Chapter I, Unit I

Nature and scope of

Economics Presented by
Asst. Prof. Kavita Dive
Indore Institute of Law
 A science is a systematized study of a subject.
Science establishes the relationship between cause and
effects of a fact.
Law of science are universal.

Economics as a science
 Systematized study
Consisting of laws
Experiments
Measuring rod of money
Universal

Arguments in favour of
economics as a science
 The laws of economics are not universal
The laws of economics are not so exact
No possibility of laboratory experiments
Conflicting views
Difficulties in making predictions

Arguments in favour of
economics is not a science
 There is a great controversy among the economists
regarding the nature of economics, whether the
subject economics is considered as science or an
art.
If it is a science, then either positive science or
normative science.
 A positive economics employs a scientific methodology
in formulating its generalization , laws or theories
Normative science is invariably based on some value
judgments ( good or bad )

Economics a positive
science or normative
science
 Based on logic
Things as they are
More neutral
More uniformity

Economics as a positive
science
 Man is not logical but also sentimental
A means of social betterment
Basis of economics planning
Economics is not neutral

Economics is a normative
science
 Solution of the problem
Modern trend
Verification of economic laws

Economics is an art
 Economic laws are statements of uniformities which
govern human behavior concerning the utilization of
limited resources for the achievement of the end.

Economic Law
 Economic law related to human beings
Statements of tendencies
Apply on the average in normal conditions
Based on assumption
Economic laws are hypothetical or abstract
Economics laws are not exact

Nature of characteristics
of economic law
 Economic laws are relative
Economic laws sometimes axiomatic
A few economic laws are universal in nature
More exact than the laws of other social science
 Study of man
Less possibility of experiment
Defective measuring rod
Effect of different tendencies
other things being equal
Effect of unknown factors

Causes of uncertainty of
economic laws
 Deductive Methods
Inductive Methods

Methods of Economics
 Deduction Means reasoning or inference from the general
to the particular or from the universal to the individual.
The deductive method derives new conclusions from
fundamental assumptions or from truth established by
other methods. It involves the process of reasoning from
certain laws or principles, which are assumed to be true,
to the analysis of facts.

Deductive Method
 Observation and exploration of the problem
Setting up of the hypothesis from assumption
Theoretical development of the hypothesis logically

Steps in the deductive

method
 Simple Method
Useful for complex phenomenon
A substitute for experimentation
Accurate & Exact

Merits
 Requires high competence in logic
Danger of building inapplicable model
Harmful use of models

Demerits
 Induction is the process of reasoning from a part to the
whole, from particulars to generals or from the individual
to the universal. Bacon described it as an ascending
process in which facts are collected, arranged and then
general conclusions are drawn.

Inductive Method
 More Realistic
Possibility of verification
Proper attention to complexities
Dynamic Approach
More suitable for economic policies

Merits
 It is difficult methods
Limited scope of verification
Danger of bias
Limited use in economics
Inadequate for economics

Demerit
Study of whole & Individuals
 A study of particular firm, particular house
hold, individual price, wages income,
industry, and particular commodity.

Micro Economics
 Explain the working of a free enterprise economy
Explain how prices are determined
Explain conditions of efficiency in production and
distribution
Provides tools for economic policies
Helps in the efficient employment of resources
Help business executives and managerial decisions
Help to get maximum satisfaction
Is help in understanding the problem of taxations

Micro Economics
 Macro economics deals not with individuals
quantities as such but with aggregates of these
quantities, not with individuals income but with
national income, not with individual price but
with price levels, not with individual outputs but
with national output.

Macro Economics
 Gives as birds eye view of the economy as a
whole
Formulates useful economic policies
Studies economic growth
Studies the economic in its dynamic aspects
Change in the general price level
Studies the national income
Helps in understanding the functioning of an
economy
Studies the trade cycle

Macro Economics
Thanks