to achieve a
certain aim e.g. removal of poverty, increase in rice
production. It is also both an art and a science. Thus
scope of economics is very wide indeed.

• It is now agreed that economics is a fully fledged

science. In fact, it is in no way less than other sciences.
c. Economics is a social science:
• Economic is primarily a study of man and not of wealth but it does not study

man who has renounced the world. It studies human being but it does not
study them as isolated individuals living in forests or in mountain caves.
• It studies man living in organized society, who live in society affecting

society from their action and themselves exposed to social influences

economics has their to study social behaviour, i.e., behaviour of men in
groups. Exchanging his goods for those of others, influencing them by his
action and being influenced by them in turn. Thus, he depends on them and
they depend on him. Economics thus a social since as it is concerned with
the behaviour of an individual living in a group.
d. Positive science or normative science:
• In discussing the scope of economics, we have also to consider whether economics

is a positive or a normative science.

• Positive science explains why and wherefore of things that means their causes and

effect.
• A normative science discusses the rightness or wrongness of the thing.

• Economics is both a positive and a normative science, e.g. per capita income of a

country is less and poor persons are becoming poorer and rich persons becoming
riches.
• Whether it is a good sign or bad? If it is bad then what should be done, etc. So

economics is positive as well as normative science (what is and what ought to be).