Meaning and Definition of Economics

Economic and Non-economic Activities

An economy is a system which provides people with goods and services and directly or indirectly satisfies
their wants.

Economic activities are the set of activities carried out by human resources to satisfy their needs. It is
essentially concerned with the production, exchange and consumption of goods and services. For
example, businessmen may make a profit or experience a loss, while labourers receive wages and
salaries as a remuneration of services rendered by them.
Activities which have no economic elements or are not concerned with money and wealth are known as
non-economic activities. There are various types of non-economic activities such as social activities,
political activities, religious activities, charitable activities, parental activities and recreational activities.
Examples of social activities are organising marriage parties, attending birthday parties of friends and
relatives, while examples of political activities are meetings of various political parties such as the
Congress, BJP and ADMK.

Definitions of Economics
Social Science is a branch of science which studies how societies are organised and function. Various
Social Science branches include Sociology, Anthropology, Psychology, Economics and Political Science.
Every branch studies the organisation and functioning of society from its perceptive.
Economics studies the economic behaviour of individuals and organisation in society. It also studies
individuals and organisations engaged in economic activities concerned with the production, distribution
and consumption of goods and services. Hence, Economics is regarded as the queen of all social
sciences.
Wealth Definition

The famous book An Inquiry into the Nature and Causes of Wealth of Nations was written by Adam Smith.
Adam Smith stated, “Economics is concerned with an enquiry into the nature and cause of wealth of
nations, and it is related to the laws of production, exchange, distribution and consumption of wealth.”

Features of the Wealth Definition of Economics

 Exaggerated emphasis on wealth: This definition gave
too much importance to the creation of wealth in an
economy. Many economists believed that economic
success of any nation depended only on the
accumulation of wealth.
 Inquiry into the creation of wealth: This definition
indicates that Economics also deals with an inquiry into
the causes behind the creation of wealth. For example,
wealth of a nation may be increased by raising the level
of production and export.
 Study on the nature of wealth: This definition further
explored that the wealth of a nation included only material goods; for example, different manufactured
items. Non-material goods were not included. Hence, non-material goods such as the services of
teachers, doctors and engineers are not considered „wealth‟.
 Economic Man: This definition is based on the man who is always self-centred and self-interested in
nature. Economic Man focused on his own well-being and had only one motive—to earn money.

Criticisms
 Materialistic concept: This definition laid too much emphasis on wealth and did not consider human
welfare. But wealth is only one of the many means for human pleasure and welfare. Hence, this
definition is neglected.
 Ambiguous: The definition of wealth is not very clear. In earlier days, wealth included only material
goods such as money, gold, silver, land, sugar, tea and ghee which are visible. Non-material goods
were not included. Hence, non-material goods such as services of teachers, doctors and engineers
are not considered „wealth‟ under this definition.
 Narrow scope: This definition claims wealth as the only subject of Economics and does not study the
concept of welfare. Therefore, it is considered incomplete and narrow.
 Stress on the concept of Economic Man: This definition is based on the concept of Economic Man
which emphasised that the main motive of a man is to acquire wealth. However, other motivations of a
man like feeling affection and emotions are neglected.
 Scarcity and choice: This definition ignores scarcity and choice, which are important concepts of
Economics. In the real sense, economic activities occur because goods and services satisfying human
wants are scarce in nature for innumerable uses.
 Importance of man ignored: The definition by Adam Smith gives unnecessary importance to wealth
leaving aside the importance of human beings.
Welfare

The welfare definition was propounded by Dr Alfred Marshall in his book Principles of Economics in 1890.
According to him, “Economics is a study of mankind in the ordinary business of life. It examines that part
of individual and social actions which is most closely connected with the attainment and use of material
requisites of well-being.”

In this definition, he gave more importance to human welfare in comparison to wealth. He stated that
wealth was only a means to satisfy human wants and not an end in itself.

Features of Marshall’s Definition of Economics

 Study of material requisites of well-being: This definition indicates that
Economics deals with the material aspects of well-being. Thus, it
studies the materialistic aspects of economic welfare.
 Concentrates on the ordinary business of life: It shows that
Economics deals with the study of man in the ordinary business of life.
Thus, Economics enquires how an individual gets his income and how
he uses it.
 Stress on the role of man: This definition stressed on the role of man
in the creation of wealth or income.
 Economics is a social science: Economics does not study the
behaviour of a single person but of people living together in a society.
People live together and interact with each other while working at
firms, factories, shops and offices. The problems and activities arising out of these are studied by
Economics.
 Use of money: This definition regards material economic welfare as a part of social welfare which can
be measured in terms of money.

Criticisms
 Narrow concept of the subject: Marshall in his definition of Economics concentrated mainly on material
welfare and ignored non-material welfare. As a result, the use of the word „Material‟ in his definition of
Economics considerably narrows down its scope. This is because human welfare is not only affected
by the amount of material goods produced and consumed but also by the amount of non-material
goods produced and consumed. For example, the services of doctors, lawyers, teachers, dancers,
engineers and professors satisfy wants and are scarce in supply. Therefore, this proved to be a major
drawback of this definition.
 Relationship between Economics and welfare: There are many activities which do not promote human
welfare but are regarded as economic activities. These include the manufacturing and sale of alcoholic
goods or opium.
 Welfare cannot be measured: Welfare is a state of mind and cannot be quantitatively measured, as it
is subjective. Because the exact amount of welfare cannot be measured and the satisfaction derived
from purchases, performances and activities cannot be calculated in exact figures, only assumptions
can be made. Also, it varies from person to person, place to place and age to age. For example, when
two friends purchase the same good, it is impossible to identify or measure or even assume that how
much welfare each is going to gain.
 Impractical: This definition of welfare is theoretical in nature. It is not possible in practice to divide
man‟s activities into material and non-material activities.

Scarcity

The scarcity definition was given by Professor Lionel Robbins in his book An Essay on the Nature and
Significance of Economic Science published in 1932. He stated that Economics is the science which
studies human behaviour as a relationship between ends and scarce means which have alternative uses.
He meant that Economics studies activities performed by man to obtain scarce means with alternative
uses in order to satisfy their unlimited wants.

Features of Robbins’ Definition of Economics

 Human wants are unlimited: The scarcity definition of
Economics states that human wants are unlimited. If one
want is satisfied, another want crops up. Thus, different
wants appear one after another.
 Limited means to satisfy human wants: Though wants are
unlimited, yet the means for satisfying these wants are
limited as the resources required to meet these wants are
limited.
 Efficient use of scarce resources: Wants are unlimited and
are to be considered in order of importance. On the basis
of such importance, scarce resources are to be used in an efficient method for the satisfaction of these
wants.
 Need for choice and optimisation: Wants are to be categorised as the most essential and the least
essential wants. Economics is also called a science of choice. Hence, scarce resources are to be used
for the maximum satisfaction of essential human wants.

Growth

The growth-oriented definition of Economics was given by Professor Samuelson. He stated, “Economics
is a study of how people and society choose, with or without the use of money, to employ scarce
productive resources which could have alternative uses, to produce various commodities over time and
distribute them for consumption now and in the future among various persons and groups of society.”

Features of Samuelson’s Definition of Economics

 Dynamic problems of production: Economic growth is
measured by the change in national output over a period.
Economics is concerned with determining the method of using
scarce resources to produce commodities over a period. Thus,
the dynamic issue of production has been brought within the
purview of Economics.
 Dynamic allocation of consumption: It is concerned with the
method of consumption now and in the future. Thus, the
problem of dividing the use of income between current and
 future consumption has been included in this definition.
 Distribution of consumption: It is concerned with the distribution of consumption among various
individuals and groups in a society. Initially, the problem of distribution was not clear but the modern
definition makes it a more understandable concept.
 Improvement of resource allocation: The definition also says that Economics analyses the costs and
benefits of improving the method of resource allocation.