Economic and Financing of Education

Unit 1
Introduction to Economics
1.1 Definition of economics and its major modes - macro and micro
economics
Definition of Economics:
Economics is a science which deals with wealth creation through
production of goods and services, their distributions as well as consumption. The
process plays a huge task in the society because it influences the majority of our
decisions in our day-to-day activities. However, defining economics has pose
difficulties because there is no single acceptable definition. Therefore different
economist has given economics different types of definitions. Famous among
these economists were: Adam Smith, David Ricardo, Thomas Malthus, J.S. Mill,
John Stuart Mill., Karl Marx, Alfred Marshall, J. B. Say, James Henderson, John
Keynes, Irving Fisher, Lionel Robbins and host of others. Each of these famous
economists either gave a definition which others think it is either too narrow or
too broad to describe economics.
Robbins defined economics
“As a science which studies human behavior as a relationship between
given ends and scarce means which have alternative uses”.
This definition touched on major aspect of economics such as human behavior
(rationality), human needs and scarce resources, choices as a result of scarce
resources and alternative uses of resources.
Economics as a subject matter of social science has been treated as a science of
– (a) Wealth, (b) Welfare, (c) Scarcity and Choice (d) Growth and Development
and (e) Sustainable Development.
Macro Economics and Micro Economics
Micro economics deals with the economic decision making by individuals and
institutions.
Macro Economics deals with economic aggregates at the level of the whole
economy.
Macro Economics Micro Economics
1. It is the study of economy as a 1. It is the study of individual
whole and its aggregates. economic units of an economy
It deals with aggregates like national 2. It deals with individual income,
income, general price level and individual prices and individual output,
national output, etc. etc.
3. Its central problem is determination 3. Its Central problem is price
of level of income and employment. determination and allocation of resources.
4. Its main tools are aggregate 4. Its main tools are demand and supply
demand and aggregate supply of of a particular commodity/factor.
economy as a whole.
5. It helps to solve the central 5. It helps to solve the central problem
problem of full employment of of what, how and for whom to produce
resources in the economy. in the economy
6. It is concerned with the 6. It discusses how equilibrium of a

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 determination of equilibrium level of
income and employment of the
economy.
7. Income is the major determinant of
macroeconomic problems.
consumer, a producer or an industry is
attained.
7. Price is the main determinant of
microeconomic problems.

1.2 Need and Importance of studying Economics

Economics assists individuals in the society to understand the decisions of
households, businesses and governments based on beliefs, human behavior, structure,
needs and constraints as a result of scarcity.
Consequently, economics is a study of man and how he thinks, lives, and moves
in the ordinary course of business of life.
It deals with the ever dynamic and delicate forces of human nature.
Economics as a social science gives larger opportunities for precise methods than
any other branch.
1.3 Classical, neo-classical and modern school of thoughts in economics

Classical thought in Neo-classical thought in Modern thought in

Economics
Definition of Economics
Given by Adam Smith:
“Economics is a science
that explores the nature and
reason of the wealth of
nations.” Economics grows
centring wealth or
resources. So to acquire
resources is the main
purpose of people’s
economic activities. The
weaknesses of Smith’s
definition lie in: 1) In
this definition there is no
mention of how economics
would satisfy people’s
unlimited wants by means
of their limited resources. 2)
Although national
resources have been given
more emphasisin this
definition, persons and their
activities have been
ignored. 3) Acquiring
resources has been
emphasized whereas how
these resources would be
Economics
Professor Alfred
Marshall emphasizes human
welfare more than
resources. He says,
“Economics discusses the
general activities of human
life.” The basic point of
discussion about economics
is the income of human
beings and their expenditure
of that money for the
purpose of satisfying their
wants. That is, the main
purpose of economics is to
accomplish human welfare.
Marshall has only discussed
the accomplishment of
human welfare in real life.
Whereas at present, the
problem
of scarcity is the main
problem of economics, and
this basic issue has not been
taken into consideration.
Economics
Professor L. Robins
has defined economics in
such a way that has been
much more acceptable than
the defmitions given by
others. In his opinion,
“Economics is a science that
analyses human behavior
related to the combination
of unlimited wants and
alternatively usable scarce
resources.” The
characteristics of this
defmition are:
1) Htunan wants are
unlimited and the nature and
volume of the wants are
different. 2) The resource
and time to fulfil the wants
are very limited. 3) One
very important part of the
discussion of economics is
how to adjust unlimited
wants by means of limited
resources. 4) As the supply
of the resources is limited,
we have to try to satisfy our

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acquired has not been
mentioned. 4) In
this definition, resources
stand for goods, but there is
no mention of services.
varied wants with the same
resources. 5) Wants are
limited as per their priority.
For these reasons, this
definition is considered to
be a more acceptable one.