Economics helps understand business aspects like production and distribution. It analyzes how societies use limited resources to produce goods. Early definitions focused on wealth but later definitions emphasized welfare and scarcity. Economics is both a science and an art that studies human behavior related to unlimited wants and means. It is divided into consumption, production, exchange, and distribution. It is related to other social sciences like politics, sociology, history, ethics, psychology and jurisprudence.

1. SUBJECT : ECONOMIS FOR BUSINESS
DR.S.MANI M.COM CA , M.PHIL. MBA.,
PGDCCA., PGDCCM., P.HD.,

2. ECONOMIS FOR BUSINESS
INTRODUCTION
Economics helps us to understand the various aspects of
business, viz., production and distribution of commodities.
Business students need to learn about economic activity in
order to understand the outcome of such activity. This will
help them to take better decisions in business and
management.
Economic analysis is applied throughout society, in
business, finance and government but also in crime,
education, the family, health, law, politics, religion, social
institutions, war and science. At the 21st century, the
expanding domain of economics in the social sciences has
been described as economic imperialism.

3. MEANING
The term ‘economics’ which is very popularly today it is
originally derived from the Greek word ‘oikos’ which
means household and ‘nemein’ which means
management. Thus, it refers to managing of a
household using the limited funds.

4. Adam smith (1776): Wealth
Alfred Marshall (1890): Welfare
Lionel Robbins (1935): Scarcity and choice
Paul Samuelson (1948): Growth

5. ADAM SMITH
(Wealth definition)
Adam Smith (1723-1790) of Scotland is regarded as
the Father of political Economy. His book, “An Inquiry into
the nature and causes of the wealth of nations” is
considered to be a monumental work in Economics. He has
come to be known as the Father of Economics.
According to Adam Smith, “The great object of the
political economy of every country is to increase the riches
and power of that country”.
According to Adam smith, economics is the science of
wealth that deals with the acquisition, accumulation and
utilization of wealth of nations. If his definition is viewed as
the reflection of his own contemporary conditions, his
maiden effort is no doubt accomplishment. He viewed
society as a whole.

6. CRITICISM
©It is too materialistic.
©This definition has taken a very narrow view of wealth.
©This definition is incomplete.
©Wealth definition gave importance to wealth and gave
©secondary place to man.
©It is unscientific, unsatisfactory and incomplete.

7. MARSHALL
(Welfare definition)
Alfred Marshall recognized the weakness of ‘wealth
definition’. He corrected the mistakes of classical writers. He
formulated a new definition of economics by shifting the
emphasis ‘Welfare’.
Marshall defines economics, “Economics is the study of
mankind in the ordinary business of life; it examines that part of
a social action which is most closely connected with all
attainment and use of the material requisites of well being. Thus,
it is on one side a study of wealth, and on the other, the more
important side, a part of the study of man”.
According to Marshall, man is ‘Primary’ and wealth is
‘secondary’. Alfred Marshall in his book ‘Principles of Economics’
defined economics as “a study of mankind in the ordinary
business of life; it examines the part of individual and social
action which is most closely connected with the attainment and
with the use of the material requisites of well-being”.

8. CRITICISM
That only material means promote economic
welfare highly narrow.
Marshall has used the term ‘material requisites’ of
well-being.
The inclusion of the concept of welfare is
questioned.
The concept of welfare is not defined clearly.
It is not analysis.

9. LIONEL
(Scarcity definition)
Prof.Lionel Robbins of the London school of Economics
constructed a new definition of economics in 1932 in his book, “The nature
and significance of Economic Science”.
According to Lionel Robbins, “Science which studies human behaviour as
a relationship between ends and scarce means which have alternative uses.”
This definition is based on certain observation and propositions by
Robbins.
Man has unlimited wants. The means (resources) to satisfy these wants are
scarce. The means are not only limited, but are capable of alternative uses.
The resources are limited; we cannot satisfy all our wants.
For Example:
A student who wishes to score high marks needs to work extra
hours during the day. As there are only 24 hours in a day, he has to forego
his time for entertainment. In other works, he has to make a choice between
the entertainment and his academic scores. Thus, choice between
alternative is the basic principles underlying all economic activity.

10. CRITICISM
It is logic, but it has no human touch.
It is too narrow and It fails to analyze the causes of
general unemployment of resources.
Robbins definition gives Economics only an
allocative role.
Human touch is missing in Robbins definition. It is
more abstract and complex.
It is not applicable to under developed countries.

11. SAMUELSON
(Modern definitions)
Samuelson’s definition is known as a modern
definition on Economics. His definition is relatively more
comprehensive than that of his successor.
According to Prof. Samuelson, “Economics is a social
science concerned chiefly with the way society chooses to
employ its resources, which have alternative uses, to
produce goods and services for present and future
consumption”.
Interesting point of his definition is that a society
may or may not make use of money, but his definition is
applicable equally both.

12. CRITICISM
The definition is very comprehensive because it
does not restrict to material well-being or money
measure as a limiting factor.
It considers economic growth over time.

13. NATURE AND SCOPE OF ECONOMICS
Prof.Keynes in his popular book, “The scope and
method of Economics” has studied four aspects under
the scope of economics.
They are,
 Subject matter,
 Nature of economics,
 Relationship of Economics with other
sciences,
 Limitations.

14. Subject-Matter of Economics
The accumulation of material requisites is
an important aspect but the final goal was
human welfare. But Robbins widened the scope
of Economics; its subject matter now was the
study of human behaviour in relation to
allocation of scarce resources having alternative
uses to satisfy unlimited wants. Thus wants,
efforts and satisfaction become the subject
matter of Economics

15. Main and Sub-divisions of Economics:
Traditionally Economics is divided into four
major divisions’ viz.,
Consumption,
Production,
Exchange and
Distribution.
Consumption: All economic activities are geared towards
one distribution viz., consumption of goods and services to
satisfy human wants.
Production: Production is required to provide goods for
consumption. This section studies the nature and role of
factors of production, producer’s behaviour in the
maximization of his returns.

16. Exchange: Exchange refers to an activity linking
consumption and production.
Distribution: Distribution is concerned with the
problem of distribution of national income among four
factors of production viz., land, labour, capital and
organization.
In later years, it has expanded its scope to
include
Public finance,
Money and banking,
International trade and
Growth.

17. Public finance: The theory of public revenue, public
expenditure and pubic dept have develop so much
that this subdivision of Economics is now separately
recognized as Fiscal Economics.
Money and Banking: This division explains the
mechanism of exchange on money and banking
system. There has been so much development of
monetary theory too that it is now individually
known as Monetary Economics.

18. International Trade: The problem of consumption
and exchange of goods is related to not only
production within the country but also the exchange
of such goods between different countries through
international trade.
Growth: The provision of growth oriented definition
of Economics has made growth and planning for
growth a very prominent subject matter of
Economics.

19. Nature of Economics
Economics as a science and art: A Science is a
systematic body of knowledge concerning a particular
branch of the universe. It should have systematic
collection, classification and analysis of facts and its
phenomena should be capable of easy and accurate
measurement.
Economics satisfies all these criteria of science. It has
a systematic body of knowledge, studying human
behavior in relation to unlimited wants and unlimited
means.

20. Positive or Normative Science: In order to
understand this controversy, we should
know the meaning and significance of the
two terms ‘Positive’ and ‘Normative’.
According to J.N.Keynes, “ A Positive
science may be defined as a body of
systematized knowledge concerning ‘what
is’ , a normative science or regulative
science is a body of systematized
knowledge relating to the criteria of ‘what
ought to be’, and concerned with the ‘ideal’
as distinguished from the actual.

21. Relation between Economics and other Social Sciences:
Political: In the early stages of economic development was
known as political Economy. Then politics deals with the
relationship between man and the state. It study the economic
conditions of the counties as in the case of prohibition, taxation,
labour conditions, labour reforms and industrial policy.
Sociology: Sociology studies all aspects of social life including
economic, political and ethical aspects. Hence sociology is
called the parent science. Sociology studies all types of human
activities, but in economics studies only one kind of human
activity.
History: The study of history which helps proper understanding
of economic issues. History supplies raw materials in the
building up of economic theories. The historical school has
contributed to the methodology of economics in the formulation
of economic theories.

22. Ethics: The connection between Economics and ethics has
been a matter of debate. But the view of Marshall and
Hawtrey held the view that Economics and Ethics cannot
be totally separate.
Psychology: Psychology studies the mental behaviour
under different conditions. It would be very helpful to
understand the mentality of economic man trying to
allocate scarce resources among unlimited ends.
Jurisprudence: Jurisprudence is study of law, explains that
economic activities must be conducted according to the law
of the state. There is mutual relationship between
Jurisprudence and Economics.
Mathematics and Statistics: Economics today makes
wide use of mathematical and statistical tools in the study
of economic problems and theories that there is a new
branch of knowledge called Econometrics.