Economics is the study of the human behavior in relation to satisfaction of wants and needs using limited resources, and deals with the production, consumption and distribution of wealth.
Definition of economics has gone through various stages broadly classified as under:
- Classical school of thought (1723-1790)
- Neo classical school of thought (1842-1924)
- London school of economics
Classical school of thought (1723-1790):
In 1776, Scotland economist named Adam Smith wrote in his book “Wealth of Nation”, ‘Economics is a social science which deals with production, consumption, distribution and exchange of wealth’.
Production is how four factors of production namely: land, labor, capital, and entrepreneurship are combined to generate wealth.
An amount of wealth consumed to meet our usual needs.
Distribution is how wealth is distributed among the four factors of production.
It is exchange of wealth between two hands or two countries in the form of trade.
Neo-classical school of thought (1842-1924):
In 1890, economist named Alfred Marshall wrote in his book “Principles of economics” that “Economics is a science which studies human behavior which is related with the ordinary business of life. It deals with that part of individual or collective human efforts which is closely related with attainment of material requisites of well-being”
London school of economics:
It was led by economist named Lionel Robbins who defined economics in his book, “An essay on nature and significance of economics science” as “it is a science which studies human behavior as a relationship between multiple ends and scarce means which have alternative uses”. Key words of definition are as under:
Human wants are endless. They occur again and again so humans have to generate sources to fulfill these wants.
A resource is scarce when its available quantity is not enough to meet the demand or its desired use. The resources around us to fulfill our needs are scarce. For example: wheat is produced in billions of tons but it always appears less than its demand; on the other hand rotten eggs are very few in number but they never appear scarce because no one demands them.
Resources can be used in different ways. For example: car can be used as for personal use and can also be used as taxi to earn money.