Introductory Economics

Scope and Nature of Economics

Scope of Economics:
The scope of economics is the area or boundary of the study of economics. In scope of economics we answer and analyze the following three main questions.

(i) What is the subject matter of economics?

(ii) What is the nature of economics?

(iii) What are the limitations of economics?

Subject matter of Economics: There is a difference of opinion among economists regarding the subject-matter of economics.

Adam smith, the father of modern Economic Theory, defined Economics as a subject, which is mainly concerned with the study of nature and causes of generation of wealth of nations.

Impressed by the condemnation of the l9th century writers, like Carlyle and Ruskin, Marshall introduced the concept of welfare in the study of Economics. Marshall has shifted the emphasis from wealth to man. He gives primary importance to man and secondary importance to wealth.

The Robbins’s concept of the subject-matter of Economics is that “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses”. According to Robbins (1) human wants are unlimited (2) means at his disposal to satisfy these wants are not only limited, (3) but have alternative uses. Man is always busy in adjusting his limited resources for the satisfaction of unlimited ends. The problems that center round such activities constitute the subject-matters of Economics.

Paul Samuelson, however, included the dynamic aspects of economics in the subject matter. According to him, Economics is the study of how man and society choose with or without money, to employ productive uses to produce various commodities over time and distribute them for consumption now and in future among various people and groups of society”.


Nature of economics: The economists are also divided regarding the nature of economics. The following questions are generally covered in the nature of economics.

(i) Is economics a science or an art?

(ii) Is it a positive science or a normative science?

Economics as a science or an art: Economics is both a science and an art. Economics is considered as a science because it is a systematic knowledge derived from observation, study and experimentation. However, the degree of perfection of economic laws is less compared with the laws of pure sciences.

An art is the practical application of knowledge for achieving definite ends. A science teaches us to know a phenomenon and an art teaches us to do a thing. For example, there is inflation in India. This information is derived from positive science. The government takes certain fiscal and monetary measures to bring down the general level of prices in the country. The study of these fiscal and monetary measures to bring down inflation makes the subject of economics as an art.

Is economics a positive science or a normative science?

Normative and Positive Economics: A positive science studies the facts as they are and not as they ought to be.

According to Prof. Robbins, economics is a positive science; it studies the fact as they are. The task of economics is simply to explore and explain- knowledge for the sake of knowledge—a study of cause and relationship. Normative science studies the facts not as they are but as they ought to be. It lays down certain norms or objectives and efforts are made to attain them.
Marshall and Pigou assigned to economics the role of normative science. The study of economics is divided into two groups, viz., micro economics and macroeconomics. The study of individuals falls under the microeconomics, whereas, study of the economy as a whole under macro economics.

Nature of Economic Laws:

Economics, like all other sciences, has drawn its own set of generalizations or laws. Economic laws are nothing more than careful conclusions and inferences drawn with the help of reasoning or by the aid of observation of human and physical-nature. In everyday life, we see man is always busy in satisfying his unlimited wants with limited means. In doing so, he acts upon certain principles. These principles or generalizations which an average man usually follows when he is engaged in economic activity-are named “Economic Laws”.

Economic laws are the statements of general tendencies. According to Marshall, “Economic laws are those social laws which relate to branches of conduct, which the strength of motive chiefly concerned can be measured by money prices”.

Laws of Economics are less exact.

The nature of economic laws is that they are less exact as compared to the laws of natural sciences like Physics, Chemistry, Astronomy, etc. An economist cannot predict with surety as to what will happen in future in the economic domain. He can only say as to what is likely to happen in the near future. The reasons as to why Economic laws are not as exact as that of natural sciences are as follows:
First, Natural sciences deal in matter which are lifeless. While in Economics, we are concerned with man who is endowed with a freedom of acting the way he likes. Nobody can predict with certainty his future actions. This element of uncertainty in human behavior, results in making the laws of economics less exact as compared to laws of natural sciences.

Secondly, in Economics it is very difficult to collect factual data on which economic laws are to be based. Even if the data are collected it may change at any moment due to sudden changes in the tastes of the people or their attitudes.

Thirdly, there are many unknown factors which affect the expected course of action and thus can easily falsify the economic predictions.

Economic laws are essentially hypothetical
Economic laws, are essentially hypothetical. They are true under certain given conditions. If these conditions are fulfilled, the conclusions drawn from them will be true and exact as those of the laws of physical sciences. From this statement that laws of Economics are hypothetical, we should not conclude that, they are useless or unreal. The hypothetical element is also there in the laws of physical sciences. Take for instance, the law of gravitation. It states that bodies tend to-fall to the ground but the bodies may not fall immediately. Their fall may be retarded by atmospheric pressure. So is the case with the laws of Economics. Take for instance, the law of diminishing marginal utility, It states, other things beings equal, the additional benefit which a person derives from a given increase of his stock of a thing diminishes with every increase in the stock that he already has”, But this may not happen. The utility of an additional unit may increase due to a sudden change in fashions, tastes, etc. The only difference between the laws of Economics and the laws of physical sciences is that the hypothetical element in the former is more permanent as compared to the later. In the words of Samuelson, “Despite the approximate character of economics laws, it is blessed with many valid principles”.

Economic laws are qualitative in nature. They are not exactly stated in quantitative terms. They tell the direction of change which is expected rather than the amount of change. For example, according to the law of demand, the quantity demanded varies inversely with price. We do not say that 10% rise in price will lead to 30% fall in the quantity demanded.

Applicable on an average in normal conditions. Economic laws do not deal with any particular individual, firm, commodity but takes an average economic unit and lays down its economic behavior.

Laws of economics are more exact than the laws of other social sciences. We do admit that the laws of economics are not 100% exact. They are, however, more exact than the laws of any other social science.