2. Economics is defined as that branch of
social science which is concerned with
the study of how individuals,
households, firms, industries and
government take decision relating to the
allocation of limited resources to
productive uses, so as to derive
maximum gain or satisfaction.
3. Simply put, it is all about the choices
we make concerning the use of
scarce resources that have
alternative uses, with the aim of
satisfying our most pressing infinite
wants and distribute it among
ourselves
4. Nature of Economics
• The nature of economics deals with
the question that whether economics
falls into the category of science or arts.
•Various economists have given their
arguments in favour of science while
others have their reservations for arts.
5. •Economics is a science: Science is an organized branch
of knowledge, that analyses cause and effect
relationship between economic agents. Further,
economics helps in integrating various sciences such as
mathematics, statistics, etc. to identify the relationship
between price, demand, supply and other economic
factors
•However, economics is treated as a social science
because of the following features: 1. It involves a
systematic collection of facts and figures. 2. Like in
science, it is based on the formulation of theories and
laws.
6. •Economics is an art: Art is a discipline
that expresses the way things are to be
done, so as to achieve the desired end.
•Economics has various branches like
production, distribution, consumption
and economics, that provide general
rules and laws that are capable of
solving different problems of society.
7. Scope of Economics
• Economists use different economic
theories to solve various economic
problems in society. From a small
organization to a multinational firm,
economic laws come into play. The
scope of economics can be understood
under two subheads: Microeconomics
and Macroeconomics.
8. •Microeconomics is the part of economics
whose subject matter of study is individual
units, i.e. a consumer, a household, a firm,
an industry, etc. It analyses the way in which
the decisions are taken by the economic
agents, concerning the allocation of the
resources that are limited in nature. It
studies consumer behaviour, product pricing,
firm’s behaviour, etc.
9. •Macro Economics is that branch
of economics which studies the
entire economy, instead of
individual units, i.e. level of
output, total investment, total
savings, total consumption, etc.
10. •Basically, it is the study of aggregates
and averages. It analyses the economic
environment as a whole, wherein the
firms, consumers, households, and
governments make decisions. It covers
areas like national income, general price
level, the balance of trade and balance
of payment, level of employment, level
of savings and investment.
11. DIVISIONS OF ECONOMICS
Economics has five (5) major divisions. These
divisions are as follows:
1. Production – This refers to the process of
producing or creating goods needed by the
households to satisfy their needs and
wants. The factors of production are called
inputs and the goods and services that
have been created are called outputs of
production.
12. 2. Distribution – This refers to the marketing
of goods and services to different economic
outlets for allocation to individual consumers.
In monetary terms, this is the allocation of
income among persons or household.
3. Exchange – This is a process of transferring
goods and services to a person or persons in
return for something. At present, the medium
of exchange used in the market is money.
13. 4. Consumption – This refers to the proper utilization
of economic goods. Since goods and services could
not be consumed unless paid for, then we can also
say that consumption is spending money for goods
and services for direct satisfaction
5. Public Finance – This pertains to the activities of
the government regarding taxation, borrowings, and
expenditures. It deals with the efficient use and fair
distribution of public resources in order to achieve
maximum social benefits.
14. THE ECONOMIC RESOURCES
Economic resources are also known as factors
of production. There are four major factors of
production, which are utilized in our
economy. They are as follows:
1. Land – The physical space on which
production takes place, as well as useful
materials – natural resources – found under it
or in it, such as crude oil, iron, coal, or fertile
soil.
15. 2. Labor – This is also termed as human resources. Labor
refers to the time and effort, both physical and mental,
spent in producing goods or services.
3. Capital – Capital has two economic types as a factor of
production. Physical Capital consists of things like
machinery and equipment, factory buildings, computers
and even hand tools like hammers and screwdrivers.
Another type is Human Capital – the skills and knowledge
possessed by workers,
4. Entrepreneurship – The ability and willingness to
combine the other resources – land, labor, and capital –
into a productive enterprise.
