GROSS NATIONAL PRODUCT (GNP)

GROSS NATIONAL PRODUCT (GNP)

           This is the basic social accounting measure of the total output or aggregate supply of goods services, gross national product is defined as the total market value of all goods and services produced in a year. It is a measure of the current output of economic activity in the country. Two things must be noted in regard to gross national product.

(i) It measure the market value of the annual output. In other words, G.N.P is a monetary measure. There is no way of adding up the different sorts of goods and services produced in a year except with their money price. But in order to know accurately the changes in physical output, the figure for gross national product is adjusted for price changes by comparing to a base year as we do when we prepare index numbers.

(ii) For calculating gross national product accurately, all goods and services produced in any given year must be counted once, but not more than once. Most of the goods go through a series of production stages before reaching a market. As a result, parts or components of many goods are bought and sold many times. Hence, to avoid counting several, gross national product only includes the market value of final goods and ignores transactions involving intermediate goods.

              What we do mean by final goods? Final goods are those which are being purchased for final use and not for purchased for further processing or for resale. The sale of final goods is included in gross national product, while the sale of intermediate goods is excluded from gross national product, why? Because the value of final goods used in their production, for instance the value of cloth includes the value of cotton used in the making of cloth. The inclusion of intermediate goods would involve double counting and will therefore give an exaggerated estimate of gross national product.

             Another important thing to be borne in mind while calculating the G.N.P Is that non-productive transaction should be excluded. These are purely financial transactions or transfer payment like old-age pensions or unemployment doles which are merely grants or transactions relating to existing shares or second-hand shares.

          Another definition of GROSS NATIOAL PRODUCT

          The concept of gross national product (GNP)  at market prices is more comprehensive than GDP Gross domestic product (GDP) Is the total value, measured in current price, of all final goods and services produced in the economy during a given time period. It includes all factor incomes of non-residents paid to foreigners.

       Gross national product, on the other hand, measure the total income earned by the permanent residents of a country in a given time period. GNP includes factor incomes earned from abroad by the residents of a country and excludes income that foreigners earn from here. In other words when net factor income from abroad is added to GDP, we and thus GNP=GDP+ Net factor income earned from abroad.

       The gross national product is one of most important concept of national income, and four other concept of national income included

(1) Net national product (N.N.P).

(2) National income (I.N).

(3) Personal income (P.I).

(4) Disposable income (B.I).

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GROSS DOMESTIC PRODUCT (GDP)

GROSS DOMESTIC PRODUCT (GDP)

               It is a key concept used in the measurement Of total income of a nation. Gross domestic product is the total market value of all final goods and services produced within a country in a given period of time. According to Shapiro “GDP is defined as a flow variable, measuring the quantity of final goods and services produced during a year? The essential features of GDP are:

(i) GSP IS THE TOTAL MARKET VALUE. It measures the total market value of output at current market prices.

(ii) ALL GOODS AND SERVICES. GDP measures the market value of all goods (cloth, furniture etc.) and services (accountant, doctor, etc. services) produced on the economy.

(iii) FINAL GOODS. GDP includes the value of only final goods. The value of intermediate goods (yarn for example to avoid double counting)

(iv) CURRENTLY PRODUCED GOODS.  GDP includes only the value of those goods and services which are currently produced. For example, a person sells his old house to another person he value of the house is not include in GDP.

(V) DOMESTIC TERRITORY. It includes the value of output of goods and services produced by all enterprises whether resident or non-resident located within the domestic territory of a country.

(vi) TIME PERIOD. GDP includes the value of all final goods and services produced in a given period of time is usually a year.

(vii) FLOW CONCEPT. GDP measure the flow of income produced by all producing enterprises during a year.

COMPONANTS OF GROSS DOMESTIC PRODUCT

           There are four categories of expenditure which are added together to measure the gross domestic product (GDP) at market price. These four components of GDP

(1) Consumption (c)

(2) Investment ( I )

(3) Government purchases (G)

(4) Net export (X-M) these four types of expenditure are explained in brief.

(1) CNSUMPTION ( C )  Consumption expenditure includes all spending by households on goods and services in a period of one year. Goods include both durable consumer goods such as car, television and non-durable consumer goods such as clothing, fruits, etc. services on which households spend money are intangible items as teachers services, legal services transport and communication etc.

(2) INVESTMENT (I). Investment is an addition to capital stock. It is the expenditure incurred by business on the purchases of goods which are used to produce more goods and services in the future. Thus investment includes purchase of new capital and inventories ( increase in the stock of goods on hand ).

(3) GOVERNMENT EXPENDITURE (G). The government expenditure includes all types of expenditure which are incurred by federal, provincial, local bodies on the purchases of goods and services. It includes wages and salaries paid to the employees and spending on public works.

(4) NET EXPORTS. Net exports are the difference between value of exports (X) and value of imports (M) = (X-M). The expenditure on exports generate income for the residents working in our country. The expenditure on imports generate income of the countries from where the goods are imported.

Thus GDP = C +1+G+NX(X-M).

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SUBJECT-MATTER OF MACRO ECONOMICS

SUBJECT-MATTER OF MACRO ECONOMICS

         The Study of Economics is divided by the modern economist into two parts Micro-Economics and Macro-Economics.

MACRO-ECONOMICS:

                An a economic system may be looked at as a whole or in terms of its innumerable decision-making units (such as consuming units, e.g. individual consumers and households) producing units e.g. ( firms, farms business and mining concerns), individual factors of production (e.g. laborers, land, owners, capitalist, entrepreneurs) and individual Industries, (e.g. cotton textiles, iron and steel, toy-making). When we are analyzing the problems of the economy as a whole, it is macro-economic study. While an analysis of the behavior of any particular decision-making unit, such as a firm, an industry, a consumer constitutes micro-economics.

                    Micro-economics is also called price theory and Macro-economics is called income theory. “price theory explain the composition, or allocation, of total production. Why more of some things is produced than of others. Income theory explains the level of total production and why the level rises and falls”.

                    Lord Keynes increase attention has been given to the analysis of economic system as a whole. This is macro-economics, in macro-economics, we study the trees, macro-economics is concerned with aggregate and average of the entire economy, such as national income, aggregate output, total employment, total consumption, saving and investment, aggregate demand, aggregate supply, general level of price, in another words in Marco-economics we study how that aggregates and average of the economy as a whole are determined and what causes fluctuation in them.  

  

UTILITY OF MACRO-ANALYSIS

              The importance that Marco-analysis has come to acquire is not without reasons. The Macro-approach is useful in several ways:

a) It is helpful in understanding the functioning of a complicated economic system. It gives a bird’s eye view of the economic world. Micro-analysis i.e. study on individual aspects of the economy will lead us nowhere. Undoubtedly, the economy is more important than the individual.

b) For the formulation of useful economic policies for the nation, macro-analysis is of the utmost significance. Economic policies cannot be obviously based on the basis of the fortunes of an individual commodity. It is far more fruitful to regulate aggregate employment and national income and to work out a national wage policy.

C) Macro-analysis also occupies an important place in economic theory in its pursuit of the solution of urgent economic problems. These problems relate to aggregate output, employment and national income. Economic theory seeks to explain fluctuation in the level of national income, output and employment. Thus, we are able to study the economy in its dynamic aspect.

LIMITATIONS OF MACRO-ANALYSIS

  

                 Marco-analysis has limitation of its own:

(a) Individual is ignored altogether it is individual welfare which is the main aim of economics. Increasing national saving at the expense of individual welfare is not a wise policy.

(b) The macro-analysis overlooks individual differences. For instance, the general price level may be stable, but the prices of food-grains may have gone spelling ruin to the poor. A steep rise in manufactured articles may conceal a calamitous fall in agricultural prices, while the average prices were steady. The agriculturists maybe ruined, while speaking of the nature, composition and structure of the components.

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IMPORTANCE OF THE STUDY OF ECONOMICS

IMPORTANCE OF THE STUDY OF ECONOMICS

           This is an age of economics as people all over the world have become economic minded. People living in the third world countries in particular have realized that the study of economic can provide a solution to their economic and solution to their economic and social problems. Hence, the subject off economics has gained tremendous importance these days. We now discuss (a) Theoretical uses and (b) practical uses of economics.

(A) THEORETICAL USES

1) WIDENING OF MENTAL HORIZON

                  The study of economics widens the mental horizon of the people because it enables them to understand the economic realities of life e.g. the usefulness of saving and investment, behavior of general price level, the need to boost exports and to control imports, the role of banking in business etc.

2) ADJUSTMENT WITH ECONOMIC SITUATIION

           We can learn to adjust to the ever changing economic situation of the economy country provide we have studies the subject of economics. We know that the problems of inflation, unemployment, deficit in the balance of payments, the structure of taxes, agricultural, industrial, monetary and fiscal policies of the government effect all the people living in a country. Hence, all of us must have at least general awareness about economics to cope with any economic situation.

3) SENSE OF REPONSIBILITY

         Economics teaches us the importance of economic activities by which resources in the form of goods and services are produced for the satisfaction of wants. Thus, us responsible citizens of a country, we undertake economic activities to solve our economic problems.

4) ATTITUDE TOWARD THRIFT

          The consumption theory in economics leads us to the maximization of utility by minimum expenditure and therefore it helps to develop an attitude toward thrift. This helps us to promote the level of saving and investment for growth and development of the economy.

5) THE WORKING OF ECONOMIC SYSTEMS

                By the study of the subject of economics we can learn the working of different economic system e.g. capitalism, socialism and Islamic economic system. This enables us to go for the best system for the welfare of people.

(B) PRACTICAL USES

1) SOLUTION TO ECONOMIC PROBLEMS

             The study of theoretical and applied economics us enables to identify the economic problems of a country and leads us to measures for their solution. We know that Pakistan is inundated by economic problems like inflation, unemployment, population explosion, agricultural and industrial backwardness, inequality of income distribution, deficit in the balance of payments etc. these problems are big obstacles in our way to economic development. Economics has given us the solution to these problems. That is why government of Pakistan is taking up concrete measures to solve the problems.

2) OPTIMUM USE OF RESOURCES

            There is a lot of wastage of resources in the third world countries which is mainly responsible for their poverty in general. Hence, they must learn the subject of economic development so that they are able to make the optimum use of the available resources. This can help them to raise their standard of living.

3) GUIDANCE FOR THE FINANCE MINISTER.

4) GUIDANCE FOR INDUSTRIAL / BUSINESSMEN.

5) PROTECTION OF THE RIGHTS OF LABOUR CLASS.

6) GUIDANCE FOR POLITICIAN.

7) FAIR DISRIBUTION OF WEALTH.

8) IMPORTANCE FOR BUREAURATS.

9) DEVELOPMENT PLANNING.

10) RESTRAINT ON ILLEGAL SOURCES OF INCOME.

11) CHANGE IN SOCIAL VALUES.

12) POLITICAL STABILITY.

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BASIC PROBLEMS IN MICRO ECONOMICS

CLASSIFICATION OF ECONOMICS

       There are two types of Economics:

(1) THEORETICAL ECONOMICS.

(2) APPLIED ECONOMICS.

      THEORETICAL ECONOMICS: In general, economics is a science which studies the economic activities of the people in their social life. These activities have been focused by economists through inductive and deductive methods to arrive at economic theories/principles and economic laws. These theories and laws have been put together to make theoretical economic. Theoretical economics provides us the tools which can be used to analyze the economic problems of the people.

       Theoretical Economics or Economic theory has two parts:

(A) MICRO ECONOMICS.

(B) MACRO ECONOMICS.

(A) MICRO ECONOMICS: Micro means millionth part of a thing. Therefore in micro economics we study the small segments of an economy or in other words, we take up the individual decision-making units of an economy in micro economics. For example we analyze the demand of a product or of an individual and the equilibrium price of product rather than discussing the aggregate demand of economy and the general price / reward of a factor of production, analyzes of an individual firm or industry, the consumption pattern of a person, choice of technique and different market situations etc. micro economics is generally called the price theory.

In Micro Economics, following topics are brought under discussion.

1) CONSUMER BEHAVIOR: The foremost topic that we study in Micro-Economics is the consumer’s behavior. Under this topic, different consumption theories explain as to how a consumer maximize his total utility or satisfaction his monetary resources on different consumer goods.

2) PRICE DETERMINATION: It explains as to how the interaction of demand and supply determine the price of different products. Hence, we also study the role of price mechanism in a free enterprise economy for the allocation of resources, determination of investment direction consumption pattern etc.

3) NATIONAL INCOME DISTRIBUTION: Under this topic the distribution of national income among different factors of production in the form of wages, rent, interest and profits is studied.

IMPORTANCE OF MICRO ECONOMICS

     We can realize the importance of the study of Micro-Economics from the following points.

1) UTILITY MAXIMINATION.

2) RESOURCES ALLOCATION.

3) INCOME DISTRIBUTION.

4) PRICE DETERMINATION.

5) OPTIMIZATION.

6) WELFARE POLICIES.

MERITS AND DEMERITS / LIMITIONS OF MICRO-ECONOMICS

MERITS:

1) GUIDANCE FOR CONSUMERS: It enables the consumers to allocate their income on different goods in such a way that total utility is maximized; thus helping them to avoid the wastage of resources.

2) GUIDANCE FOR PRODUCERS: It enables entrepreneurs to achieve the optimum combination of factors production and thereby it enables them to maximize their profits or at least minimize their losses. When the rewards of factors of production are determined in accordance with their marginal productivity, the chances of their exploitation are minimized. Thus it enables laborers as well to achieve suitable rewards for their productive services.

3) CO-ORDINATION BETWEEN SMALL UNITS OF ECONOMY: It also provide guidance for small segments of an economy to bear them well coordinated with each other. Moreover, the study of Micro-Economics is essential to achieve the best outcome of Macro Economics policies.

DEMERITS / LIMITATION

1) ECONOMMIC INSTABILITY: When every single firm is allowed to operate freely open economy, it would naturally go for self interest; even at the cost of national interest. Thus it would disrupt the cohesion between different productive units which will ultimately force the economy i.e. the economy which keeps on fluctuating with booms and depression.

2) EXPLOITION OF CONSUMERS: Inspite of proper guidance for the consumers the real life situation reveals that they are exploited. This happens with the rising rate of inflation in an economy. With the pace of inflation, on one head, wealth keeps on concentrating in a few hands while, on the other hand, consumers are deprived of their purchasing power. The natural inequality of income distribution in a free enterprise economy leads to exploitation of consumers.

3) EXPLOITATION OF LABOURERS: Entrepreneurs exploit their labourers by keeping their wage rate low or even lower than their marginal productivity. This happens in three ways;

    (i)  By forcing labourers to work for more hours than required under labour laws.

    (ii) By installing automatic and computerized plants to increase the marginal productivity of labour which is not followed by increase in their wage rate.

       (iii) By setting up production units in remote areas to employ labour at notoriously low wage rate.

4) ABSENCE OF LARGE SCALE PRODUCTION: Micro economic encourages setting up of small units for growth of economy. This could possibly be achieve more efficiently by initiating and encouraging large scale production.

BASIC PROBLEMS IN MICRO ECONOMICS

             

       Classical economists uphold the opinion that there is always full employment in the economy of a country under Laissez-faire capitalism. This  is so because price mechanism or the interaction of the force of demand and supply automatically rationalize the allocation of resources. The basic economic problems with come up to be automatically settled through the role of price mechanism are as under:

       1) HOW ARE THE PRODUCTIVE RESOURCES ALLOCAED?

       2) HOW IS THE LEVEL OF PRODUCTION DETERMINED?

      3) HOW IS NATIONAL PRODUCT DISTRIBUTED?

     4) HOW IS THE PRODUCTIVE CAPACITY OF THE ECONOMY MAINTAINED / DEVELOPED?

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METHODS OF DRIVING ECONOMIC LAWS

METHODS OF DRIVING ECONOMIC LAWS

         Economists have adopted two methods of investigation. Regardless of whether they are natural or social, they are known as the deductive and inductive methods.

DEDUCTIVE METHODS: Deductive comes from the word deduce, which means to infer by logical reasoning or in other words to conclude from known facts or general principles. This method is also known as an analytical abstract a prior method. According to deductive method, we start from general observation, and end up at particular generalization. For example, the general indisputable facts of human nature are that people buy more of a commodity from the market which sells at a lower price and seller increase the supply of a commodity at a higher price. These facts have led to particular inferences called laws of demand and supply. This method of interest, they are well reputed classical economists e.g. J.S MILL, David Ricardo and senior etc.

         In brief, according to deductive method, we make use indisputable facts of human nature and draw concrete inference called economic laws. In order to use this method of investigation the following steps are taken:

      (1) SELECTION OF GENERAL INDISPUTABLE FACTS OF LIFE.

     (2) TO DRAW CONCRETE INFERCES.

    (3) TESTING THE VALIDITY OF THE INFERNCES.

    (4) TO DEVELOP CO-RELATIONSHIP BETWEEN THE FACTS AND THE INFERNCES.

        Whereas the derivation of inferences from general truth is concerned, this method is the best. It is simple, precise and effective. It saves a lot of time and therefore it can be considered Economical in one way or the other.

      However, it has its demerits too. This method is known as the abstract method. The word abstract means (a) existing only in concept and to in really (b) concerned with or restricted  to theories. This means that the method is concerned only with concept and theories based on certain assumptions which may not take place in reality. And even if they take place in realty they would possible be obscure. We are now heading towards 21^st century and to meet the  challenge of the century. Reality is far more important than assumption and theories. Hence, this method could be misleading. Moreover, the facts on the basis of inferences are draw may be wholly or practically untrue. Who knows!!!!!!!!

INDUCTIVE METHOD: As the deductive method leads to many false conclusions due to reliance on the imperfect and incorrect assumption, this led to the rise of a new method of investigation known as the inductive method. This method was introduced by famous historical school of thought represented by economists like Roscher, Hildebrand and Fredrick list.

         The inductive or the realistic method is just the opposite of the deductive method. According to this method we move from particular facts to general principles as opposed to the deductive method we move from general observation to particular conclusion/inferences. Thus according to this method where we move of investigation, first of all we collect facts figures of particular nature and then generalize the research finding. For example we collect samples of the prices and supplies of different commodities at different time periods. We find that when the price of cloth, meet and toothpaste etc increase sellers increase supply of these products and vice-versa. By the analysis of the correlation between the price and supply of these commodities a conclusion is drawn and generalized. The generalization is that there is always positive correlation between the price and the supply of a commodity, all other things being equal. This is commonly known as law of supply which is drawn through the inductive method.

       To apply this method of generalization an economic investigator is required to take up the following steps.

    (1) COLLECTION OF FACTS AND FIGURES OF A PARTICULAR NATURE.

    (2) ANALYSIS OF THE FACTS AND FIGURES.

    (3) TO COME UP WITH SOME RESEARCH FINDING.

    (4) GENERALIZATION OF THE FINDINGS.

       The exponents of the inductive method say that the economic phenomena are very complex and hence, cannot be left to deductive or abstract reasoning. They consider the inductive method more reliable  because it is bases on actual facts and figures and not on assumptions. Moreover, they argue that the inductive method is useful for making economic policies for a country in a particular situation as figures definitely lead to the right direction.

         But a question arises, how reliable are the facts that the have been observed? The facts may be insufficient to make an actual conclusion or it is possible that the economic investigation may have gone out of touch with some of the facts. Beside these, figures may have a limited application in a science which deals with human being and economic activities.

CONCLUSION

         Modern Economists hold that theories without facts carry no meaning while facts without  theories don’t yield result. Hence, it is imperative to correlate theories with facts for investigation. This can be using both the inductive and deductive methods simultaneously because these methods at the cost of the other would therefore be misleading. Professor Marshall says “ inductive and deductive both are needed for science thought as the right and left feet are both needed for walking”.

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CHARACTERISTICS OF ECONOMIC LAW

CHARACTERISTICSOF ECONOMIC LAW

(1) ECONOMIC LAWS ARE CONDITIONAL: That is why, at the end of the statement of each economic law it is always state that “all other factors remain constant”. For example, the law of demand is state as “ a rise the price of a commodity or service is followed by a reduction in demand and a fall in price is followed by an increase in demand if all other things remain constant”. The factor to remain constant here are income of the consumer, state, fashion and prices of substitutes and complementary goods. If these things change, law of demand will not prove to be true. For example we see that income of a consumer does not remain constant. Instead it goes up. Therefore, with an increase in income, a rise in the price of a commodity will not be followed by a reduction in and law of demand will not hold. Thus, for their validity all economic laws are always linked up with certain conditions.

(2) THEY LACKED EXAMCITITUDE ND DEFINITION: A change in the economic, political and social environment of a country can bring a change in the application of economic laws. For example, economic situation of a country depend upon the forces of demand and supply with keep on changing with the passage of time due to change in fashion, habits and taste of the people. hence, we can say always a possibility that law of demand will operate, but are never sure and definite about its application. Contrary to it, laws of physical sciences definitely apply in all situation. For example H2O will definitely make water. Thus, economic laws lack exactitude and definiteness. According to Marshall, economic laws are uncertain like the of ties rather than being definite like the simple laws of gravitation.

(3)THEY PREDICTABILTY: As mentioned earlier economic laws depend upon assumption or “other factors being equal”. But it is very difficult to keep all other constant in a free social life. Hence, economic laws lack predictability. They are as unpredictable as earth quakes and vice-versa, other things to remain constant i.e. production technique and cost of production. But it is hard to keep these factors constant. Therefore, it is not possible to predict a prospective change in supply in response to change in supply in response to change in price.

(4) THEY ARE QUALITATIVE AND NOT QUANTITATIVE: Economic laws are qualitative and not quantitative in nature. For example in the case of law of demand, we say that a fall in the price of a productive result in an increase in the demand of the product. But we cannot say that a fall in the price of a product by 50% will result in an increase in the demand of the product by 50%. Hence economic laws are expressed in qualitative terms.

(5) THEY ARE STATEMENT OF TENDENCIES: Economics laws represent economic tendencies of the people in general. Therefore they are merely statement of tendencies or statistical probabilities. Take the case of law of diminishing marginal utility. All of us experience in very day life that the second glass of water gives us less utility/satisfaction than the first one and so on. This general tendency on the part  of the people which enable economists to make law of diminishing marginal utility. Hence economic laws are simply statements of general economic tendencies. 

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ECONOMIC LAWS, and COMPARISON OF ECONOMIC LAWS

ECONOMIC LAWS

         Economics is a social science. It has been commonly observed that people, while living in society, show a similar economic behavior. This economics behavior in different aspect of economic life has been summed up as a set generalization which is known as economic laws. Thus, an economic law is a statement, concluded and inferred on the economic behavior of the people in general. In other words, economic laws are supposed to govern and explain all economic activities of the people living in a society.

       What is economic behavior and what economic activities. Mentioned in the definition of an economic law? To answer this question, we refer back to Robbins definition of economics. Robbins says that economics is a science which studies human behavior as a relationship between multiple ends and scare means which have alternative uses. from this definition we can easily gather that the use of limited resources in a pursuit to satisfy unlimited wants reflects the economic behavior or the economic activities of the people. thus we can say that economic laws are “the statement of tendencies by which human beings make use of scarce resources, obviously in an alternative fashion, with a view to satisfy unlimited wants” for example, the general tendency on the part  of the people is that they purchase more at a lower price and vice-versa, if all other things remain constant (or ceteris paribus). This economic tendency has been generalized as an economic law called law of demand. Similarly, many economic laws have been made to cover tendencies in economic life e.g. law of diminishing marginal utility, law of supply, law of substitution, law of variable proportions etc.

     Professor Marshall has defined economics laws as follows:

 “Economic laws, or statement of economic tendency are those social laws which relate to branches of conduct in which the strength of the motive chiefly concerned can be measured by money price”.

COMPARISON OF ECONOMIC LAWS

(A) WITH STATUTORY LAWS: Statutory laws or laws of the state are made by the legislature or the elected representative of the people. These laws are written in black and white for the people to obey. There is an executive or the police force which makes sure that these laws are being follows by the people. those who violate statutory laws are caught and presented before the court for the award of punishment. This means that there is a judiciary for the proper implementation of the laws. Thus, statutory laws are a binding force on the people and violation of the laws is a crime.

         As far as Economic laws are concerned, there is no such thing as legislature, executive or judiciary to make enforce the laws. Economic laws are simply general Economic tendencies of the people. These laws are the statements of Economic realities of life.

The violation of Economic laws only amounts to this is he wastage of economic resources of an individual or a society. for example, if a person does not purchase a larger quantity of a product at a lower price, he only loses some part of his total utility and this is considered to be his personal matter.

            An important point in this connection is that statutory laws can be abrogated or amended by the legislature. whereas no institution can do so with economic laws. The reason is that economic laws represent economic realities of life and it is not possible to change the realities.

(B) WITH MORAL LAWS: Moral laws are the most accepted values of a society particularly based on the teachings of a religion.  These laws clearly tell us either to do something or not to do something e.g. speak the truth and do not tall lies, be honest in business and do not indulge in black-marketing, smuggling etc. help the poor and do not exploit them. Moral laws are permanently accepted by the people for their own spiritual well-being. Those who follow moral laws enjoy a respectable position in a society and who do not follow them lose their status.

       As far as Economic laws are concerned, there are not based on the value system and, hence, do not tell us either to do something or not. These laws merely reflect economic tendencies of the people in general and are used for economic uplift of the people e.g. law of demand and law of supply etc.

       The co-relationship between the two kinds of laws is very interesting. Economic activities bases on moral values lead to non-economic activities. For example, honestly in business, commitment with natural ideology in the choice of develop on strong footing; whereas immoral and illegal activities like adulteration, theft, smuggling, black-marketing etc. are all non-economic activities. Thus, the economic activities of a society must be based on moral values.

(C) WITH THE LAWS OF PHYSICAL SCIENCE/ NATURAL SCIENCE: Physical / Natural science e.g. Physics, Chemistry, Biology, Geography etc deal with matter. These science are made by experiments on the matter in the laboratories. Since matter is a lifeless thing. The laws made in connection with the matter always prove to be exact and definite. They can be tested anywhere, for example, we study in physics that velocity will decease when pressure is increased. Chemistry tells us that H2O always be water and in Biology protein always consists of carbon, Hydrogen, Oxygen, and nitrogen. These laws clearly show definiteness and exactness and, therefore, do not change as they represent the natural phenomena.

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SCOPE OF ECONOMICS, and SUBJECT MATTER

SCOPE OF ECONOMICS

                             The Scope of economics refers to the extent to which it deals with the economics life of the people. This broad statement covers all that has so far been written in the subject of economics. Hence, it is not possible to cover all this in a few lines. There are three general aspects of the subject that we must cover.

   (i) Subject matter of economics.

  (ii) Individual or aggregate economics as a social science.

  (iii) The question whether economics is a science or an art.

(i) SUBJECT MATTER OF ECONOMICS: We know there is a difference of opinion among economists regarding the subject matter of economics. Adam smith was concerned with the nature and causes of wealth of nation. Marshall introduced the concept of welfare in the study of economics. “so Marshall’s definition clearly laid emphasis on man and attached secondary importance to wealth”. Robbins focused on multiplicity of ends to be satisfied by scare means which have e alternative uses. thus, in-spite of the difference of opinions, Economics is basically a science of wealth because it is only wealth which is either used to promote welfare or used to satisfy human wants. There is no concept of economics without wealth.

        Since Robbins definition of economics is the most accepted definition of the subject in the world these days the subject matter of economics will be discussed with reference to his definition.

        We already know that human wants are unlimited. These wants force us to do some Economics activities in the form of land, labor, capital and  entrepreneurship,  as a result of these activities, goods and services are produced on one hand and rewards in the form of rent, interest, wages and profits are distributed among the factors of production on the other hand.

        These reward or incomes are resources of the people. they convert these (limited) monetary into real resources by buying goods and services certainly in an alternative fashion. These goods and services are gushed to satisfy wants. This cycles goes on and on. This truly represents the economic life of the people. Hence, it is the core of economics or, in other words, the subject matter of economics.

(ii) ECONOMICS AS A SOCIAL SCIENCE: From the discussion on the definition and the scope of economics so far we can easily realize that economics studies the aggregate economic behavior of the society, hence, it is a social science. In this subject, even the individual economics behavior is studies as part of the general economics tendencies of the people. For example, we take the demand and supply of a product. These are the individual aspects of an economy. These aspects necessarily represent the general behavior. So in economics we study the economic activities of a society and therefore economics is a social science.

(iii) IS ECONOMICS A SCINCE AN ART? Now comes the important question of whether economics is a science or an art? Before we go to take up the question, we will first of all define what is a science and what is an art?

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Definition, Scope and nature of Economics

Nature And Scope Of Economics

Economics is science which studies the life of people living in a country or in the world as a whole. What is the economic life of the people or in other worlds, what is economics?  To answer  this question we have to analyze the definition of economics which is given below

DEFINITIONS OF ECONOMICS:

   There are three well-known definitions of economics

(i)  Definition of economics given by the classical School of thought led by Adam smith.

(ii)   Definition of economics presented by the Neo-Classical school of thought led by Alfred Marshal.

(iii)  Robbin’s  definition of economics.

  We now explain. One by One, the definitions referred above

ADAM SMITH ‘S DEFINITION OF ECONOMICS:

     Adam smith wrote a book in 1776 entitle “The wealth of Nation” in this book he discussed the word “WEALTH” through its four aspects  i.e.  production of wealth.exchange of wealth, distribution of  and consumption of wealth. This clearly means that, according to Adam smith, Economics is a science of wealth.

         To analyze this definition we will diacuss the word “Wealth” and its four aspects. Wealth means goods and services transacted with the help of money, it is a matter of common observation that the transaction of goods and services  (wealth) takes place in our day-to-day life. But the question is : Why and how is the transaction of goods and services taking place?  To know the answer of this question we are require d to look into four aspect of wealth.

(1) PRODUCTION OF WEALTH: This means the production of goods and services by combining four factors of production  i.e. land, labour, capital, organization or entrepreneurship. Land is the natural resource such as soil, sea, minerals, livestock, forests etc  labour is a mental or physical work which is done for  the sake of reward . capital means manmade resources which help to produce goods and services. Whereas organization is the act of combining four factors of production to producing and marketing of the goods and services for the  sake of profit hence. Production of wealth means production of goods and services.

(2) EXCHANGE OF WEALTH: Entrepreneurs usually produce more goods and services than their own requirement s. Why do they do so?  Simply to get  their surplus produce exchanged in the market with the surplus goods and services produced by others. The process of exchanging of wealth continues throughout the year and as a result people get the goods and  services produced for each other. This enables everyone in the society to satisfy his multiple wants.

(3) DISTRIBUTION OF WEALTH: As a result of exchange of wealth in a country whatever falls to the lot of each individual or a section of society is called his or its share in the national wealth produced in a year. If the share of certain section of a society in the national wealth is bigger than that of other this will be the unequal distribution of wealth in a country. If all section of the society are enjoying  all goods and services being  produced in the country it will be fair and equal distribution of wealth.

(4)CONSUMPTION OF WEALTH: The ultimate objective of production, exchange and distribution is the consumption of wealth.  When people get their share from the national product they use it to satisfy their wants hence , the using up of the utility of goods and services for the satisfaction of wants  is known as the consumption of wealth .

     Thus, from the above explanation of wealth and its four aspect, it becomes clear that services available to the society. Beside this he also explain as to why and how wealth is produced, exchanged, distributed and consumed.

CRITISM ON THE DEFINITION:

          During the late 18^th  century religious sentiments of the people were very strong and spiritual values held sway over man’s mind therefore. It was difficult for them to accept economies as a science which teaches materialism. They raised hue and cry against it. Especially the two men of letter. Carlyle and Ruskin , condemned it. They said that economics as a science of materialism is just  “a science of bread and butter”. They also termed economics as a” dismal science” as, according to them it promotes selfishness and greed. They thought that if economics was thought. The science of materialism will take mankind away from spiritualism. Hence, Carlyle even went to the extent of saying that economics is “a pig philosophy “   the  two literary figures therefore held that spiritual values as love. Sincerity , sacrifice, friendship, brotherhood, etc,  be promoted through religious in place of materialism being taught in economics.

             Regardless of what critics had been saying about Economics, the criticism was not justifiable at all. The reason is that they saw only the negative side of the picture, since everything has its pro’s and con’s and economics is no exception to it. However, gradually people discovered through observation and experiments that economics helps them to eliminate poverty. Raises their standard of living and turns them human beings. Hence , they soon realized material that wealth plays a vital role in their life.

ALFRED MARSHALL’S DEFINITION OF ECONOMICS

                   Marshall is a well-known economist. He was behind Smith and for him all the way, approximantely hundred twenty years after Smith’s book on Economics. Alfred Marshall wrote a book in Cambridge which was entitled “PRINCIPALES OF ECONOMICS”.

In this book, Marshall defined Economics as an instrument to remove the doubts of the people regarding the subject.

            Marshall stated , “Economics is the study of mankind in the ordinary business of life; it examines that part of individual and social Action which is most is closely connected with the attainment and use of the material requisites of well-being”

From the definition,  we able to achieve three main points:

  (i) Ordinary business of life or Economics as a social science.

  (ii) Attainment and use of material requisites or production and consumption of wealth.

  (iii) Well-being or welfare of the society.

(i) ORDINARY BUSINESS OF LIFE OR ECONOMICS AS A SOCIAL SCIENCE:

            According to Marshall, Economics is studies the economic behavior of the people living in the society. Economic activities of the people outside the society are not, therefore, considered in the study of economics. Hence Economics does not study the isolated individuals or any “Robinson Crusoe”. By thie he show that economics is asocial science.

(ii) ATTAINMENT AND USE OF MATERIAL REQUISITES OR PRODUCTION AND CONSUMPTION OF WEALTH:

        In the ordinary business of life, human beings perform different types of activities such as political activities , sports, economic activities , moral and religious activities, of all these activities of ordinary life, Economics Studies only those activities which are related with the attainment and use of material  requisites or in other words, the production and consumption of wealth. So far he is of the same view as that of Adam smith that Economics is a science of wealth.

(iii) WELL BEING OR WELFARE OF THE SOCIETY:

         According to Marshall, the objective of the study of Economics is to promote the material welfare of the people, to Marshall. Economics focusses on only material aspects of life and therefore studies material requisites well-being. Hence, according to him economics does not regard wealth to be the goal of all human activities. Instead, it is only a mean to achieve an end and that end is the economic welfare of the people or the raising up of the standard of living of the people, Particularly of the poor, So that they may lead a better economic life.

CRITICISM ON MARSHALL’S DDFINITION:

        In 1931, another economists, Loinel Robbins, wrote a book entitled “NATURE AND SIGNIFICANCE OF ECONOMIC SCIENCE” In this book he criticized Marshall on the following grounds,

   (1) THE DEFINITION NAROWS THE SCOPE OF ECONOMICS: The use of the word “Material” by Marshall narrows the scope of economics as well need both the material and non-material requisites of life i.e. goods and services.

      The need for non-material requisites is certainly over-whelming , Examples of the nonmaterial requisites are the service of lawyers , teachers and doctors etc, these non-material requisites satisfy our wants in the same way as material requisites (or goods) and if we exclude them from the study of economics, the scope of economics would certainly be restricted.

(2)  WELL BEING IS A NONMEASURABLE CONCEPT: True enough in its meaning one cannot measure “wellbeing”. It is something that cannot be estimated to figures , although it can be stated in theories. Thus, according to Robbins, well-being cannot be measured as stated by Marshall.

(3) ECONOMICS SHOULD NOT PASS VALUE JUDGEMENT: According to Robbins, Economics should emphasize only on human and their satisfaction and, therefore it is not concerned with whether these wants are being satisfied buy good things or bad things. For example, human beings needs food clothing and shelter and they are essentially required to be provided, but as far as wants for alcoholic drinks, cigarettes and gambling are concerned, they are also required to be satisfied according to Robbins as people are ready to pay for them  disregarding the welfare aspect of these things, thus what Robbins is trying, is “just satisfy wants and don’t bother whether they are for the better or the worse”

(4) IT CREATES PROBLEMS FOR POLICY MAKING: According to Marshal, the study of economics should be directed to pursue the concept of welfare, but Robbins objects to this point of view on the ground that the concept of welfare would place the government in a vulnerable position in the making of economic policies, For example , some people may object to the production of alcohol and cigarettes on the ground that these things retard welfare, but other might say that they want these things for the satisfaction of their wants and are ready to pay for them. Thus the question of liking of some production on the basis of welfare will create problem for the government in the farming of economics policies.

ROBBINS DEFINITION OF ECONOMICS

             Robbins says, “economics is the science which studies human behavior as a relationship between ( multiple ) ends and scare means which have alternative uses”. this definition points out the problem of scarcity and choice in the economic life of the people. Three main points of the definitions are…..

    (i) Multiple ends.

   (ii) Scare means.

   (iii) Alternative uses.

(i) MULTIPLE ENDS: Multiple ends means “no limit to wants”. Human wants or ends are unlimited. They keep on rising or they rise again and again. This means that they do not come again in the evening. Same is the case of wants for radio, t.v, and furniture etc. we always want to replace them with the new and better ones. Since human wants are unlimited , one is compelled to choose between more urgent and less urgent wants which makes economics a science of choice. Hence multiplicity of ends calls for ceaseless efforts for their satisfaction. therefore, never ending cycle of economic activities moves on.

(ii) SCARCE MEANS: There may be no limit to human wants, but the means to satisfy them are definite. The means of resources can be divided into two parts. Firstly the resources in the production sector of the economy i.e. land, labour, capital, entrepreneurship are quite limited because the price of these four factors of production are determined in the market. Secondly, the consumer goods and service produced as a result of the combination of the four factors of production are also limited because they are also priced in the market. This means that resources are limited in the sense that one cannot have goods and services as he wishes for the satisfaction of wants. There is definitely a limit to it.

         Money income represent command on the real resources available in the form of goods and services. Higher the income. Higher will be the available of real resources and vice versa. Since income are always limited, money resources are also limited.

(iii) ALTERNATIVE USES: The third point gathered from Robbins definition is the “alternative” use of resources. What Robbins meant to say is that there are many ways of using the resources. It is always up to the person concerned to give priority to his/her basic wants. For example, a person has got Rs. 1000. With this amount of money he is able to do anything within this limit. He can buy clothes, entertain friend or dine outside with his family, but being a rational human being. He will chose the most optimum use of his limited resources. Supposing, he buys clothes only and postpones the fulfillment of all other wants. This would mean that he has satisfied his want for clothes as an alternative to all other wants which could have been satisfied by an expenditure of Rs. 1000/.

           This is exactly the way all human being pass their life. It gives a clear image of the economic life of the people who are always faced with the problem of scarcity of resources and choice between ands and are forced to make the alternative use of resources.

MERITS OF DEFINITION

(1) COMPREHENSIVENESS: Robbins definition reflects the realities of life. We all know that human wants are unlimited and the available resources are limited and all use are making the alternative use of resources. This means that all human being are faced with the problem of scarcity and choice. Thus Robbins’ definition clearly identifies the existence of the economic problem in a most comprehensive manner.

(2) EXTENSION OF THE SCOPE OF ECONOMICS: Unlike Marshall, Robbins brings into focus not only goods but also services required to satisfy human wants. Not only this, Robbins also establishes that Economics as a science is natural between good wants and bad wants. According to him, “Economics can no longer be regarded as a “dismal science” because it takes no responsibility on selecting the end”. In this way, he extended the scope of economics

(3) ANALYTICAL IN NATURE: Robbins definition of economics helps to analyze the economic problems of people and therefore paves a way for their solution. Keep in view different sectors of the economy so that a larger number of goods and services are produced. This analytical approach can solve the economic problem of the people as far as possible

DEMERITS OF THE DEFINITION

(1) ROBBINS HAS TRIED TO MAKE ECONOMICS A PURE / POSITIVE SCIENCE: Whereas it is social science because it deals with the behavior of the human being In pure science. Whatever is stated today will definition be true two centuries later. For example, two molecules of hydrogen and one of oxygen will always make water and two plus two will always be four etc. but, as for as human behavior is concerned it keeps on changing from time to time. Moreover, there is no laboratory to test the human behavior as in the case of matter in the physical science like physics and chemistry. Thus, it is undesirable to define to economics in line with pure science.

(2) Marshall defined economics as an engine of social betterment. In this way, Marshall was more concerned with the welfare of the people. Robbins on the other hand, deals with ends, means their alternative uses. Thus, Robbins gave secondary importance to the crux of the subject i.e. The human being, in other words, Robbins has made economics a theory of value whereas it is something more than that.

(3) There is no touch of morality in Robbins definition of economics, for example, according to Robbins a society can produce anything which required to satisfy human wants. But, there is no justification for the production of drugs, alcohol drink and the services of prostitutes because the use of these goods and services disrupt the whole social set-up. Thus, Robbins has separated Economics from its moral basis.

(4) Robbins says that resources of all kind are limited. But, in the production sector of the third world countries we fine that human resources in he from of labor are not limited. This is so because laborers are available free of any reward in these countries due to their problem of massive unemployment.

(5) Robbins says that resources are limited and, therefore, he overlooks the fact that the limited resources can be increased. The economics of growth and development has shown the ways by which limited resources can be increased.

CONCLUSION

           Economics is a social science which deals with the economic thinking of human beings. Human being are imperfect and so is their thinking, thus, there cannot be any exact and perfect definition of economics. One has got to accept the definition even though they have demerits.

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