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principles of economics

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  2. 2. ECONOMICS  The word Economics is derived from the Greek word “OKIOS NEMEIN” meaning household management  Man is a bundle of desires. Goods and services satisfy these wants. But almost all the goods are scares  To produce goods factors of production are needed and these are all scarce  ECONIMICS is the branch of knowledge concerned with the production consumption and transfer of wealth.  Economics – the study of how individuals and societies make decisions about ways to use scarce resources to fulfill wants and needs.
  3. 3. NATURE OF ECONOMICS  ECONOMICS AS SCIENCE: When we look at economics from this point of view, it is science. Economics is systematic body of knowledge. Economic laws scientifically establish the relationship between cause and effect. By using measuring rod of money, economists can measure the different nature of human beings. Economists notably, Adam Smith, Ricardo, Malthus and J. M. Keynes assert that economics is science which seeks to ascertain facts. It studies facts of human life and formulates laws from them.  ECONOMICS AS ART: Arts deal with doing and solving practical problems. For example, economics does not simply find out the various causes of rapid population growth but also suggests the measure to control high population growth rate.  ECONOMICS AS A POSITIVE :positive economics deals with objective or scientific explanations of the working of the economy. It explains how society makes decisions regarding consumption, production an exchange of goods. Positive economics asks the questions like what is the economic impact of free trade. It can be compared with pure science like physics and chemistry.  ECONOMICS AS A NORMATIVE SCIENCE: A normative science on the other hand involves ethical judgement. It deals with things, as they ought to be. It offers recommendations based on personal value judgements. It includes economic issues like unemployment benefits, senior citizen allowances, subsidy etc. However, the prominent
  4. 4. SCOPE OF ECONOMICS  The horizon of economics is gradually expanding. It is no more a branch of knowledge that deals only with the production and consumption. However, the basic thrust still remains on using the available resources efficiently while giving the maximum satisfaction or welfare to the people on a sustainable basis. Given this, we can list some of the major branches of economics as under: 1. Microeconomics: This is considered to be the basic economics. Microeconomics may be defined as that branch of economic analysis which studies the economic behaviour of the individual unit, may be a person, a particular household, or a particular firm. It is a study of one particular unit rather than all the units combined together. The microeconomics is also described as price and value theory, the theory of the household, the firm and the industry. Most production and welfare theories are of the microeconomics variety.
  5. 5. 2. Macroeconomics: Macroeconomics may be defined as that branch of economic analysis which studies behaviour of not one particular unit, but of all the units combined together. Macroeconomics is a study in aggregates. Hence it is often called Aggregative Economics. It is, indeed, a realistic method of economic analysis, though it is complicated and involves the use of higher mathematics. In this method, we study how the equilibrium in the economy is reached consequent upon changes in the macro-variables and aggregates. 3. International economics: As the countries of the modern world are realising the significance of trade with other countries, the role of international economics is getting more and more significant nowadays. 4. Public finance: The great depression of the 1930s led to the realisation of the role of government in stabilising the economic growth besides other objectives like growth, redistribution of income, etc. Therefore, a full branch of economics known as Public Finance or the fiscal economics has emerged to analyse the role of government in the economy. Earlier the classical economists believed in the laissez faire economy ruling out role of the government in economic issues. 5. Development economics: As after the second world war many countries got freedom from the colonial rule, their economics required different treatment for growth and development. This branch developed as development economics.
  6. 6. 6. Health economics: A new realisation has emerged from human development for economic growth. Therefore, branches like health economics are gaining momentum. Similarly, educational economics is also coming up. 7. Environmental economics: Unchecked emphasis on economic growth without caring for natural resources and ecological balance, now, economic growth is facing a new challenge from the environmental side. Therefore, Environmental Economics has emerged as one of the major branches of economics that is considered significant for sustainable development. 8. Urban and rural economics: Role of location is quite important for economic attainments. There is also much debate on urban-rural divide. Therefore, economists have realised that there should be specific focus on urban areas and rural areas. Therefore, there is expansion of branches like urban economics and rural economics. Similarly, regional economics is also being emphasised to meet the challenge of geographical inequalities. There are many other branches of economics that form the scope of economics. There are welfare economics, monetary economics, energy economics, transport economics, demography, labour economics, agricultural economics, gender economics, economic planning, economics of infrastructure, etc.
  7. 7. METHODOLOGY OF ECONOMICS  Economics is also like a science but it is a social science. It deals mainly with the human behaviour. Therefore, many economists argue that economics can not be as precise a science as the natural sciences like physics, chemistry etc. The latter can be studied in the laboratory conditions where variables can be easily controlled during experiments. However, social sciences like economics can not be easily controlled. Still over a period of time economic sciences have gained maturity to develop its methodology which is proving now to be quite efficient and such methodologies can be used for efficient analysis of the economic relationships and predictions can be made with sufficient accuracy that generate a sense of confidence and faith. There are two broad methods used in the economic sciences. 1. The deductive method 2. The inductive method
  8. 8. 1. The deductive method: This method involves going from general to particular. Certain hypotheses or postulates regarding human behaviour are taken to be true and then with the help of logical reasoning and examination, we try to figure out the cause and effect relationship between the factors under consideration. 2. The inductive method: Although deductive method has strong points of merit to depend upon, this methodology seems to suffer from certain weaknesses. Therefore, economists belonging to the historical school and many other economists have favoured the inductive or empirical method. The method of induction involves going from particular to general. Here the appeal is to facts, rather than reasoning and an attempt is made to arrive at conclusions from the known facts of actual life.