UNIT-1 MEANING OF ECONOMICS: Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek word oikonomia, which means "management of a household, administration" (from oikos, "house"nomos, "custom" or "law", hence "rules of the household"!. "urrent economic models emerged from the broader field of political economy in the late #$th century. A primary stimulus for the development of modern economics was the desire to use an empirical approach more akin to the physical sciences. Wealth and Welfare Definition: The Classical View: The classical economists beginning with Adam %mith defined economics as science of wealth. Adam %mith defined it as the nature and cause of wealth of nations, whereby it &proposes to enrich both the people and sovereign.' (is follower ).*. %ay in +rance defined economics as &the studyof the laws which governs wealth.' ,ther followers of classical view like -assau %enior, +.A. .alker, ).%./ill, and ).0. "airnes also defined economics as a matter of wealth. The NeoClassical View: Marshall!s Definition: Alfred /arshall laid emphasized on man and his welfare. .ealth was regarded as the source of human welfare, not an end in itself but a means to an end. According to /arshall in his book entitled 12rinciples of 0conomics, Political Economy or 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 attainment and with the use of material requisites of well being !hus it is on the one side a study of wealth; and on the other, and more important side, a part ofthe study of man Scarcit" Definition of #o$$ins: 3n the publication &-ature and %ignificance of 0conomic %cience' in #$45 6obbins defined, Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses This definition is based on the following related postulates7 i. 0conomics is related to one aspect of human behavior, of ma8imizing satisfaction from scarce resources. ii. 0nds and wants are scarce. .hen a particular want is satisfied other crop up to take place. iii. The obvious reason for the non satisfaction of unlimited wants is the scarcity of means of the disposal of mankind. The time and means available for satisfying these ends are scarce or limited. iv. The scarce means are capable of alternative use. At a time, the use of a scarce resource for one end prevents its use for any other purpose. v. 0conomics is related to all kinds of behavior that involve the problem of choice. Growth oriented Definition: %rof& Sam'elson!s View: /odern age is age of economic growth. 3ts main ob9ective is to increase social welfare and improve the standard of living of the people by removing poverty, unemployment, ine:uality of income and wealth etc. of nation. 2rof. %amuelson has given a definition of economics based on growth aspects. According to him7 Economics is the study of how people and society end up choosing, with or without the using of money, to employ scarce productive resources that could have alternative uses to produce various commodities, over time and distributethem for consumption, now or in the future, among various persons or groups in society Economics analyses the costs and the benefits of improving patterns of resource use SCO%E OF ECONOMICS A discussion about the true scope of economics includes the sub9ect matter of economics, whether economics is a science or an art, or is a positive or a normative science. ECONOMICS AS A SCIENCE: A science is a systematized body of knowledge ascertainable by observation and e8perimentation. 3t is body of generalizations, principles, theories or laws which traces out a causal relationship between cause and effects. +or any discipline to be a science (a! it must be systematized bodies of knowledge; (b! have its own laws or theories; (c! which can be tasted by observation and e8perimentation; (d!can make predictions; (e! be selfependence on the 3ndividual =nits 5. (eterogeneous =nits 4. /isleading Aggregates ?. The Aggregates which "ompose a %ystem may not be %ignificant A. /icro "hanges %ometimes are /ore 3mportant than /acro "hanges DISTINCTION -ETWEEN MIC#OECONOMICS AND MAC#OECONOMICSMicroeconomics #< /icroeconomics is generally the study of individuals and business decisions. 5< /icroeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. 4< /icroeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy.+or e8ample, microeconomics would look at how a specific company could ma8imize its production and capacity so it could lower prices and better compete in its industry. ?< The bottom line is that microeconomics takes a bottoms2 would be affected by unemploymentrate. ?< /acroeconomics takes a topuopoly/onopolyT"(es of Mar8et i1 2erfect /arket ii1 /onopoly /arket iii1 /onopolistic /arket i*1 ,ligopoly /arket *1 >uopoly /arket %erfect mar8et7 2erfect competition represents the benchmark market structure that contains a large number of participants on both sides of the market, and no market control by any firm. Feat'res of %erfect Mar8et 3& There are large number of buyers and sellers. /& Goods are homogenous. 7& 2erfect knowledge about market conditions. 6& +ree entry I e8it of new firms. 4& 2rice remains constant. ;& A6 J /6 I remains constant. & =nder perfect market, in short term, there may be a possibility of normal profit or super profit or loss, but in perfect market, in longecisions are partial over price. ;& A6 I /6 are sloping downward, but A6L/6. I /6> represents domestic monopoly market. 0+ is the e:uilibrium point of the foreign market, where producer charges ,2+ price for ,G+ output. %imilarly, 0> is the e:uilibrium point of domestic economy, where producer charges ,2> price at ,G> 16 output. 3t means domestic market producer charges higher price but in foreign market, the producer charges lower price. (*ecause ,2> L ,2+!. This process is called D'm(in+& >umping is illegal under international trade agreements of .orld Trade ,rganization (.T,!. A nation can impose anti dumping duties only on production that are being dumped. #easons of D'm(in+ A firm may resort to dumping for a number of reasons which in brief are as under7 031 %rice discrimination: The first reason of dumping is price discrimination. 3f a firm has monopoly of a good in home market, but faces strong competition in foreign market, the firm will naturally charge a higher price in home market and lower competitive price in foreign market. 0/1 %redator" (ricin+: The second ma9or reason is predatory pricing. 3t is the practice of cutting prices of goods in an attempt to derive rival firms out of business. 071 S'r(l's stoc8: A firm may resort to dumping to dispose off surplus stock. 061 Economies of lar+e scale (rod'ction: The big firms where huge fi8ed capital is re:uired for producing the goods may resort to dumping to avail of the economies of large scale production. References:-