Economics chapter 1:Basic concept of economics and allocation of resources

 

Chapter-1

Basic concept of economics and allocation of resources

Origin of Economics

The word Economics comes from the Greek word "Oeconomicus", which means the management of household.

So originally, economics meant "household management." Over time, it developed into a full subject that studies how people, businesses, and governments make decisions about using limited resources to fulfill unlimited wants.

 

 Development of Economics

  1. Classical Economics (18th Century)
    • Adam Smith, known as the Father of Economics, wrote a book "The Wealth of Nations" in 1776.
    • He introduced the idea of the invisible hand, where individual self-interest helps society as a whole.
    • Other classical economists: David Ricardo, Thomas Malthus.
  2. Neoclassical Economics (19th Century)
    • Focused on demand and supply, utility, and marginal analysis.
    • Economists: Alfred Marshall, William Jevons, and Carl Menger.
  3. Modern Economics (20th Century to Present)
    • Lionel Robbins define economics in terms of scarcity and choice
    • Economist: Lionel Robbins ,Jhon Maynard Keynes,
    • Today economics is divided into:
      • Microeconomics (individuals, households, and firms)
      • Macroeconomics (national economy, inflation, growth, etc.)

 

 

 

Conclusion

Economics started as household management in ancient times but has grown into a complex subject. Today, it helps us understand how to make better choices with the limited resources we have, at personal, national, and global levels.

 

Wealth Definition of Economics (Classical definition) : Adam Smith

The Wealth Definition was given by Adam Smith in 1776 in his famous book “An Inquiry into the Nature and Causes of the Wealth of Nations.”

Adam Smith Said: Economics is the study of how a nation produces and increases wealth.
His main focus was on material things like:

  • Land
  • Labor
  • Money
  • Goods

According to him:"Economics is the science of wealth."

 

💡 Features of Wealth Definition of Economics

  1. 🏦 Focus on Wealth
    • The main aim of economics is to produce and increase wealth.
    • Wealth means money, goods, land, and other valuable things.
  2. 👤 Man is for Wealth
    • In this view, human beings exist to create and collect wealth.
    • People are seen as tools to grow the economy.
  3. 🧱 Only Material Goods Included
    • Only things you can touch or sell (like food, clothes, gold) are included.
    • Non-material things (like love, happiness, health) are not included.
  4. 🏰 Nation’s Wealth is the Priority
    • Economics should help the country become richer.
    • Main goal is national income and power, not personal satisfaction.
  5. 📚 Introduced by Adam Smith
    • He gave this definition in his book “The Wealth of Nations” (1776).
    • He is known as the Father of Economics.
  6. 🤝 Emphasis on Production and Trade
    • Focus on how goods are produced, exchanged, and sold.
    • Belief: Free trade and competition help increase wealth.

 

🧾 Summary Table:

Feature

Description

Focus on Wealth

Economics = Study of how to earn and grow wealth

Man is for Wealth

People help create and collect wealth

Material Goods Only

Non-material things are ignored

National Wealth Focus

Country’s economic growth is the goal

Adam Smith's Definition

Given in 1776, in "The Wealth of Nations"

Production & Trade Emphasized

 Main way to increase wealth

 

 

Criticism of Wealth Definition of Economics

📌 Given by: Adam Smith
📖 Book: An Inquiry into the Nature and Causes of the Wealth of Nations (1776)

 

❌ Main Criticisms:

  1. 💰 Too Much Focus on Wealth
    • Only gives importance to money and material goods.
    • Human happiness and welfare are ignored.
  2. 🚫 Non-Material Things Ignored
    • Ignores important things like health, education, peace, and love.
    • Only includes goods we can touch and sell.
  3. 👤 Wrong View on Humans
    • Says "man is for wealth", not "wealth is for man".
    • Treats people like tools to create wealth.
  4. 🙅‍♂️ Selfish Thinking
    • Encourages selfishness and greed.
    • No focus on social good or equality.
  5. 🕳️ Incomplete and Outdated
    • Does not cover modern economic problems like:
      • Unemployment
      • Poverty
      • Inflation
      • Environment

 

✅ Conclusion:

The Wealth Definition was an important beginning, but it is narrow, old, and not suitable for modern economic study.

 

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