SCHOOL OF MANAGEMENT STUDIES
UNIT – I - BUSINESS ECONOMICS - SBAA1103
,UNIT 1: INTRODUCTION
Definition – Nature – Scope - Limitations Of Economics - Economics An Art Or Science -
Relevance Of Economics In Business Management - Utility Analysis - Marginal Theory Of
Utilities And Equi –Marginal Theory Of Utility
Introduction
Political Economy is another name of Economics. ―Polis ―in Greek means a state. The
term Political economy means the management of the wealth of the state. The state is
expected to get maximum benefit for the society. The situation that prevails in real world.
The means which satisfy our wants are limited. Time and money are limited. Land
,labour and capital used for production are limited. Science has increased our resources
but our want also has increased.
• Two major factors are responsible for the emergence of economic problems. They are :
• The existence of unlimited human wants and
• The scarcity of available resources
• The numerous human wants are to be satisfied through the scarce resources available
in nature.
• Economics deals with how the numerous human wants are to be satisfied with limited
resources.
• Thus, the science of economics centers on want-effort-satisfaction.
• Economics not only covers the decision-making behavior of individuals but also the
macro variables of economics like national income, public finance, international trade
and so on.DEFINITIONS OF ECONOMICS
• Several definitions of Economics have been given. For the sake of convenience let us
classify the various definitions into four groups:
1. Science of wealth
2. Science of material well-being
3. Science of choice making and
4. Science of dynamic growth and development
,1. Science of wealth
Some earlier economists defined Economics as follows:
• ―An inquiry into the nature and causes of the wealth of the nations‘‘ by Adam
Smith.
• ―Science which deals with wealth" by J.B. Say.
In the above definition wealth becomes the main focus of the study of Economics.
This definition by Adam Smith ,is the first important and comprehensive definition.
Science of wealth definition has two dimensions
Meaning of wealth and
Causes of wealth
Features of wealth definition
Characteristics
• It takes wealth into account only material goods
• Exaggerated the emphasis on wealth
• It inquires the causes behind creation of wealth
Criticisms
• It considered economics as a dismal or selfish science
• It defined wealth in a very narrow and restricted sense
• It considered only material and tangible goods
• It gave emphasis only to wealth and reduced man to secondary place
2. Science of material well-being
Under this group of definitions the emphasis is on welfare as compared with wealth
in the earlier group.
Two important definitions are as follows:
• "Economics is a study of mankind in the ordinary business of life. It
examines that 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. Thus, it is on the one side a study of wealth and on the other and
more important side a part of the study of the man", Alfred Marshall
, Second Definition: "The range of our inquiry becomes restricted to that part of
social welfare that can be brought directly or indirectly into relation with the
measuring rod of money ―Pigou.
In the first definition Economics has been indicated to be a study of mankind in
the ordinary business of life. By ordinary business we mean those activities which
occupy considerable part of human effort.
The fulfillment of economic needs is a very important business which every
man ordinarily does.
Professor Marshall has clearly pointed that Economics is the study of wealth but
more important is the study of man. Thus, man gets precedence over wealth.
The second definition by Pigou emphasizes social welfare but only that part of it
which can be related with the measuring rod of money.
Money is general measure of purchasing power by the use of which the
science of Economics can be rendered more precise.
Features of welfare definition
Characteristics
• It is primarily the study of mankind
• It is one side the study of wealth and other side the study of man
• It takes account ordinary business of life – it is not concerned with social, religious
and political aspects of man‘s life
• It emphasizes on material welfare ie human welfare which is related to wealth
• It limits the scope of activities, to measurement in terms of money Criticisms
• It considers economics as a social science rather than a human science
• It restricts the scope of economics to the study of persons living in organized
communities only
• Welfare in itself has a wide meaning which is not made clear in definition
Their definitions are criticized on the following grounds.
(i) Economics is concerned with not only material things but also with
immaterial things like services of singers, teachers, actors etc. Marshall and
Pigou chose to ignore them.
UNIT – I - BUSINESS ECONOMICS - SBAA1103
,UNIT 1: INTRODUCTION
Definition – Nature – Scope - Limitations Of Economics - Economics An Art Or Science -
Relevance Of Economics In Business Management - Utility Analysis - Marginal Theory Of
Utilities And Equi –Marginal Theory Of Utility
Introduction
Political Economy is another name of Economics. ―Polis ―in Greek means a state. The
term Political economy means the management of the wealth of the state. The state is
expected to get maximum benefit for the society. The situation that prevails in real world.
The means which satisfy our wants are limited. Time and money are limited. Land
,labour and capital used for production are limited. Science has increased our resources
but our want also has increased.
• Two major factors are responsible for the emergence of economic problems. They are :
• The existence of unlimited human wants and
• The scarcity of available resources
• The numerous human wants are to be satisfied through the scarce resources available
in nature.
• Economics deals with how the numerous human wants are to be satisfied with limited
resources.
• Thus, the science of economics centers on want-effort-satisfaction.
• Economics not only covers the decision-making behavior of individuals but also the
macro variables of economics like national income, public finance, international trade
and so on.DEFINITIONS OF ECONOMICS
• Several definitions of Economics have been given. For the sake of convenience let us
classify the various definitions into four groups:
1. Science of wealth
2. Science of material well-being
3. Science of choice making and
4. Science of dynamic growth and development
,1. Science of wealth
Some earlier economists defined Economics as follows:
• ―An inquiry into the nature and causes of the wealth of the nations‘‘ by Adam
Smith.
• ―Science which deals with wealth" by J.B. Say.
In the above definition wealth becomes the main focus of the study of Economics.
This definition by Adam Smith ,is the first important and comprehensive definition.
Science of wealth definition has two dimensions
Meaning of wealth and
Causes of wealth
Features of wealth definition
Characteristics
• It takes wealth into account only material goods
• Exaggerated the emphasis on wealth
• It inquires the causes behind creation of wealth
Criticisms
• It considered economics as a dismal or selfish science
• It defined wealth in a very narrow and restricted sense
• It considered only material and tangible goods
• It gave emphasis only to wealth and reduced man to secondary place
2. Science of material well-being
Under this group of definitions the emphasis is on welfare as compared with wealth
in the earlier group.
Two important definitions are as follows:
• "Economics is a study of mankind in the ordinary business of life. It
examines that 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. Thus, it is on the one side a study of wealth and on the other and
more important side a part of the study of the man", Alfred Marshall
, Second Definition: "The range of our inquiry becomes restricted to that part of
social welfare that can be brought directly or indirectly into relation with the
measuring rod of money ―Pigou.
In the first definition Economics has been indicated to be a study of mankind in
the ordinary business of life. By ordinary business we mean those activities which
occupy considerable part of human effort.
The fulfillment of economic needs is a very important business which every
man ordinarily does.
Professor Marshall has clearly pointed that Economics is the study of wealth but
more important is the study of man. Thus, man gets precedence over wealth.
The second definition by Pigou emphasizes social welfare but only that part of it
which can be related with the measuring rod of money.
Money is general measure of purchasing power by the use of which the
science of Economics can be rendered more precise.
Features of welfare definition
Characteristics
• It is primarily the study of mankind
• It is one side the study of wealth and other side the study of man
• It takes account ordinary business of life – it is not concerned with social, religious
and political aspects of man‘s life
• It emphasizes on material welfare ie human welfare which is related to wealth
• It limits the scope of activities, to measurement in terms of money Criticisms
• It considers economics as a social science rather than a human science
• It restricts the scope of economics to the study of persons living in organized
communities only
• Welfare in itself has a wide meaning which is not made clear in definition
Their definitions are criticized on the following grounds.
(i) Economics is concerned with not only material things but also with
immaterial things like services of singers, teachers, actors etc. Marshall and
Pigou chose to ignore them.
