1. Introduction
Economics is a social science that studies how people and societies use limited resources to satisfy unlimited wants.
2. Origin and Development of Economics
- Classical Period (1776–1890) – Adam Smith, Ricardo, Malthus
- Neo-classical Period (1890–1932) – Alfred Marshall, Pigou
- Modern Period (1932 onward) – Keynes and others
3. Definitions of Economics
A. Adam Smith (Science of Wealth)
Main Ideas
- Study of wealth and its causes
- Economic man (self-interest)
- Importance of wealth in prosperity
Criticisms
- Too much focus on wealth
- Neglects human welfare
- Unrealistic "economic man" concept
- Narrow scope of economics
B. Alfred Marshall (Science of Material Welfare)
Main Ideas
- Study of mankind in ordinary business of life
- Focus on material welfare
- Economics as a social and normative science
Criticisms
- Vague concept of welfare
- Narrow scope (only material welfare)
- Classificatory, not analytical
- Ignores positive aspect
C. Comparison: Smith vs. Marshall
| Basis |
Adam Smith |
Alfred Marshall |
| Focus |
Wealth |
Human welfare |
| Approach |
Economic man |
Ordinary person |
| Source of Wealth |
Labour |
Labour + other resources |
| Main Concern |
Wealth creation |
Wealth consumption & distribution |
D. Lionel Robbins (Science of Scarcity and Choice)
Main Ideas
- Unlimited wants, limited resources
- Resources have alternative uses
- Economics = science of choice
- Positive and universal
Criticisms
- Ignores welfare
- Self-contradictory
- Doesn't explain overproduction problems
- Too theoretical
Superiority
- Analytical, universal
- Explains scarcity and choice
- Defines true scope of economics
E. Marshall vs. Robbins
| Basis |
Marshall |
Robbins |
| Nature |
Normative |
Positive |
| Scope |
Social welfare |
Scarcity & choice |
| Type |
Classificatory |
Analytical |
| Focus |
Welfare |
Resource use |
4. Positive and Normative Economics
| Positive Economics |
Normative Economics |
| Describes "what is" |
Describes "what ought to be" |
| Based on facts, cause & effect |
Based on values, ethics |
| Realistic approach |
Idealistic approach |
5. Microeconomics and Macroeconomics
Microeconomics
- Study of individual units (consumer, firm, industry)
- Focus: Price, demand, supply, cost, resource allocation
Importance:
- Understands functioning of the economy
- Helps policy-making
- Studies human behavior
- Ensures efficient use of resources
- Useful in trade analysis
Macroeconomics
- Study of economy as a whole
- Focus: National income, employment, inflation, growth
Importance:
- Understands overall economic performance
- Helps in policy formulation
- Useful for international comparison
- Measures growth and stability
Difference between Micro and Macro
| Basis |
Microeconomics |
Macroeconomics |
| Definition |
Study of individual units |
Study of whole economy |
| Scope |
Consumer, firm, industry |
National income, output, employment |
| Objective |
Resource allocation |
Full employment, price stability |
| Nature |
Narrow |
Broad |
6. Goods and Services
- Goods: Tangible things (e.g., food, clothes)
- Services: Intangible (e.g., teaching, banking)
- Both satisfy human wants.
Types of Goods:
- Normal goods – Demand ↑ when income ↑
- Inferior goods – Demand ↓ when income ↑
- Giffen goods – Demand ↑ even when price ↑
- Substitute goods – Used in place of another (tea–coffee)
- Complementary goods – Used together (car–petrol)
- Private goods – Owned by individuals, rival in use
- Public goods – Provided by government, non-rival (road, park)
- Economic goods – Have value, limited supply
- Free goods – Abundant, no price (air, sunlight)
7. Factors of Production
| Factor |
Meaning |
Reward |
Features (Key Points) |
| Land |
Natural resources |
Rent |
Free gift, limited, immobile, passive |
| Labour |
Human effort |
Wages |
Active, perishable, mobile, weak bargaining |
| Capital |
Man-made goods for production |
Interest |
Man-made, mobile, temporary, dependent on tech |
| Organization |
Coordination of all factors |
Profit |
Organizer, risk-taker, planner, innovator |
Quick Summary for Revision
- Smith → Wealth, Marshall → Welfare, Robbins → Scarcity & Choice
- Positive → What is, Normative → What ought to be
- Micro → Individual, Macro → Whole economy
- Factors of production → Land, Labour, Capital, Organization