What is the nature of economics? definition, meaning, scope

In this session, we will be discussing what is economics, the definition of economics, the meaning of economics, what is the nature of economics, what is the scope of economics.

What is economics?

The word is defined by two Greek words, ‘eco’ meaning home and ‘nomos’ meaning accounts that are called economics. The subject has developed from being about how to keep the family accounts into the wide-ranging subject of today. So, Economics is mainly focused on scarcity and unlimited wants. So, let’s discuss what is the actual meaning of economics and also what is the nature of economics.

Economics, which is concerned mainly with three factors, that’s one is scarcity, choice, and production, distribution, and consumption. Economics, social science that seeks to analyze and describe the production, distribution, and consumption of wealth in human society, but this perspective is only one among many different definitions. Economics is also the study of people (as consumers) making choices about which products and goods to buy.  Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions, or societal decisions.

According to Indiana University, economics is a social science that studies human behavior. It has a unique method for analyzing and predicting individual behavior as well as the effects of institutions such as firms and governments, clubs, and even religions.

In the session on what is the nature of economics, we will ab also discussing the definition of economics.

Definition of economics

What is the actual definition of economics no one has ever succeeded? But in 19th-century English economist, Alfred Marshall defined the definition of economics, which many have agreed with, “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 wellbeing”—ignoring the fact that sociologists, psychologists, and anthropologists frequently study exactly the same phenomena. (Alfred Marshall).

After defining the definition of economics by Alfred Marshall in the 20th century, English economist Lionel Robbins defined economics, which also many have agreed with “the science which studies human behavior as a relationship between (given) ends and scarce means which have alternative uses.” (Lionel Robbins).

After defining the definition of economics then most of the writers defined the definition of economics in different words. (Lionel Robbins, Alfred Marshall, David M. Levy, and Sandra J. Peart. Econlib, Richard McKenzie on Prices, EconTalk podcast, Adam Smith, Donald Cox. Econlib, Max Borders, Richard Whately, Arnold Kling).

Isn’t economics nicknamed the “dismal science” because it is all about running out of resources and the inevitable decline of life as we know it? Who coined the phrase “the dismal science”? The Secret History of the Dismal Science: Economics, Religion, and Race in the 19th Century, by David M. Levy and Sandra J. Peart. Econlib, January 22, 2001. (What is the nature of economics?)

Everyone knows that economics is a dismal science. And almost everyone knows that it was given this description by Thomas Carlyle, who was inspired to coin the phrase by T. R. Malthus’s gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty and hardship.

While this story is well-known, it is also wrong, so wrong that it is hard to imagine a story that is farther from the truth. At the most trivial level, Carlyle’s target was not Malthus, but economists such as John Stuart Mill, who argued that it was institutions, not a race, that explained why some nations were rich and others poor.

Prof. Art Carden, in memory of Ayn Rand’s philosophy on one foot, presents economics on one foot.

In the News and Examples

Diane Coyle on the Soulful Science, EconTalk podcast.

Diane Coyle talks with host Russ Roberts about the ideas in her new book, The Soulful Science: What Economists Really Do and Why it Matters. The discussions start with the issue of growth–measurement issues and what economists have learned and have yet to learn about why some nations grow faster than others and some don’t grow at all. Subsequent topics include happiness research, the politics and economics of inequality, the role of math in economics, and policy areas where economics has made the greatest contribution.

Isn’t economics all about supply and demand? Richard McKenzie on Prices, EconTalk podcast. June 23, 2008.

Richard McKenzie of the University of California, Irvine, and the author of Why Popcorn Costs So Much at the Movies and Other Pricing Puzzles, talks with EconTalk host Russ Roberts about a wide range of pricing puzzles. They discuss why Southern California experiences frequent water crises, why price falls after Christmas, why popcorn seems so expensive at the movies, and the economics of price discrimination….

Isn’t economics all about Adam Smith and the invisible hand? Adam Smith: The Invisible Hand, a LearnLiberty video.

Prof. James Otteson, using the ideas of Adam Smith, explains how the division of labor is a necessary and crucial element of wealthy nations.

Don’t all economists disagree? Henderson on Disagreeable Economists. EconTalk podcast, July 30, 2007.

David Henderson, the editor of the Concise Encyclopedia of Economics and a research fellow at Stanford’s Hoover Institution, talks with EconTalk host Russ Roberts about when and why economists disagree. Harry Truman longed for a one-armed economist, one willing to go out on a limb and take an unequivocal position without adding “on the other hand…”. Truman’s view is often reflected in the public’s view that economic knowledge is inherently ambiguous and that economists never agree on anything. Henderson claims that this view is wrong–that there is substantial agreement among economists on many scientific questions–while Roberts wonders whether this consensus is getting a bit frayed around the edges. The conversation highlights the challenges the everyday person faces in trying to know when and what to believe when economists take policy positions based on research. Is it biased or science? (What is the nature of economics?)

Humorous essay. Zero-sum games like income redistribution are more exciting than economic fundamentals like the gains from trade. Why is Economics So Boring? by Donald Cox. Econlib, November 7, 2005.

Stan: Ollie, you know the worst part about being an economist? You meet someone at a cocktail party, you tell them you teach economics.

Ollie: …and they say “Oh, yeah, I took that in college. I hated it. It was so boring!”.

Getting the credit for Equation 14 is a zero-sum game. And we care about zero-sum games. There’s drama. There’s tension. There’s a loser for every winner. It makes for good TV, doesn’t it? But it’s not very common in reality. What common in reality is both sides are better off. The buyer and the seller of the car in the ad. That’s reality. No violence, no theft. Boring balloons. Boring happy people. Economics is boring….

Is economics just a fuss about language? The Economy: Metaphors We (Shouldn’t) Live By, by Max Borders.

“Argument is war.” That’s what cognitive linguists George Lakoff and Mark Johnson write in the opening chapter of their influential 1980 Metaphors We Live By. In that seminal book, Lakoff and Johnson offer a number of powerful lessons about figurative language: Metaphor is more than mere literary window dressing; metaphor is a fundamental aspect of human thought and language, and metaphors help us navigate the real world with a degree of efficiency that literal language can’t offer. It can even–for better or worse–change our perceptions of things.

A Little History: Primary Sources and References

Economics is sometimes called catallarchy or catallactics, meaning the science of exchanges. Where did this term first come from? Lecture I, Introductory Lectures on Political Economy, by Richard Whately. (What is the nature of economics?)

It is with a view to put you on your guard against prejudices thus created, (and you will meet probably with many instances of persons influenced by them,) that I have stated my objections to the name of Political-Economy. It is now, I conceive, too late to think of changing it. A. Smith, indeed, has designated his work a treatise on the “Wealth of Nations;” but this supplies a name only for the subject matter, not for the science itself. The name I should have preferred as the most descriptive, and on the whole least objectionable, is that of CATALLACTICS, or the “Science of Exchanges.”

Advanced Resources

Is Economics All About Scarcity? by Arnold Kling. Blog discussion on EconLog, January 17, 2007.

 I am two-handed on this issue. On the one hand, just because food, say, has become more abundant does not mean that we can ignore scarcity. At any moment in time, for a given state of know-how, the conventional definition of economics as dealing with the allocation of scarce resources among competing ends applies.

On the other hand, some of the most interesting economic observations concern relative abundance. Look at our standard of living compared to 100 years ago. Look at South Korea compared with North Korea. Robert Lucas famously said that “The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them it is hard to think of anything else.”

In the session on what is the nature of economics, we will be also discussing the nature of economics.

Nature of economics

The nature of economics, which is mainly categorized into three different types, the first one is economic as a science, the second one is economic as an art, and the last one is economics as a social science.

1. Economics as a Science
2. Economics as an Art
3. Economics as a social science

Economic as a science

Before discussing economics as a science, we will be defining what is the actual meaning of science. it can help you to define economics as a science. Science is an organized branch of knowledge, that analyses the cause-and-effect relationship between economic agents. Science is not only the collection of facts, according to Prof. Poincare, in reality, but all the facts must also be systematically collected, classified, and analyzed.

There are the following characteristics of any science subject, such as;

• It is a study of the relationship between cause and effect.
• It is capable of being measurable and based on facts.
• It has its own methodological apparatus.
• It should have the ability to forecast.

After being analyzed, economics has all the features of science.

Economics is also a systematic study of knowledge and facts. All the theories and facts related to both micro and macroeconomics are systematically collected, classified, and analyzed.

Economics deals with the correlation-ship between cause and effect. For example, supply is a positive function of price, i.e., change in price is the cause but the change in supply is the effect.

On the basis of all these characteristics, Prof. Robbins, Prof Jordon, Prof. Robertson, etc. Economics is a science but not a perfect science like physics, chemistry science, etc. The fact is that we cannot rely upon the accuracy of the economic laws. The predictions made on the basis of economic laws can easily go wrong.

In other words, the subject matter of economics is the economic behavior of man which is highly unpredictable.

Economics as a science is dividing into two categorized, the first one is Positive economics and the second one is Normative economics. These all fall into the session on what is the nature of economics.

1. Positive Economics
2. Normative Economics

Positive Economics

Positive economics science is defining the relationship between two variables cause and effect but does not give any value judgment. In other words, it states what is, what is produced, how goods are priced and distributed, how much profit is earned by firms, what different types of resources are available, how the resources are utilized, who are performing different economic activities, why the economic problems are occurring, why is the country suffering from unemployment, price instability, economic instability. It deals with facts about the entire economy.

Normative Economics

According to normative economics science. economics passes value judgment.  It is prescriptive in nature and describes ‘what ought to be’ or ‘what should be the things. Normative economics is concerned with economic goals and policies to attain these goals. They are helpful to solve the problems of unemployment, import dependency, improper allocation of

resources, price and economic instability, unequal distribution of income and wealth, and so on. Economics helps us to decide how much goods should be produced, how much they should be priced, how the government should control the money supply, interest rate, public debt, government expenditure, etc., how the consumer should allocate the money to get maximum satisfaction from the expenditure, how the firms should combine the inputs to earn maximum profit and so on.  all fall within the scope of normative economics. Thus, normative economics is concerned with welfare propositions.

 Therefore, from all the above discussions it is clearly defined Economics as both positive as well as normative in nature.

In the session on what is the nature of economics, we will be also discussing Economics as an Art.

Economics as an Art                                      

 Is it economics as art? now we will be defined this question here? According to J. M. Keynes, “An art is a system of rules for the attainment of a given end result or target, goals”. Economics is also considered an art. like; Economic theories are used to solve various economic problems in society. defining as art in simples words, art is the practical application of knowledge for achieving particular goals. In the field of economics, Science, which is displaying us principles of any discipline, but art, which turns all these principles into reality. 

Therefore, from all the above discussions it is clearly defined that economics is both a science and an art.

In the session on what is the nature of economics, we will be also discussing Economics as a social science.

Economics as a social science

Economics is also considered a social science because in the society of humans, for the behavior of human beings and their relationships the economics can be describing. This is because the exchange of goods and services takes place within the society and among different societies to satisfy the needs and wants of people.

In the session on what is the nature of economics, we will be also discussing the scope of economics.

Scope of economics

The words scope of economics, which gave meaning like the nature of economics. like that, In the nature of economics, we defined the question that whether economics falls into the category of science or arts. Various economists have given their arguments in favor of science while others have their reservations for arts.

But in the scope of economics, we will define the scope of economics, which means the area or boundary of the study of economics. In simple words the scope of economic means, the whole topic would be discussed in economics. 

So that in the scope of economics we will be defined two measured topics, the first one is Microeconomics, and the second one is Macroeconomics.

Micro Economics

 The main aim and objective of Microeconomics are concerned with small and individual units. For example, Consumer, a household, a firm, an industry, is what constitutes an individual unit. Microeconomics is also known as the price theory because most of the theories of microeconomics are related to the price determination of goods and services. Microeconomics is also known as the partial equilibrium because at the time of study of one variable, others are assumed to be constant. It is normative science in the sense that it only explains ‘what is.’ For example, monopoly price is higher than perfect competitive price but it does not tell, it should be reduced because it hurt the consumer.

According to A. P. Lerner, “Microeconomics consists of looking at the economy through a Microscope”.

Similarly, according to M. C. Connell, “In microeconomics, we examine the trees, not the forest. Microeconomics is useful in achieving a worm’s eye view of some very specific components of our economic system.”

Macro Economics

Similarly, Macroeconomics is the next important branch of economics. Macroeconomics is also known as new economics since it only developed after the 1930s. Macroeconomics is also known as aggregate economics since it studied aggregate variables rather than parts of an economy. It is also called income and employment theory because macroeconomics is concerned with income and employment determination in the economy. It is a general equilibrium because all the variables are studies simultaneously at a time.

According to stonier and Hague, “Macroeconomics looks at what happens in a particular part of the economy and macroeconomics looks at the economy as a whole.”

Similarly, according to R. G. D. Allen, “The term macroeconomics applies to the study of the relation between board economic aggregate.”

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