MANAGERIAL ECONOMICS

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MANAGERIAL ECONOMICS

 

Economics

 

Economics is a social science, a classified body of knowledge concerning human relationships clustered about man’s effort to earn a living. Economics is quite an old discipline. That is why Prof. Samuelson remarks that economics is the “Oldest of the arts, newest of the sciences indeed the Queen of the Social sciences”.

 

The origin of the subject could be traced to the works of the Greek Philosopher, ‘Aristotle’ who confined the study of economics t

 

o house hold management and acquiring and making proper use of wealth. It is important to note that the word ‘Economics’ has been derived from the Greek Works ‘OIKOS’ (a house) and ‘NEMINE’ (to mange). Thus economics means managing a household with limited funds. Adam Smith’s magnum opus book “An Enquiry into the Nature and Causes of Wealth of Nations” published in the year 1776, laid a strong foundation for the growth of economics. Hence ‘Adam Smith’ is rightly called as the “Father of Economics”. Although there is an excess of definitions, there is no concord among economists about a precise definition.

 

Definition of Economics

The various definitions can be classified broadly into three categories

  1. A Science of Wealth
  2. A Science of Material Welfare; and
  3. A Science of Scarcity

 

1.     A Science of Wealth

Adam Smith, J.B. Say, F.A Walker and other economists of the 18th and 19th centuries have defined economics as that part of knowledge which relates to wealth.

            Adam Smith considered that the main aim of all economic activities is to amass as much wealth as possible. It is, therefore necessary to analyze how wealth is produced and consumed. Most classical economists supported the Smithian definition of economics.

            Wealth definition gave rise to serious misconceptions at the hands of some literary writers of the 19th century like Rskin, Thomas Carlye, Charles Dickens, William Morris and Mathew Arnold. Economics was branded as the “Bread-and-Butter science”, “The Gospel of mammon”, “a science that taught “selfishness and love for money”,

“A dark and dismal science”, “a bastard science”, “a pig science” and so on.

 

2.     A Science of Material Welfare

Adam Smith’s wealth definition made economics a dismal science. Alfred Marshall was the first ‘neo-classical economist’ to rescue economics from ridicule, condemnation and misunderstanding. Marshall re-originated economics and placed it on the pedestal of glory, in his classic work “Principles of Economics” published in 1890.

 

            Marshall in his definition shifted the emphasis from wealth to human welfare. According to him, wealth is simply means to an end in all activities, the end being human welfare.

 

            In Marshall’s own words, “Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well being”. He adds that “is on the one side study of wealth; and the other the more important side, a part of the study of man”.

 

            Lionel Robbins led a frontal attack on the welfare definition in his everlasting work. “An Essay on the Nature and Significance of Economic Science” published in 1932. In the words of Robbins, “The material list definition of economics misrepresents the science as we know it”.

 

 

3.     A Science of Scarcity

After rejecting the materialist definition of Marshall, Robbins formulated his own conception of economics.

            In the words of Robbins, “Economics is the science which studies human behavior as a relationship between ends and scare means which have alternative uses”. This definition is based on four fundamental characteristics of human existence.

 

3.1  Human Wants are Unlimited

“Ends” refer to human wants which are unlimited but the resources available to satisfy them are limited.

3.2  Scarcity of Means

“Means” refer the resources (time or money or both) at the disposal of a person to satisfy his wants are limited. If things are available in abundance just like free goods, the economic problem will not arise. But as Prof. Meyers says “Alladins lamps” exist only in Arabian fairy tales.

3.3  Alternative uses

Economic resources are scarce, but they can be put to alternative uses. If we choose one thing, we must give up others (Opportunity Cost)

3.4  The Economic Problem

When the means at the disposal of person are limited and the resources can be put to several uses, and when wants can be graded on the basis of intensity, human behavior necessarily takes the form of choice.

            Recently, Prof. Samuelson has given a definition based on Growth aspects which is known as the ‘Growth definition”

 refered by google

 

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