BCom 1st Year Scope and Subject Matter of Economics Notes Study Material
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BCom 1st Year Scope and Subject Matter of Economics Notes Study Material
1. Central Nucleus: Traditional
Though Economics is a social science, it is not the only social science. There are other social sciences as well like sociology, anthropology, political science, social psychology and even social biology. They also contribute to our understanding of how human beings behave in relation to their fellows. So, as Jack Hirshleifer says, “No absolute boundaries can be drawn between the topics covered by economics and those addressed by her sister social sciences.” Yet it can be said that economics has a central nucleus and some outlying extensions.
The nucleus of economics covers a limited range of human activity: “rational behaviour”, on the part of individuals who are related to one another through the social mechanism of the “market”. An individual acts rationally when he tries to maximise his satisfaction by spending his income on goods and services. A business firm acts rationally when he maximises his profits.
Rationality is thus an instrumental concept. It requires the prior existence of goals. Goals, as given above, are utility maximisation for consumers and profit maximisation for producers.
Besides rationality, the nucleus of economics is also the sensible selection of means for achieving given goals (ends). If a consumer wants bread from a baker, rational behaviour on the part of the consumer is to get a job and earn income to pay the price of bread. It comes within the scope of economics to analyse the separate goal-seeking activities of individuals through the market.
Economics studies the actions of individuals, and study them, as Marshall says, in relation to social rather than individual life; it concerns itself but little with personal peculiarities of temper and character. So the emphasis on rational and market-related behaviour.
Economics deals with facts which can be observed and quantities which can be measured and recorded. Secondly, the problems which are grouped as economics are those that are measurable by a money price. But Marshall cautions, “The less we trouble ourselves with scholastic inquiries as to whether a certain consideration comes within the scope of economics, the better.” If a matter is one to which money measure can be applied, it comes within the scope of economics.
To sum up, economics studies the individual as a member of an industrial group and measures the play of motives in demand and supply. It deals mainly with one side of man’s life—his business life. But it is always the life of a real man, not that of an abstract or economic or fictitious man, but a man of flesh and blood.
2. Central Nucleus: Modern
With the advent of Robbins and his scarcity-based definition of economics, the scope of economics is analysed in terms of how economics contends with the brute fact of scarcity. It again needs to be emphasized that boundaries marking off economics from other disciplines are quite difficult to draw; yet there is some general agreement with regard to its main contents. Economics encompasses the social relationships or social organisation involved in allocating scarce resources among alternative human wants with the goal of satisfying wants as fully as possible. The key elements of economic activities are:
(1) Human wants,
(2) Resources, and
(3) Technique of production.
The mainspring of economic activity is human wants. Wants are the ends toward which economic activity is directed. “They constitute the driving force or the motivating power of the economy,” says Leftwich. There are two characteristics of wants. They are varied and, in the aggregate over time, they are insatiable.
The satisfaction of wants in an economy is limited partly by the quantities and qualities of its known resources. Resources are the means that are available for producing goods. These goods, in turn, are used to satisfy wants.
Resources are classified into (a) labour or human resources and (b) capital or non-human resources. There are three essential characteristics of resources, namely,
(i) they are limited in quantity,
(ii) they are versatile, i.e., can be used in different ways, and
(iii) they can be combined in various proportions to produce a given commodity.
The last two characteristics make it possible for the economy to switch its productive capacity from the production of one good to another from the production of goods that consumers want least to the production of goods that they want most.
Techniques of Production
Techniques of production are the know-how and the physical means of transforming resources into want-satisfying form. Nature of techniques available to entrepreneurs lies outside the province of economics. “However, the simultaneous choice of goods to be produced, quantities to be produced, and techniques to be used fall within the scope of economics,” states Leftwich.
The economic activities of individual economic units as consumers, resource owners and business firm as well as those of the economic system as a whole fall within the scope of economics.
3. Economics: A Social Science
The process of satisfying human wants and the process of creating them are not an individual but a social process. Economics, as a study of this aspect of human behaviour, is a social science. The early philosophers such as Plato and Aristotle recognised no clear line of demarcation between ethics, politics and economics. All subjects of study were for them merely different aspects of one great comprehensive subject-philosophy.
Increasing knowledge led to the splitting up of philosophy into an increasing number of separate sciences. It was, however, the industrial revolution which completely freed economics from other social sciences.
J. L. Hanson writing about the development of economics as a social science says, “In the simple economics of the Ancient World economics was a branch of ethics or politics; in the economy of the Middle Ages it had been an adjunct of theology; in the Age of Mercantilism it became a tool of politics of the nation-State. The Industrial Revolution resulted in a vast increase in production and increasing specialisation, with its corollary of increased exchange, so that the economic system became ever more complex. Economics shook itself free from ethics, theology and politics.”
Thus economics, which was once merely incidental to philosophy, has become a separate social study. It cannot, however, be rigidly marked off from other social sciences.
4. Economics: A Science
Economics is a social science. Does economics deserve the name or title ‘science’? Physics, Chemistry, Botany, etc. are easily recognised as science. Science is derived from the Latin word ‘Scientia’ which merely means knowledge. But the modern meaning of science has a restricted connotation. Characteristics of a science are:
• observation of facts,
• selection and classification of relevant material,
• the using of these as a basis for generalisation.
In this sense, economics is a science. The fundamental facts of economics are observations from everyday life.
In its scientific aspect economics is strictly a positive science. It answers the question “what is reality like”? As a positive science it considers things as they are. But normative issues in public policy such as “what ought to be” or “what ought to be done?” also require economic analysis.
Scope means the range of study or action. So under the scope of economics, we need to consider the range of the study of economics. The range of economics include:
• The subject-matter of economics;
• Economics as a social science;
• Economics as a science;
• Economics as a positive science or a normative science.
The subject-matter of Economics needs to be discussed closely which we do below in the next section. Other three aspects of the scope of economics were analysed above. We saw that the traditional central nucleus of economics was rational human behaviour in a group. Modern economists examine this nucleus in the context of scarcity. We also noted that economics as a separate discipline is only a little over two centuries old. Since economists use the scientific procedure to generalise economic facts, economics is a science. It is both a positive science concerned with what it is and a normative science dealing with what ought to be.
Economists do not completely agree on the scope of economics. To some, economics is merely about “means”, while society or the head of the state is to specify the “ends”. But others feel that economist is not simply a technician or agent of a policy maker but worldly philosopher, a thinker who helps to give direction to society. But Lester V. Chandler denies that economics has a specific philosophy of materialism.
Economist is merely concerned with the process of using scarce means to achieve chosen ends but it is not the function of economics as a science to promote one of these ends above the others. He maintains that there is no definite limit to his field of study. For instance, if the problem of poverty is not simply a matter of inadequate income but also a social and psychological malady, then the economist, working on poverty, should expand into the territories of the sociologist and the psychologist.
SUBJECT-MATTER OF ECONOMICS
Though it may be difficult to agree upon a satisfactory, concise definition of Economics, its subject-matter is generally beyond dispute. Yet “the subjectmatter of economics is itself a unique historical process so that, to a large extent, the economics of different epochs deal with different sets of facts and problems.” –Schumpeter
The subject-matter of Economics is man and his behaviour or action in relation to social rather than individual life. The personal peculiarities of temper and character do not form its subject-matter. The steadiest motive to ordinary business work is the desire for pay. It (pay) is money or the material reward for work. It is the centre around which economic science clusters. This is so, not because money or material wealth is regarded as the main aim of human effort. It is not also the main subject-matter of the study of economics. It is so because it is the one convenient means of measuring human motive on a large scale.
A man has a limited amount of money or material wealth or income and time; but his wants are unlimited and of varying importance. So he must spend his money and time in the way that he maximises satisfaction. This constitutes the subject-matter of Economics
The subject-matter of Economics, according to the traditional approach, is consumption (i.e., the satisfaction of human wants), production (i.e., producing things with the help of factors of production), exchange (i.e., the processes by which goods are transported, stored, valued, sold and paid for in the main and finally distribution (i.e., division of what has been produced among members of the group).
The subiect-matter, as given in the above para, is now regarded as constituting only one branch of Economics namely, Price Theory, also called Micro-economics. Modern approach to the subject-matter of economia considers the social or national income as well as individual income.
The study of national income is called the Macro-economics a subject that gained importance since the publication of Keynes’ The General Theory of Employment, Interest and Money in 1936. More recently, particularly since the 1950’s, and branch of Economics has gained importance and it is the Growth Economics
This is one way of dealing with the subject-matter of economics. Another is to look at the focal point of economics which is income. The economist looks at his subject-matter from many advantageous points. He studies many complex economic institutions. In spite of all these, his central interest is always social income, that is, the output of useful goods and services: It is so because it is with social income that man satisfies his wants. The central question of economics are, therefore, the following:
• By what process is income produced, and how much income is produced?
• How are the goods and services making up the social income exchanged or traded among the various members of the group?
• What types of goods and services are produced and for what purposes are they used?
• By what processes and in what proportions is the national income distributed or divided among the various members of the group?
• How are the processes of producing, exchanging, using and sharing income controlled?
Answers to all these questions constitute the subject-matter of economics. Further, the answers take into consideration not only theoretical or analytical economics but also descriptive economics and policy economics, also called Applied Economics. Descriptive economics is concerned with describing the working of economic institutions, while Applied Economics is concerned with the application of theory to the study of actual economic problems. Economic theory, or pure economics, consists of a body of principles, logically built up. It provides the tools of economic analysis.
Economics is one of the social sciences. As is the case with other social sciences, economics too is concerned with understanding how society works. Economists study the behaviour of people in society. They analyze how people are motivated by the production, distribution and consumption of material, wealth and services.
Like the subject-matter of other social sciences, the subject-matter of economics is also mankind who has free will. It is such an object which is not entirely governed by the cause-effect explanation typical of physical sciences. Physical sciences seek to describes the world as it is. But economics, like other social sciences, seeks to explain the behaviour of people who have will of their own.
So economists are concerned not only with what is but also attempt to describe what could be. Thus economics is concerned with both positive statements and normative statements, with positive economic theory and economic policy and value judgement.
“Economics then is a science, but a social rather than a physical science. It aims at offering explanations of ‘What is’ and opens up the possibility of forecasting and even controlling what the economic future will be. It is also a perspective discipline aimed at illuminating other possible states of the world,” says Heathfield.
BCom 1st Year Scope and Subject Matter of Economics Notes Study Material