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Lecture no. Economics – Meaning, Definitions, Subject matter of Economics – Traditional approach – consumption, production, exchange and distribution
ECONOMICS
Economics is popularly known as the “Queen of Social Sciences”. It studies economic activities of a man living in a society. Economic activities are those activities, which are concerned with the efficient use of scarce means that can satisfy the wants of man. After the basic needs viz., food, shelter and clothing have been satisfied, the priorities shift towards other wants. Human wants are unlimited, in the sense, that as soon as one want is satisfied another crops up. Most of the means of satisfying these wants are limited, because their supply is less than demand. These means have alternative uses; there emerge a problem of choice. Resources being scarce in nature ought to be utilized productively within the available means to derive maximum satisfaction. The knowledge of economics guides us in making effective decisions. The subject matter of economics is concerned with wants, efforts and satisfaction. In other words, it deals with decisions regarding the commodities and services to be produced in the economy, how to produce them most economically and how to provide for the growth of the economy.
Subject matter of economics Economics has subject mater of its own. Economics tells how a man utilises his limited resources for the satisfaction of unlimited wants. Man has limited amount of time and money. He should spend time and money in such away that he derives maximum satisfaction. A man wants food, clothing and shelter. To get these things he must have money. For getting money he must make an effort. Effort leads to satisfaction. Thus, wants- efforts- satisfaction sums up the subject mater of economics initially in a primitive society where the connection between wants efforts and satisfaction is direct. Divisions of Economics The subject matter of economics can be explained under two approaches viz., Traditional approach and Modern approach. Traditional Approach It considered economics as a science of wealth and divided it into four divisions viz., consumption, production, exchange and distribution
1. Consumption : It means the use of wealth to satisfy human wants. It also means the destruction of utility or use of commodities and services to satisfy human wants. 2. Production : It is defined as the creation of utility. It involves the processes and methods employed in transformation of tangible inputs (raw materials, semi-
finished goods, or subassemblies) and intangible inputs (ideas, information, know -how) into goods or services.
3. Exchange : It implies the transfer of goods from one person to the other. It may occur among individuals or countries. The exchange of goods leads to an increase in the welfare of the individuals through creation of higher utilities for goods and services. 4. Distribution : Distribution refers to sharing of wealth that is produced among the different factors of production .It refers to personal distribution and functional distribution of income. Personal distribution relates to the forces governing the distribution of income and wealth among the various individuals of a country. Functional distribution or factor share distribution explains the share of total income received by each factor of production viz., land, labour, capital and organisation.
Lecture No. Modern Approach – Microeconomics and macroeconomics - Methods of economic investigation – Deduction & , Induction
Modern Approach : This approach divides subject matter of economics into two divisions i.e., micro economics and macro economics. The terms „micro-„ and „macro-„ economics were first coined and used by Ragnar Frisch in 1933.
1. Micro-Economics or Price Theory: The term „micro-economics‟ is derived from the Greek word „micro‟, which means small or a millionth part. It is also known as „price theory‟. It is an analysis of the behaviour of small decision-making unit, such as a firm, or an industry, or a consumer, etc. It studies only the employment in a firm or in an industry. It also studies the flow of economic resources or factors of production from the resource owners to business firms and the flow of goods and services from the business firms to households. It studies the composition of such flows and how the prices of goods and services in the flow are determined. A noteworthy feature of micro-approach is that, while conducting economic analysis on a micro basis, generally an assumption of „full employment‟ in the economy as a whole is made. On that assumption, the economic problem is mainly that of resource allocation or of theory of price. Importance of Micro-Economics: Micro-economics occupies a very important place in the study of economic theory. Functioning of free enterprise economy: It explains the functioning of a free enterprise economy. It tells us how millions of consumers and producers in an economy take decisions about the allocation of productive resources among millions of goods and services.
fall in agricultural prices, while the average prices were steady. The agriculturists may be ruined.
DEFINITIONS OF ECONOMICS
The word economics has been derived from the Greek Word “OIKONOMICAS” with “ OIKOS” meaning a household and “ NOMOS” meaning management. Kautilya, the great Indian statesman, named his book on state crafts as „Arthashastra‟. WEALTH DEFINITION OF ECONOMICS : Adam smith defined Economics as “ An enquiry into the nature and causes of wealth of nations” in his book, entitled „ Wealth of Nations‟. He is regarded as the “Father of Economics”. Criticisms of Adam smith definition:
WELFARE DEFINITION OF ECONOMICS : Alfred Marshall in his book “Principles of Economics” defined “Political Economy or Economics as 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. Thus it is on the one side a study of wealth, and on the other, and more important side, a part of the study of man. Criticisms of Alfred Marshall definition:
SCARCITY DEFINITION OF ECONOMICS : In his publication „Nature and Significance of Economic Science‟ Lionel Robbins formulated his conception of Economics based on the scarcity concept. “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.
GROWTH DEFINITION OF ECONOMICS: John Maynard Keynes is known as the Father of Modern Economics. He defined economics as “the study of the administration of scarce resources and of the determinants of employment and income”. In the words of Nobel prize winner Prof. Samuelson, “Economics is the study of how people and society end up choosing with or without the use of money, to employ scarce productive resources that could have alternative uses, it produces various commodities over time and distributes them for consumption, now or in the future, among various persons and groups in society. It analyses costs and benefits of improving patterns of resources allocation.”
Importance Economics analyses the economic problems of the society. It plays a major role in the economic development of the country by proposing the optimum allocation of resources.
Knowledge of economics is useful in understanding various national and international events and trends. Amarthya Sen, Bharat Ratna recipient was awarded Nobel Prize for Economics.
Methods of Economics Investigation :
There are two methods of economic investigation that are used in economic theory i.e., 1) Deductive method and 2) Inductive Method
- Deductive Method: This method involves reasoning or inference from the general to the particular or from the universal to the individuals. It is also known as the abstract, analytical, hypothetical or apriori method.
Deduction involves four steps:
(1) Selecting the problems
(2) Formulating the assumptions
(3) Formulating the hypothesis through the process of logical reasoning whereby inferences are drawn and
(4) Verifying the hypothesis.
- Inductive Method: This method is also known as Concrete method, historical method or realistic method. It involves reasoning from particulars to the general or from the individual to the universal. This method derives economic generalisations on the basis of experiments and observations. In this method detailed data are collected on certain economic phenomenon and effort is then made to arrive at certain generalizations which follow from the observations collected.
Is Economics a Science or an Art Science is a systematized body of knowledge in which the facts are so arranged that they speak for themselves. Judged by this standard, economics is certainly a science. Economics is also an art because it lays down precepts or formulas to guide people to reach their goals. Economics therefore is a science as well as an art.
Economics – A Social Science
resources to produce various goods and to distribute these goods to various members of society for their consumption. Now having defined agriculture and economics, we look into the field of agricultural economics.
Definition
Agricultural economics is an applied field of economics in which the principles of choice are applied in the use of scarce resources such as land, labour, capital and management in farming and allied activities. It deals with the principles that help the farmer in the efficient use of land, labour and capital. Its role is evident in offering practicable solutions in using scarce resources of the farmers for maximization of income.
Prof. Gray has defined agricultural economics as “The science in which the principles and methods of economics are applied to the special conditions of agricultural industry”
According to Prof.Hibbard, “ Agricultural economics is the study of relationships arising from the wealth-getting and wealth-using activity of man in agriculture ”
Snodgras and Wallace defined agricultural economics as “an applied phase of social science of economics in which attention is given to all aspects of problems related to agriculture.”
Importance of agricultural economics
Akin to economics, the field of agricultural economics finds to seek relevance between cause and effect using the most advanced methods viz, production functions and programming models. It uses theoretical concepts of economics to provide answers to the problems of agriculture and agribusiness. Initially earnest efforts were made by the economists to use the economic theory to agricultural problems. Now the subject matters of agricultural economics is enriched in many directions and fields taking the relevant tools of sciences particularly mathematics and statistics. Agricultural depression which occurred in last quarter of 19th^ century and middle of 20th^ century brought about increased attention and concern to find out plausible cause and solutions for world agricultural depression. Here in this context the contribution made by agronomists, economists, horticulturists, etc., is noteworthy. Agriculture is the integral part of the world food system, having the foundation links between crops and animal production system. Agricultural economists here have to play a major role in understanding the intricacies involved in the foundation systems. Knowledge regarding problems in production, finance, marketing and government policies and their impact on production and distribution is very essential to find out suitable solutions for the farm problems. Students of agricultural economics are taught the subject disciplines viz.,
microeconomics, macroeconomics, agricultural production economics, farm management, agricultural marketing etc., to fulfill the requirements.
Lecture No.4. Agricultural production economics- Meaning- Definitions- Subject matter – Objectives - Farm Management – Meaning – scope – Definitions- Objectives
Agricultural production economics
Agricultural production economics is a field of specialization within the subject of Agricultural Economics. It is concern with the selection of production pattern and resource use efficiency in order to optimize the objective function of farming community or the nation within a frame work of limited resources. The goals of agricultural production economics are:
(1) To provide guidance to individual farmers in using their resources most efficiently and (2) To facilitate the most efficient use of resources from the stand point of economy.
Definition Agricultural production economics is an applied field of science wherein the principles of choice are applied to the use of capital, labour, land and management resources in the farming industry. Subject matter Agricultural production economics involves analysis of production relationships and principles of rational decisions in order to optimize the use of farm resources on individual farms and to rationalize the use of inputs from nation‟s point of view. The primary interest is applying economic logic to problems that occur in agriculture. Agricultural production economics is concerned with the productivity of inputs. As a study of resource productivity, it deals with resource use efficiency, resource combination, resource allocation, resource management and resource administration. The subject matter of production economics involves topics like factor-product relationship, factor-factor relationship and product- product relationship, size of farm, returns to scale, credit and risk and uncertainty, etc.
Objectives:
the individual farm unit for securing maximum possible net income (Bradford and Jhonson)
Objectives
- To examine production pattern and resource use on the farm.
- To identify the factors responsible for the present production pattern and resource use on the farm.
- To determine the conditions of optimality in the resource use and the production pattern on the farm.
- To analyse the extent of sub optimality in the resource use on the farm, and
- To suggest ways and means in getting the present use of resources to optimality on the farm.
Lecture No.
Agricultural finance – Meaning – Definitions – micro vs macro finance – need for agricultural finance-Agricultural marketing – meaning, definition , importance of agricultural marketing
Agricultural finance
Agricultural finance generally means studying, examining and analyzing the financial aspects pertaining to farm business, which is the core sector of the country. The financial aspects include money matters relating to production of agricultural products and their disposal.
According to Murray (1953), “It is an economic study of borrowing finds by farmers; of the organization and operation of farm lending agencies, and of society‟s interest in credit for agriculture.”
According to Tandon and Dhandyal (1962), “as a branch of agricultural economics, which deals with the provision, and management of bank services and financial resources related to individual farm units”
Micro Vs Macro finance
Agricultural finance is viewed both at macro level and micro level. Macro finance deals with the different sources of raising funds for agriculture as a whole in the economy and it is also concern with the lending procedures, rules, regulations, monitoring and
