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Term Paper on Economics
Term Paper Contents:
- Term Paper on the Introduction to Economics
- Term Paper on the Scope of Economics
- Term Paper on the Nature of Economics
- Term Paper on the Economic Laws
- Term Paper on the Significance of Economics
Term Paper # 1. Introduction to Economics:
The term ‘Economics’ has been derived from two Greek words ‘OIKOU’ and ‘NOMOS’ which, taken together, mean the rule or law of the household. At the initial stage of development of human civilisation, economics was confined to the efficient financial management of households. It dealt with the way in which a household could make the best and most efficient use of its limited resources (income) to satisfy its unlimited wants.
Later, with the growth and advancement of human civilisation, the concept of efficient financial management of households was carried over to the society and nation as a whole. Wants and needs of every society are unlimited while the resources available with society to satisfy these wants and needs are limited and these limited resources too have alternative uses.
Therefore, the society has to decide the goods and services to be produced with these resources and also the quantity in which these goods and services should be produced so that maximum possible wants of society may be satisfied. In other words, the society has to decide how to make the best and most efficient use of available resources.
Modern view of economics is not confined only to the allocation of resources but is also concerned with the development of these resources. Though the wants and needs of every economy have growth many folds; population and labour force have increased; sources and techniques of production have improved; infrastructural facilities have improved; facilities of research and development have developed; new natural resources have been explored; both the physical and human resources have grown; and production capacity of modern economies has grown tremendously, yet the growth in production and income has not been smooth.
Therefore, economics has to explore and exploit the available resources of economic growth and to employ them for the economic growth of the country. It has also to ensure that the available resources are efficiently utilised for the economic growth and welfare of country. Economics is also concerned with the increase in productive capacity of scarce resources and the rate of growth of economic development.
Every economy of today is a complex economy. Several economic problems arise in every economy. Economics is to analyse the causes of these problems and to suggest a number of alternative courses which may help in tackling these problems.
Term Paper # 2. Scope of Economics:
According to Stonier and Haugue the subject matter of economics includes the following:
1. Economic Theory:
The theoretical part of economics is economic theory. The economic theories and economic tools frame this part. This part is divided into static dynamic economics. The other name of his part is ‘Economic Analysis’.
2. Applied Economics:
Applied Economics tries to apply the results of economic analysis to descriptive economics. There are many examples of Applied Economics such as Industrial Economics, Managerial Economics and Agricultural Economics.
3. Descriptive Economics:
In descriptive economics actual facts about a particular economic subject for the aim of study. Indian Economics is the example of descriptive economics.
Meaning of Business:
Human beings in order to satisfy their needs take up many activities. These activities can be broadly classified as economic and non-economic activities. Business is thus a typical economic activity. The dictionary meaning of business is employment, trade, commercial activity or industrial concern.
Business is a wide term which includes individual and group activities directed towards the wealth acquisition through exchange of goods and/or services. Business includes activities such as farming, mining, manufacturing, banking, trading, insurance, transport, construction and warehouse etc. which are taken up with a profit orientation.
Concept of Business Economics:
Business Economics was attached different meanings in accordance with the objectives set. According to one school of thought, business economics was conceived as an activity aimed at profit maximisation. In the early days, the sole objective of business was to earn profit at any cost in order to accumulate wealth, gain economic power even at the cost of social justice.
This concept has become almost outdated and the modern concept of business economics believes in the fact that business is a long lasting social and economic institution. The main objective of the business economics is to be in business. The business economics in order to survive and grow has to make profit along with meeting other societal obligations.
Now, the new concept is “Profit through Service”. Thus, along with economic objectives of profit maximisation, social responsibilities of business towards various stakeholders like owners, workers, consumers, society and government have gained a considerable importance.
Managerial economics can be viewed as an economics applied to problem solving at the firm level. Managerial economics deals with integration of economic theory with business practices for facilitating the decision making planning process by management.
Thus, managerial economics provides the link between economics and the decision science disciplines like mathematics, statistics, operation research, econometrics etc. in decision making.
Macro and Micro Economics:
Macro-economic studies the functioning of the economy as a whole and micro economics analyses the behaviour of individual components like industries, firms and households.
Micro-economics basically provides answers to the following questions:
(i) What goods should be produced and in what quantity?
(ii) Mode of their production (how they are produced)
(iii) How the goods should be distributed?
(iv) How efficiently the resources are utilised?
Thus, Micro-Economics deals with the theory of the firm and behaviour and problems of individuals and firms. It is concerned with pricing theory, demand concepts and theories of market structure. It has a relevance to managerial economics.
Macro-Economics is concerned with such economic variables as the aggregates output of an economy, extent to which the resources are employed, the level and determination of national income, balance of payment etc.
Macro-economic examines the aggregates and averages of economic variables which included study of money, banking and financial institutions, general price levels, inflation theory of employment, income distribution, monetary and fiscal policies and problems of economic stabilisation.
Term Paper # 3. Nature of Economics:
Economics as a Science:
Science is a systematised body of knowledge which establishes relationship between cause and effects. It is a systematic collection, classification and analysis of facts. In the words of Prof. Poincere, “Science is built up of facts as a house is built up of stones, but an accumulation of facts is no more a science than a heap of stones in a house.”
Thus, following are the essentials of science:
(i) A systematic study of facts,
(ii) Certain rules and principles,
(iii) Rules and principles of science are based on causes and effects, and
(iv) Rules and principles of science are universally applicable.
Is Economics a Science: Arguments in Favour?
Scholars, who argue that economics is a science, put the following arguments in favour of their opinion:
1. Systematic Study of Facts:
Economics involves the systematic collection, classification and analysis of facts. Economic results are measured in terms of money. Therefore, economics can be treated as a science.
2. Use of Economic Laws and Principles:
Study of economics involves the use of number of economic laws and principles. Economic facts are analysed on the basis of these laws and principles.
3. It Establishes Relationship between Causes and Effects:
Economics establishes relationship between the causes and effects of economic events. Such relationship facilitates economic forecastings.
4. Universality of Laws and Principles:
Laws and principles of economics are universal. They hold true in almost all the countries at all the times and in all the circumstances.
Is Economics a Science: Arguments Against?
Some scholars argue that economics is not a science.
They put the following arguments in favour of their opinion:
1. Difference in the Opinion of Economists:
There is vast difference in the opinion of economists on almost every issue. It is said that where six economists are gathered, there are seven opinions. In view of these differences, economics cannot be a science. This argument can be cancelled on the ground that economics is a social science and not a physical science. Existence of difference of opinion is a healthy sign of the vigour and vitality of a social science.
2. Lack of Universal Laws and Principles:
Laws and principles of economics are not universal. They change with a change in circumstances. Due to this reason also, economics cannot be a science. This argument can be cancelled on the ground that the subject matter of economics is ‘Man’ and not ‘Material’. A man, being a rational human being, cannot be subject to a definite law or principles in all circumstances.
3. Lack of Ability to Forecast:
Some critics are of the view that reliable predictions are not possible to be made in economics. Therefore, it cannot be science. This argument can be cancelled on the ground that economics studies human behaviour and human behaviour is always dynamic. However, the predictions regarding society and nation as a whole generally hold true.
4. Lack of Reliable Economic Facts and Data:
Facts and data used in economics are not complete and reliable. Therefore, it cannot be science. This argument can be cancelled on the ground that it is due to the dynamic nature of economic circumstances. However, this problem can be tackled to a large extent with the use of statistical methods.
Above discussion makes it clear that economics is a science. It possesses all the characteristics that a science should possess. However, the laws and principles of economics are not as static and definite as the laws and principles of other sciences like physics and chemistry. It is mainly due to the fact that economics is a social science and subject matter of economics is the study of dynamic human behaviour.
Economics as an Art:
Art means the systematic branch of knowledge which teaches how to do a particular work in its best manner. Art is the practical application of scientific principles. Science lays down certain principles while art puts these principles into practical use. According to Dr. Mac Coll, “Art is just the way of doing or making anything in such a fashion as to bring rhythm in it.” According to J.N. Keynes, “An Art is a system of rules for the attainment of a given end.”
Is Economics an Art Arguments in Favour?
The scholars, who argue that economics is an art, put the following arguments in favour of their opinion:
1. Helpful in the Solution of Economic Problems:
Economics suggests the ways in which economic problems of a country can be solved in their best manner.
2. Increasing Importance of Applied Economics:
Applied economics is gaining more and more importance day by day. Economics emphasises upon the adoption of practical policies in place of theoretical laws and principles. It highlights the artistic view of economics.
3. Economic Aspect of Problems:
Almost all the problems arising in the world of today are economic problems in one sense or another. These problems must be analysed from economic point of view also. It also highlights the artistic view of economics.
4. Economics as an Art does not Weaken its Scientific Aspect:
Some critics are of the view that as economics is a science, it cannot be an art. But it is not true. The fact is that every science has its art, so the Science of Economics has an Art of Economics as well. Science lays down certain principles while art puts these principles into practical use.
Is Economics an Art Arguments Against?
Some scholars are of the opinion that economics is not an art.
They put following arguments in favour of their opinion:
1. Difference in the Nature of Economics and Art:
Nature of both the economics and art are quite different from that of each other. Economics is of scientific nature; therefore, it cannot be art.
2. Economics is to Draw only the Conclusions and not to Formulate the Policies:
Economics is helpful in drawing the conclusions only; it does not help in formulating policies. In this form, economics is only a science and not an art.
3. Lack of Pure Economic Problems:
No problem of economics is a pure economic problem. It has some social, political and religious aspects also. Therefore, no problem can be solved on pure economic grounds.
Above discussion makes it clear that economics is both a science and an art. Subject matter of economics is the study of human behaviour. Human behaviour gives rise to two sets of phenomena, one is the practice of working out that behaviour and other is the theory that helps that practice. Economics is studied as a science and practised as an art. Thus, an economist works as a scientist when he studies economics and as an artist when he practices it. In the words of Cossa, “Science requires art; art requires science, each being complementary to other.”
Economics as a Positive and Normative Science:
Meaning of Positive Science:
Positive science is that branch of science which states the actual situation. Positive science is concerned with the establishment of relationship between causes and effects of an event. It indicates actual facts and does not give any judgement about them. It only replies ‘what it is’ and not ‘what it should be’. In the words of Prof. Keynes, “A Positive Science may be defined as a body of systematised knowledge concerning what is.”
Economics as a Positive Science:
Classical economists like J.B. Say, Senior and Mill, Robbins, Cairncross, and Bagehot were of the opinion that economics is a positive science. According to them, object of economics is to establish a relationship between the causes and effects of an event and not to suggest the ways to tackle with the event. According to them an economist is supposed only to narrate the actual facts and not to recommend dissuade.
Economics is a positive science as follow:
1. In Consumption:
In the field of consumption, many laws of economics establish that it is a positive science such as the Law of Diminishing Marginal Utility, Law of Equi-marginal Utility, Consumer’s surplus, Indifference Curve Analysis etc. All of these laws establish relationship between causes and effects of economic events.
2. In Production:
In the field of production, Laws of Returns and Scales to Returns establish relationship between causes and effects of different situations and stages of production.
3. In Exchange:
In the field of exchange, law of Demand and Law of Supply establish economics as a positive science. In addition to this, price under different forms of market is also determined on the basis of principles of positive science.
4. In Distribution:
In the field of distribution, theories of rent, wages, interest and profit have been developed on the basis of principles of positive science.
5. In Public Finance:
In the field of public finance, cannons of public expenditure, cannons of taxation and the cannons of public debt establish that economics is a positive science.
Above discussion makes it clear that economics is a positive science. It narrates actual facts and establishes relationship between causes and effects of economic events. In the words of J.B. Say, “Whatever owes to the public is to tell them how and why such a fact is the consequence of another. Whether the conclusions be welcomed or rejected, it is enough that the economist should have demonstrated its causes but he must give no advice.” In the words of Prof. Robbins,” The function of economics consists of exploring and explaining and not advocating and condemning. Economics is neutral between ends.”
Meaning of Normative Science:
Normative science is that branch of science which is related with directing and formulating policies. Main object of normative science is the determination of ideals. It tells us what should be done and what should not be done in given circumstances. In the words of J.N. Keynes, “A normative or regulative science may be defined as a body of systematised knowledge relating to the criteria of what ought to be.”
Economics as a Normative Science:
Many economists like Marshall, Pigou, Frazor, Hawtrey, Barbara Wooton etc. were of the opinion that economics is a positive as well as normative science. Mahatma Gandhi, the father of nation, has also described economics as normative science.
Argument in Favour:
Economics can be described as normative science on the basis of following arguments:
1. Economics Only as Positive Science will be Meaningless:
If economics is only a positive science and is concerned only with establishing the relationship between causes and effects of economic problems, it will be monotonous and meaningless. It is of no use to analyse economic problems without finding a solution to them.
2. Economics cannot be Separated from Human Welfare:
Economics is a social science. Subject matter of economics is the study of human behaviour. In this way, it cannot be separated from human welfare.
3. Dynamic Economic Conditions make Economics Normative:
Every economy of the world is a dynamic economy and economic conditions of every economy keep on changing rapidly. It necessitates that appropriate decisions should be taken at appropriate time and this is not possible if economics is only a positive science.
4. Helpful in the Solution of Economic Problems:
Several economic problems arise in every economy. These problems can be solved only if economics is taken to be the normative science.
Scholars who argue that economics is not a normative science, put following arguments in favour of their opinion:
1. Normative Science is based on Emotions:
Normative Science is based more on emotions than on logic and facts. It weakens the logical aspect of economics. Therefore, economics should not be treated as normative science.
2. Normative Science Invites Disputes:
Normative Science describes what should be done and what should not be done in given circumstances. This is the issue on which the economists can never have unanimous opinion. It invites and gives rise to disputes among economists.
3. Possibility of Causing Confusion:
Positive Science is concerned with ‘what is’ and normative science is concerned with ‘what should be.’ If they are taken together, it may cause confusion among economists.
4. Against the Principle of Division of Labour:
It is the time of specialisation and division of labour. Economics should confine itself to the analysis of economic problems. Determination of policies and solution of problems should be left to executives and politicians.
Above discussion makes it clear that economics should be treated as normative science as well as positive science.
Term Paper # 4. Economic Laws:
Meaning and Definition of Economic Laws:
Every science has some certain laws and theories. These laws explain the relationship between causes and effects of given events. Economics is also a science and, therefore, it has also some certain laws and theories. These laws and theories are known as economic laws. Economic laws explain relationship between causes and effects of economic events.
For example, law of demand is an economic law which explains relationship between ’cause’ (changes in price of a commodity) and ‘effect’ (changes in demand of a commodity). This law explains that the demand of a commodity falls on an increase in its price and increases on a fall in its price.
Economic laws have been defined as follows:
1. “Economic laws are the statements of economic tendencies, or those social laws which relate to branches of conduct in which the strength of motive concerned can be measured by money price.”
2. “Economic laws are the statements of uniformities about human behaviour concerning the disposal of scarce means with alternative uses for the achievement of ends that are unlimited.”
Thus, it may be concluded that economic laws are the statements of regularities of cause and effect arising from the free working of economic forces. These laws deal with those human activities than can be measured in terms of money.
Characteristics of Economic Laws:
1. Based on Human Behaviour:
Subject matter of economics is study of human behaviour; therefore, economic laws are based on human behaviour. Due to this reason, these laws are known as Social Laws also.
2. Relative Laws:
Economic laws are relative, and not absolute. These laws apply in specific circumstances at specific times and places. Laws applying in a particular area or at a particular time may not hold true in other areas or at other times.
3. Based on Certain Assumptions:
All economic laws are based on certain assumptions. Since it is not always practical that all of these assumptions hold true simultaneously, some critics are of the view that economic laws are only imaginary and do not hold true in practical life.
4. Different from Natural Laws:
Economic laws are based on human behaviour and human behaviour is so various and uncertain that no law on human behaviour can be as certain and universal as natural law. As a matter of fact, economic laws are only the statements of economic tendencies.
Economic laws are social laws and are based on human behaviour. As human behaviour is dynamic and uncertain, these laws are also dynamic. These laws are not universal like natural and physical laws. In the words of Prof. Waugh, “Economic laws are qualitative statements and not the quantitative statements; these laws indicate only the direction of change and not the quantity of change.”
Justification of Economic Laws:
There is a great controversy on the question whether economic laws are only the theoretical statements or these are any practical utility of these laws. Some economists are of the view that economic laws are very useful in the study of economics while some other economists are of the view that these laws are only theoretical and have no practical utility.
They put following arguments in favour of their opinion:
(i) These laws are relative and hold true only at a particular time and place.
(ii) These laws are hypothetical and are based on a number of assumptions. Since these assumptions do not hold true at all times and places, these laws also do not hold true at all times and places.
(iii) These laws are based on human behaviour. As human behaviour is always dynamic and uncertain, how these laws can be reliable.
(iv) These laws are less certain and rigid than natural laws.
Though it is true that there are certain limitations of economic laws, but it does not mean that these laws are only theoretical statements and have no practical utility. The fact is that these laws, if studied in the light of certain limitations, highlight many important aspects of human behaviour. These laws are valuable guides in the field of consumption, production, distribution and public finance.
Following words of Prof. Marshall are important in this regard:
“The laws of economics are to be compared with the laws of tides rather than with the simple and exact law of gravitation”. Prof. Robbins was very hopeful of the utility of these laws saying, “Economic laws describe inevitable implications. If the data they postulate are given, then the consequences they predict necessarily follow.”
Term Paper 5. Significance of Economics:
Economics is useful not only to individuals but also to business firms and the society as a whole. Economics provides certain tools which can be used for solving various business problems. Knowledge of economics is useful in almost all spheres of life. It helps a businessman in his various decisions with regard to price, quantity, cost, size etc.
It helps a policy maker in formulating appropriate policies for the economy and it even helps a housewife in budgeting her finances. However, economics is merely a tool in the hands of users. It does not furnish a body of set principles or readymade solutions to various problems. It only widens and deepens the understanding of functioning of various forces.
Importance for Individuals:
Individuals often face the problems of scarcity and choice-making. Knowledge of economics is quite helpful here. An individual can read the market forces and take decision about the time and the rates at which to buy desired products. The concepts of marginal utility, indifference curve, etc. help the individual to maximise his satisfaction with the use of minimum resources.
Importance for Business Firms:
Economic laws and theories establish cause and effect relationships which are true under certain assumptions. The laws of production are particularly helpful to business-an optimum factor mix in the use of resources can be achieved through the use of the law of variable proportions.
Production is undertaken in anticipation of demand. Economics helps in forecasting demand. It is based on a number of factors concerning the product and some external forces. It depends on the size of market, the degree of competition, elasticity of demand and the general economic situation. These estimates also help in finding out the likely return on investment.
For making a suitable choice of location for the business, an entrepreneur must know about the availability of raw materials, transport facilities, power and labour. The price situation also influences the demand for the product. The exchange rate has a bearing on the value which will be realised from exports. Indirectly, the general price level and the foreign exchange rate influence the overall economic activity in the country and, therefore, the business prospects of a given product.
Economics helps a business manager to analyse the external environment of business. For example, the Government influences business through its fiscal, monetary and industrial policies. A businessman must be aware of these policies and the implications on his business and what is happening in other countries because, in the modern era of economic interdependence, business in a country is bound to be affected by conditions in the world as a whole. What is of importance is that businessman should be able to analyse the causes and effects of such forces on his business. For this purpose, the various laws of economics should prove very useful.
However, economics does not furnish a body of set principles or ready-made solutions to various problems which can be applied to a given situation. It only widens and depends on ones understanding of the economic forces. Actual application of the laws will depend on the exigencies of each situation. If the mind is trained in economic logic, finding the solution to various economic problems should not be difficult.
Importance for the Nation:
Economics deals with the laws and principles which govern the functioning of an economy and its various parts. An economy exists because of two basic facts. Firstly, human wants for goods and services are unlimited, and secondly productive resources with which to produce goods and services are scarce.
Therefore, an economy has to decide how to use its scarce resources to obtain the maximum possible satisfaction of the members of the society. It is this basic problem of scarcity which gives rise to many of the economic problems.
The subject-matter of economics has been divided into two parts:
1. Micro-Economics, and
Micro-economics deals with the analysis of small individual units of the economy such as individual consumers, firms, industries and markets. On the other hand, macro-economic concerns itself with the analysis of the economy as a whole and its large aggregates such as total national income, output, employment etc.
The problems of scarcity and choice-making can be solved in many ways by an economy. If it gives the whole charge of the economy to private ownership, we get capitalist economy to public ownership we get mixed economy. Each type of economy development, with the help of economic principles and laws, the national government can make plans for the effective use of various resources for economic growth of the nation and for raising standard of living of the general public.