DEFINITION NATURE AND SCOPE OF ECONOMICS
DEFINITION OF ECONOMICS Economics is social science, which is concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants. A basic understanding of economics is essential for well-informed people. Most of today’s political problems have important economic aspects. What level of taxes should we have? How can we make social security retirement program financially secure? How can we increase rate of economic growth? How can we reduce poverty? How can we ensure that companies directors act in the long-run interest of their shareholders and not just for themselves? As citizens & voters we can influence decisions of our elected politicians in responding to such questions, therefore, a sound grasp of economics is very helpful to all of us. An understanding of basics of economic decision-making and the operation of economic system enables businessmen to increase profit. The businessman who understands when to use new technology, when to merge with another firm, when to expand employment, and so on, will be in a p osition to earn more profit. Economics helps consumers and workers make better buying and employment decisions. How can we spend our limited income to maximize our satisfaction? Is it more economical to buy a car on cash or to take it on lease? Should we use credit card or pay cash; and which occupation we should adopt that pays us well? Economics is part of social sciences, which include sociology, psychology and political science. It is a study of how people make choices to satisfy their wants. Whenever an individual, a firm, or a nation faces alternatives, a choice must be made and economics helps us to study how those choices are made, for example, if we have to choose how to spend our limited income, how much of our firm’s limited funds to spend on advertising and how much to spend on new product’s research. In economics we examine situations in which individuals can choose how to do things, when to do things and with whom to do them. Ultimately the purpose of economics is to understand choices. ADAM SMITH Adam Smith was a professor at University of Glasgow. He wrote his book, ‘An enquiry into the Nature and Causes of Wealth of Nations’ in 1776 (231 years ago). Adam Smith argued that if producers were free to seek profits by providing goods and services then the‘ invisible hand’ of market forces would ensure that right goods services were produced. He explained concept of Price System. He divided this book into four main chapters, production, consumption, exchange and distribution. To him Economics is a science of wealth and one of the great objects of political economy of every country is to increase wealth and power of that country. According to Adam Smith rights of private property and wealth are natural and moral rights. He emphasized on profit motive and said that ‘it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner but from their regard to their own interest’ and that interest is profit. Adam Smith was in favor of accumulation of wealth and free trade policy. He finally defines economics as: Economics is a study of causes of Wealth of Nations.
Adam Smith’s main task was to develop a framework for understanding the mechanism through which the seemingly chaotic hubbub of daily trading actually resulted in a natural order. He believed that trade in unregulated markets would maximize wealth of nations. ALFRED MARSHALL Alfred Marshall was a professor...