Definition of Economics

As you start your class in economics, you are getting yourself into a wide field that has been here with us for at least a century. But what is economics, really? So first things first, let us learn the meaning of economics.

Meaning of Economics from Early Economists

There is no best definition for economics, but economists have agreed on standard ways of defining the term after looking at the definitions of dead economists like Alfred Marshall, John Maynard Keynes, Adam Smith, Karl Marx, and Paul Samuelson.

Let has start with Adam Smith’s definition. Smith defined economics as ““an inquiry into the nature and causes of the wealth of nations.”

This definition of economics by Adam Smith has received a lot of criticisms. Some say that Adam’s definition is limited in scope as it deals only with wealth. Others say that Smith unnecessarily laid a lot of emphasis on material wealth rather than the wellbeing of the whole society of beings.

How can we possibly look at the scarcity of resources if we only focus on how nations create wealth? Well, we have to look further towards a simple and best definition of economics that most economists will agree with.

Alfred Marshall gave another peculiar definition of economics. Marshall said that economics is a field of social science which involves the study of wealth and mankind. Simply put, he defined the concept as the study of man in the ordinary business of life.

Modern Definitions of Economics

Paul Samuelson built a modern definition by bringing together ideas from the early economists. His definition brings out the meaning of economics as: “the study of how people and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future among various persons and groups of society.”

What a mouthful definition. Can we get something simpler for a diploma student? Well, first digest what Samuelson says by breaking it down into the following elements:

  • People and society (known as economic agents)
  • Resources (money or otherwise)
  • Scarcity
  • Human wants (Samuelson calls it alternative uses)
  • Products and services
  • Distribution
  • Consumption
  • Time – now and in the future

These are the key aspects that you need to consider when defining economics and other related concepts. Basically, you arrive at a comprehensive definition of economics by weaving these elements together.

The dictionary definition of the term states that economics is the “branch of knowledge concerned with the production, consumption, and transfer of wealth”

Investopedia suggests that “Economics is a social science concerned with the production, distribution, and consumption of goods and services.”

Vancouver Island University defines economics as “Economics is the study of the use of scarce resources to satisfy unlimited human wants.”

Economics as a method of study is the process of trying to solve the economic problem. What is the economic problem? The economic problem is to match limited resources with unlimited wants and needs.

Therefore, economics is simply the study of how people allocate scarce resources to production, distribution, and consumption, both individually and collectively with an aim of satisfying the unlimited human wants.

This definition is clearly illustrated by the figure below:

Definition of Economics

So, when defining economics don’t forget to mention the following items: scarce resources, production, consumption, unlimited human wants, and individuals/groups.

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