Economic Laws

ECONOMIC LAWS

Concept of Law: Law means “rule or conduct”. A law expresses the causal relationship between two sets of phenomenon. Like other sciences, economics also collects facts and undertakes their systematic study. The facts are analysed and conclusion drawn. These conclusions establish causal relationship between the concerned facts. These are called laws or generalisations.

Collection of facts ⇨ Systematic Study of facts ⇨ Establishment of facts ⇨ Analysis of facts ⇨ Conclusion has drawn ⇨ Establish causal relationship (Law).
Definition:
According to Prof. Tugwell, “A law is summary of observed relations.”
According to Marshall, “The term law means nothing more than the general proposition r statement of tendencies, more or less certain, more or less definite.”
Types of Economic Laws: * Statutory Laws * Social Laws * Moral Laws * Procedural Laws * Scientific Laws

* Statutory Laws: These are framed and enforced by the government within the national boundaries. Citizens violating these laws are liable to be punished.

* Social Laws: These laws are framed by different societies in order to regulate the social life of their members. For example, laws relating to the marriages, festival etc. Those violating social laws are liable to be boycotted by the society.

* Moral Laws: These laws are framed to regulate the life of a man from the moral point of view. These laws enjoin on the people ’what they should do’ and ‘what they should not do’. For example, one should speak truth and not a tell a lie.

* Procedural Laws: Under these laws, procedures are laid down to perform different functions smoothly. For example, rules of games, rules of examination etc.

* Scientific Laws: These laws establish a relationship between the cause and effects.

What are economic laws? They are scientific laws because they establish relationship between economic causes and their effects”.
For example; Law of demand states; when the price of a commodity raises its demand is likely to contracts, ceteris paribus.” It is a scientific law, because it establishes a relationship between the cause (that is rise in price) and the effect (reduction in demand). The economic laws do not describe a particular phenomenon, rather they describe general features of all similar phenomenon and that is why these laws are also known as generalizations.

Definition:

According to Marshall, “Economic laws or statements of economic tendencies are those social laws which relates to branches of conduct in which the strength of motives chiefly concerned can be measured by a money price.”

This definition states: * The economic laws are mere statements of economic tendencies. * These ends are concerned with such ends of man as can be measured by money.

According to Robbins, “Economic laws are statements of uniformities which govern human behaviour concerning the utilisation of limited resources for the attainment of unlimited ends.”

Nature of Economic Laws:

1. Economic Laws are Human Laws: Economic laws are concerned with human behaviour, not with the behaviour of lifeless things. Economic laws tell about the expected behaviour of such economic units as consumer, producer, employer, employee, debtor, creditor, buyer, seller etc. under given circumstances.

2. Statement of Tendencies: Economic laws express tendencies. They are not exact laws. For example, law of supply states that with a fall in price, supply is likely to fall but it does not claim categorically that fall in price must be followed by fall in supply. This law simply refers to the tendency found in the relationship between ‘price’ and ‘supply’.

3. Generalisation: Economic laws refer to the general features found in all phenomenon. Law of demand does not assert that rise in price of petrol will be followed by fall in its demand or fall in its price will be followed by rise in its demand. This law states the relationship between price and demand for ‘all’ things. The economic laws are refers to the ‘average’ not with ‘any particular’ phenomenon or event. That is why these laws are called ‘generalisations’. 4. Economic Laws are Hypothetical: Economic laws valid only if certain conditions are fulfilled. They can be applicable only if certain assumptions hold good. The economic laws are hypothetical because they too assume the ‘ceteris paribus (other things being equal’) clause.
For Example- Law of demand states, other things being equal, rise in price leads to contraction of demand.
↪It is so because economic deals with human behaviour that varies from individual to individual.

5. Economic Laws are Positive: Economic laws state how human being will behave under given circumstances or how they are likely to behave. Unlike statutory, moral and social laws, economic laws do not state how a man must behave.

6. Economic Laws are Abstract: Every economic phenomenon is influenced by several factors, like price of good, income, fashion, substitutes, time, place etc. It is difficult to study the effects of these factors simultaneously. So economists study the causal relationship between important variables and assume other less important variables to be constant.
For Example: The law of demand expresses the causal relationship between the price of a commodity and its demand. It assumes that there is no change in income, fashion, taste or habit of consumers whereas in real life these factors do change. So the law of demand and other economic laws do not depict reality fully, they show only some important variables.

7. Economic Laws are Relative: economic laws are valid under given conditions. When these conditions changes, there is a change in economic laws as well.
For Example: Law of demand states that increase in income leads to increase in demand. But this true in case of normal goods. In case of inferior goods, increase in income leads to reduction in their demand.
Thus, due to change in the type of goods (normal or inferior) there is a change in the effect of law demand.

8. Economic Laws are Uncertain: Economic laws are not that certain and true as the laws of natural sciences because the economic laws express the probabilities.

9. Economic Laws are Axiomatic: There are some economic laws which do not require any proof to establish their importance.
For example, higher profits are preferred to low profits.

10. Some Economic Laws are Universal: Some economic laws have universal validity.
For Example: Law of diminishing returns, Laws of demand and Supply are universal as they apply everywhere.

11. More Exact than Laws of other Social Sciences: Economic laws are more exact, true and perfect because they have a measuring-rod in form of money to measure the economic activity of man.

12. Economic Laws are Qualitative: Economic laws do not express the phenomenon in quantitative terms; rather they show the direction of their change.
For Example: The demand law does not show how much demand will extend with a given fall in price. It simply states the direction (increase/decrease) of change in demand in response to the change in its price.

EXAMPLES OF ECONOMIC LAWS

* Law of Demand * Law of Supply * Law of Returns * Law of Diminishing Marginal Utility * Law of Equi-Marginal Utility