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BCom 1st Year Economics Laws and Their Nature Notes Study Material

BCom 1st Year Economics Laws and Their Nature Notes Study Material

BCom 1st Year Economics Laws and Their Nature Notes Study Material

BCom 1st Year Economics Laws and Their Nature Notes Study Material: A2zNotes Presents study material Long Question Answer Notes Pdf by the Latest BCom Syllabus. A Collection of Question-Answers compiled and Edited by A2zNotes Well Experienced Authors Based on Latest BCom Curriculum. Here in this post, we will provide you with BCom 1st Year Economics Laws and Their Nature Notes Study Material, Long Questions Answers, and Notes in Pdf for BCom 1st Year.

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BCom 1st Year Economics Laws and Their Nature Notes Study Material
BCom 1st Year Economics Laws and Their Nature Notes Study Material

BCom 1st Year Economics Laws and Their Nature Notes Study Material

1. Economic Laws: Concept

The term ‘law means, according to Marshall, a general proposition or statement of tendencies, more or less certain, more or less definite. Many general statements are made in every science : but all of them cannot be called laws. Since Economics is a social science, our concern is with law of Social Science or Social Law. Such a law is a statement of social tendencies; it is “a statement that a certain course of action may be expected under certain conditions from the members of a social group,” observes Marshall.

“Economic laws, or statements of economic tendencies,” says Marshall, “are those social laws which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by a money price.”

2. Nature of Economic Laws

(A) Economic laws are not exact: The subject-matter of natural sciences is capable of perfect and exact measurement. So their laws are certain and exact. Economics aspires to a place in this group of sciences on the basis of the money measurement of human motives. But this measurement is seldom exact and never final. Because “there are no economic tendencies which act as steadily and can be measured as exactly as gravitation can : and consequently there are no laws of economics which can be compared for precision with the law of gravitation.”

It follows, therefore, that economic laws are not exact, certain and definite. Economics deals with complex and ever-changing material. Custom and habit exert their influence on them. Economic laws are concerned with human behaviour and human beings do not always act in the ways suggested. Human nature is variable and unpredictable. So economic laws cannot predict as exactly and definitely as the laws of physics or chemistry or astronomy.

But only economic laws are not less exact. There is a science less exact than astronomy. The science of the tides explains how the tides rise and fall twice a day under the action of the sun and the moon :

  • there are strong tides at new and full moon;
  • weak tides occur at the moon’s first and third quarter; and
  • the tide running up into a closed channel will be very high; and so on.

On the basis of the above, it can be calculated beforehand when the tide will probably be at its highest on any day at Marine Drive, Mumbai and how high it will be. Note that the word ‘probably’ has been used; astronomers do not use it when talking about solar or lunar eclipse. Why?

Though many forces act upon the sun or the moon, each of them acts in a definite manner which can be predicted beforehand. Similarly, many forces like weather, rainfall, etc. act on the size of the tide. But no one knows enough about the weather to be able to say beforehand how it will act exactly. A heavy downpour of rain or strong wind is likely to make the tides at Marine Drive differ a good deal from what had been expected.

Marshall, therefore, says that the laws of economics “are to be compared with the laws of the tides, rather than with the simple and exact law of gravitation. For the actions of events are so various and uncertain, that the best statement of tendencies, which we can make in a science of human conduct, must needs be inexact and faulty.” So economic laws are nothing more than a general statement of tendencies that may be expected under certain conditions from the members of a social group.

(B) Economic laws are not legal laws: Economic laws are not legal laws. Legal laws are government laws in the sense of an ordinance of government. Economic laws are a statement of relation between cause and effect. Such laws imply that we may expect a certain course of action under certain conditions from the members of an industrial group and this action is the normal action of the members of that group. Normal refers to the dominance in the long run of certain tendencies under given conditions.

(C) Economic laws are hypothetical: It is sometimes said that the laws of economics are hypothetical. Marshall says that “…….like every other science, it (economics) undertakes to study the effects which will be produced by certain causes, not absolutely, but subject to the condition that other things are equal and that the causes are able to work out their effects undisturbed.”

It is not that only the laws of economics are hypothetical; in fact every scientific law, when carefully and formally stated, contains the proviso to the effect that other things are equal. It means that the action of the causes in question is isolated and then certain effects are attributed to them under the assumption that no other causes are permitted to enter except those that have been explicitly allowed for.

Take for instance, the law of demand. It states that, other things being equal, the demand for a commodity increases when its price falls. This law will act as enunciated provided no other factors such as income of the consumer, prices of other commodities change except the price of the commodity under study.

(D) Economic laws lack predictability: Economic laws are mere statements of tendencies. They can work only if the necessary conditions are fulfilled. The difficulty with economics is that time must be allowed for causes to produce their effects, but in the meantime other things may not remain equal. So definite prediction is not possible on the basis of economic laws.

We cannot say for certain that a fall in the price of tea, for instance, will raise its demand because by the time the effect of price decline operates on demand, the prices of its substitutes might have also fallen leaving the demand for tea unchanged. Thus economic laws lack predictability.

(E) Applicability of economic laws differs: The classical economists were of the opinion that the laws of economics were valid for all times and applicable at all places. In other words, they are eternal and universally true. They emphasized correctly that economics is an observational science but called it. “experimental” and compared it with physical sciences. The Historical School. on the other hand, put emphasis on the relativity of economic laws and insisted that they have limited application to a given environment.

It is not correct to say that all economic laws are universally true, nor is it true that all of them are of relatively limited applicability. There are some economic laws which are always true and particular institutions or environment have no effect on them. In this category are the law of diminishing marginal utility, law of diminishing marginal productivity, Gresham’s law, the quantity theory of money, etc. But this cannot be said about the theory of value, theory of wages, theory of profits, etc.

(F) Economic laws are less stable: Economic laws, say Schumpeter, are much less stable than are the laws of any physical science. They work out differently in different institutional conditions. If we fail to understand this, we are likely to move away from the right path.

(G) Economic laws are subject to bias of the observer: Economic laws are concerned with the interpretation of human attitudes. It is possible that the observer, while attempting this, may misunderstand them and crudely substitute his own attitudes for the attitudes of the people.

As Schumpeter observes, “All this is made much worse than it would be otherwise by the fact that the analysing observer himself is the product of a given social environment and of his particular location in this environment–that conditions him to see certain things rather than others, and to see them in a certain light.” It means that the observer is likely to see through coloured glasses-coloured by his own ideological bias and prejudices.

Conclusion

We may conclude by stating that economic laws are not comparable to laws of physical sciences because the subject-matter of economics are human beings and their behaviour which do not remain unchanged. The interpretation of such human nature is subject to the prejudices of the analysing observer. So Marshall has correctly said that economic laws are a general statement of tendencies.

BCom 1st Year Economics Laws and Their Nature Notes Study Material

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