Why is Economics important? Scope of Economics

Understand the nature and scope

“Science of wealth” is what people used to define the economy. And, They considered only the science that deals with material wealth as the scope. All the services were out of the scope of economics.

Classical economists

• Adam Smith: He is also known as The father of economics. He defined economics as the science of wealth. To him, the production of wealth is two, which defines the scope of economics.
• David Ricardo: He was one of the most influential economists in Britain. To him, the scope of economics lies in the distribution of wealth.
• J.B Say: He was a French economist. He is known for Say’s law. He included not only production and distribution but also the consumption of wealth.

Due to some points, people highly criticized classical economics:

• Due to not considering non-material services.
• Services of doctors, teachers and lawyers etc., also generate and consume wealth.
• Also, Primary importance was given to wealth instead of humans.

The Neo-Classical view

Under this viewpoint, it is defined as the science of material welfare.

Alfred Marshall led this. Hence, It helped economics gain a respectable place in the social sciences.

Wealth, here, is regarded as the means to the end. The economy is taken here as the source of human welfare. Scope of economics to neo-classical viewpoint considers all the activities that promote economic welfare for the society as a whole.

• Firstly, the use of material activities narrows the scope. Many other activities help promote human welfare.
• Many activities like tobacco are material activities and promote the economy but don’t promote human welfare.
• The use of the word welfare is in itself very subjective.

To him, the scarcity of resources is the reason for economics.

Scarcity and choice definition.

It is a human science that involves the best use of scarce resources to satisfy society. But, with the scarcity of resources, the various are alternatives to the resource.

It doesn’t differentiate between material and non-material. It takes all the economic activities given that it satisfies the want of humans.

Due to some points, people criticize this theory as well:

• The use of the word welfare is very subjective.
• His definition doesn’t analyze economic growth.

This is unable to see the economic problems of the real world. Hence, it can only be applied to a fully employed economy.

It includes:

• It also analyses the growth of the economy.
• Due to the inclusion of the time element, the scope of economics is dynamic here.

A social science analyses how society maximizes the gains from the limited resources present.

Scope of Economics

Subject matter

This is the study of everything related to wealth and value—the generation and consumption of wealth via different activities. Social science deals with the wealth generation to satisfy humans using scarce resources. Hence, it also involves markets, the mechanism of income and the distribution of wealth and income.

The study is divided into two parts-

Microeconomics

This is concerned with individual consumers, industries, firms, commodities etc. It is also known as price theory. It assumes that there is full employment, which is also its drawback.

Macroeconomics

This focuses on the impact of choice on the whole level. Thus, The limitation is obvious that it doesn’t consider individual welfare. It only focuses on society as a whole.

Science or Art

Both have a different opinion about it. One says economics is only the study of cause and effect and hence is not science. Others consider it as both science and art.

The scope covers all the central issues faced by society. E.g., economic growth, poverty, etc. It is a social science based on problems. And it is concerned with all the central problems of our modern world.

Here economists mean to say that economics is an art and science.

Positive or Normative

Positive Science –

It teaches cause and effect, what it is and examines its cause. The aim is to set rules. It is beyond good or bad, or any other factors.

Normative Science –

It represents what ought to be. It is simply the art of reasoning and reactions. The aim here is to form ideals. Here we can talk about ethics.

Thus, all the questions about what should be, what ought to be, etc., fall under this.

Both sciences play important roles in forming economics. Hence, Positive science finds out what and why it is and sets the rules. The normative science helps to judge whether it is good or bad.

Basic concepts 

These are the concepts of the basic terms involved in the scope of economics.

Scarcity –

Availability of a resource in a limited amount.

Choice –

Different alternatives are used to resolve scarcity as an issue called choices.

The scale of Preference –

Here we consider that all humans are rational thinkers. Thus, He will always choose the alternative which yields the maximum satisfaction.

Opportunity cost –

When a man chooses one over others, he gives up the satisfaction coming from the other, also known as opportunity cost.

Problems associated 

What to produce –

There are many options to choose from. This issue arises due to the scarce and unequal distribution of resources. It comes into the picture because of the unequal distribution of demands. Also, the government promotes certain things to be produced in certain locations.

How to produce –

This refers to minimizing cost and maximizing production by a selection of goods. Hence, The choice of a technique depends on various factors and the product to produce—Eg- weather, climatic conditions, budget, production amount, etc.

For whom to produce –

The goods and services produced must consider their consumers. Thus, a developing country will focus on production differently than a developed one.

For which class do the producers produce?

Which group is the target?

The target customer is one part of deciding when studying economics’s scope.