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Introduction to Economics, Positive and Normative Economics


The basic objective of this chapter is to get an overview of what economics is all about. The flow of this chapter is as follows:

  • We and Economics- The Introduction
  • Need to Study Economics
  • Positive Economics and Normative Economics
  • Subject Matter of Economics
  • Difference between Microeconomics and Macroeconomics

We and Economics-The Introduction

Think of our day to day activities. We all go to a market to buy various products, where we interact with the sellers who sell us the products. Have you ever thought of what goes in the mind of a purchaser when he/she is purchasing something? Yes, some of the important points are price of the product, usefulness of the product, worth for money, his/her preferences, etc. 

Similarly, let us think about the behaviour of a seller. What a seller thinks while making his/her selling decisions? What and how much should he/she sell? What should be the selling price? Where to sell? How many sellers exist in the market? How useful is his product for the consumers? etc.

We can conclude that in both the above examples, we are concerned about the human behaviour. That is, how human beings as individuals or as a group behave under different situations, having different motives and resources. Thus, broadly, we can say that economics is a study of human behaviour.

Definition of Economics

Economics is a branch of social science which primarily focuses on various ways of maximising satisfaction, enhancing welfare both at individual and society level. It also provides us the framework to take various decisions rationally and logically in the face of unlimited wants and limited endowment of resources.

In the words of Robbins

"Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses."

In the words of Samuelson

" Economics is the study of how men and society choose, with or without use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities overtime and distribute them for consumption now and in future among various people and groups of society." 

Need For Economics (Scarcity of Resources and Unlimited Wants)


A unique feature of human behaviour is never-ending or unlimited wants. The fulfilment of these wants needs resources (such as, money, natural resources, etc.). However; these resources are always scarce in relation to the unlimited human wants. For example, with Rs 40,000, a consumer can either purchase a T.V or a Laptop. Thus, he/she faces the constraint of limited availability of money. Similarly, a producer faces the limited availability of resources for making his/her production decisions. Hence, the basic concern of economics is to allocate the scarce resources to the best possible use in the face of unlimited wants.

The need of economics stems from the basic problem of scarcity and choice. Every society is endowed with limited resources that can be used to enhance the welfare and development of a society as a whole. Economics is about how an individual or a particular society makes these decisions regarding choices. It provides us with a basic framework which assists a particular society to make decisions by assessing costs and benefits of a particular decision.

Positive Economics and Normative Economics

Till now, we know that the basic economic problem exists because of the problem of scarcity of resources and parallelly unlimited wants. There may be different alternative solutions to solve a particular economic problem. These different alternatives may lead to different allocation mix of available resources and also lead to different distribution pattern of final output. Whenever, we try to understand and solve an economic problem such as poverty, unemployment, etc, we often com...

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