Nature of Economics
Economics is a social science that studies how individuals, businesses, and governments make
choices to allocate limited resources to satisfy unlimited wants.
Scarcity: Central problem – resources are limited, but human wants are unlimited.
Choice: Due to scarcity, individuals must choose how to use resources.
Welfare-oriented: Concerned with improving human well-being.
Analytical & Normative: Studies facts (what is) and gives value-based judgments (what
ought to be).
Dynamic: Deals with changing conditions in production, technology, and consumption.
Scope of Economics
The scope defines what economics studies. It covers:
1. Consumption
o How individuals satisfy wants with limited resources.
o Utility analysis, demand theory, consumer behavior.
2. Production
o How resources (land, labor, capital, enterprise) are combined to produce goods
and services.
o Short-run and long-run production functions.
3. Exchange/Distribution
o How goods and services are exchanged in markets.
o Pricing, wages, rent, interest, profit distribution.
4. Public Finance
o Government’s role in taxation, expenditure, budgeting, and fiscal policies.
5. Economic Growth & Development
o Long-term increase in productive capacity and improvement in living standards.
6. International Trade
o Exchange between countries, balance of payments, trade policies.
Classification of Economics
Economics is classified into different branches:
1. On the basis of Subject Matter
Economics is a social science that studies how individuals, businesses, and governments make
choices to allocate limited resources to satisfy unlimited wants.
Scarcity: Central problem – resources are limited, but human wants are unlimited.
Choice: Due to scarcity, individuals must choose how to use resources.
Welfare-oriented: Concerned with improving human well-being.
Analytical & Normative: Studies facts (what is) and gives value-based judgments (what
ought to be).
Dynamic: Deals with changing conditions in production, technology, and consumption.
Scope of Economics
The scope defines what economics studies. It covers:
1. Consumption
o How individuals satisfy wants with limited resources.
o Utility analysis, demand theory, consumer behavior.
2. Production
o How resources (land, labor, capital, enterprise) are combined to produce goods
and services.
o Short-run and long-run production functions.
3. Exchange/Distribution
o How goods and services are exchanged in markets.
o Pricing, wages, rent, interest, profit distribution.
4. Public Finance
o Government’s role in taxation, expenditure, budgeting, and fiscal policies.
5. Economic Growth & Development
o Long-term increase in productive capacity and improvement in living standards.
6. International Trade
o Exchange between countries, balance of payments, trade policies.
Classification of Economics
Economics is classified into different branches:
1. On the basis of Subject Matter
