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Micro Economics

Notes

Did u know? One of the earliest and most famous defi nitions of Economics was that of
Thomas Carlyle, who in the early 19th century termed it the “dismal science.” Carlyle
believed that population would always grow faster than food and due to this, people
will have to face severe poverty and hardship. Carlyle argued that slavery was actually
morally superior to the market forces of supply and demand promoted by economists,
since, in his view, the freeing up of the labor market by the liberation of slaves had actually
led to a moral and economic decline in the lives of the former slaves themselves.
Another early definition, one which is perhaps more useful, is that of English economist

W. Stanley Jevons who, in the late 19th century, wrote that economics was “the mechanics of
utility and self interest.” One can think of economics as the social science that explores the results
of people acting on the basis of self-interest. Psychology, Sociology, Anthropology, and Political
Science – attempt to tell us about those other dimensions of man. The assumption of self-interest,
that a person tries to do the best for himself with what he has, underlies virtually all of economic
theory.
At the turn of the century, Alfred Marshall’s Principles of Economics was the most infl uential

textbook in Economics. Marshall defined 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 wellbeing. Thus it
is on one side a study of wealth; and on the other, and more important side, a part of the study
of man.”

Many other books of the period included in their definitions something about the “study
of exchange and production.” Definitions of this sort emphasize that the topics with which

economics is most closely identified concern those processes involved in meeting man’s material

needs. Economists today do not use these definitions because the boundaries of economics have
expanded since Marshall. Economists do more than study exchange and production, though
exchange remains at the heart of economics.
Most contemporary definitions of economics involve the notions of choice and scarcity. Perhaps

the earliest of these is by Lionell Robbins in 1935: “Economics is a science which studies human
behavior as a relationship between ends and scarce means which have alternative uses.”

Virtually all textbooks have definitions that are derived from this definition. Though the exact

wording differs from author to author, the standard definition is something like this: “Economics
is the social science that examines how people choose to use limited or scarce resources in
attempting to satisfy their unlimited wants.”
The above definition has the following characteristics:

1. Economics is Social Science: A social science is a systematic body of knowledge that
seeks solutions to the problems of the society, in general. Economics also does this. So it is
considered a social science.
2. Economics examines how people choose to use scare resources: We all know that the
resources on this earth are not in abundance. In simpler words, they are only limited. They
will get over after some time. So, people have to use them very carefully.

3. Human wants are unlimited: one want gets satisfied, another one comes up. There is no
limit to our wants.

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