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Economics for business

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.

Economy & Finance◦
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SUBJECT : ECONOMIS FOR BUSINESS DR.S.MANI M.COM CA , M.PHIL. MBA., PGDCCA., PGDCCM., P.HD.,
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.
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.
Adam smith (1776): Wealth Alfred Marshall (1890): Welfare Lionel Robbins (1935): Scarcity and choice Paul Samuelson (1948): Growth
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.
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.
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”.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.