AIOU 402 Economics Assignment Autumn 2018 (Question1)

Q1. Discuss the scope and nature of economics. Also define economics in the light of thoughts presented by professor Robins.


Economics is that the scientific study of the possession, use, and exchange of scarce resources - usually shortened to the science of scarceness. political economy is considered a scientific discipline as a result of it uses scientific ways to make theories that may facilitate make a case for the behaviour of people, teams and organisations. political economy tries to clarify economic behaviour, that arises once scarce resources area unit changed.

In terms of methodology, economists, like alternative social scientists, aren't ready to undertake controlled experiments within the approach that chemists and biologists area unit. Hence, economists need to use totally different ways, primarily based totally on observation and deduction and also the construction of abstract models.

As the social sciences have evolved over the last a hundred years, they need become more and more specialized. this can be true for political economy, as witnessed by the event of the many totally different strands of investigation as well as small and macro political economy, pure and applied political economy, and industrial and money political economy. What links all of them is that the decide to perceive however and why exchange takes place, and the way exchange creates advantages and prices for the participants.

The study of economics

The study of economy involves 3 connected investigations.

Why scarce resources area unit exchanged?

How customers and producers behave as they move with one another in markets, in their decide to come through mutualist exchange?

The role of state in compensating for the constraints of markets in achieving mutualist exchange?

The ways utilized by economists

Economists use scientific observation and deduction in their investigations. to attain this they:

Describe and live the exchanges they observe

Economists describe changes in economic variables, and live these changes over time. as an example, economists describe and live however interaction in markets determines the costs of such various product as motor cars, houses, haircuts, and pc software package. activity in political economy will take several forms, as well as measurement absolute and relative quantities and values. once measurement relative values it's common to use index numbers.

Explain however interactions arise and build prices and advantages

Economists try and make a case for the consequences, or results, of economic transactions. as an example, economists will make a case for why, despite bubbles and crashes,  the long trend in house costs within the kingdom has been upwards over the last thirty years, and might establish people who are affected absolutely and negatively by this increase. Of course, economists additionally try and make a case for the short movements in costs, and the way they even have prices and advantages.

Propose hypotheses, construct, and apply ‘models’ to check these hypotheses.

Like all scientists, economists develop hypotheses to clarify why economic behaviour takes place, and so construct models to check these hypotheses. as an example, economists might propose that value rises area unit caused by excess demand, and so decide to construct a model of value that explains however excess demand will raise value. Economists oft use versions of the demand and provide model to assist make a case for events like house value trends and movements. Economic models typically use graphical and mathematical analysis to assist make a case for and illustrate such economic processes.

Gather knowledge to place into the model

Models should be tested against the $64000 world, which implies gathering applied math knowledge concerning real events. during this approach, a model are often improved and revised once necessary.

Predict behaviour supported these models.

The ultimate goal of the social scientist is to predict future behaviour. as an example, by employing a demand and provide model and by inputting real knowledge concerning the housing market, economists will show that even atiny low fall in bank disposal will trigger behaviour that results in a major fall in house costs within the short run. the final word price of associate degree economic model is that it will accurately predict the onset and also the impact of associate degree economic event. the higher the model is, the a lot of helpful it's in serving to economists create predictions.

Economists assume that economic events and phenomena don't occur haphazardly, however area unit determined by underlying and perceivable causes. not like the pure man of science, economists cannot undertake controlled experiments, so that they should check their models in numerous ways that. applied math analysis of actual economic knowledge will offer a flow of knowledge from that to make models and check hypotheses. as an example, by gathering knowledge concerning changes in house costs it's potential to deduce factors that cause house costs to travel up or down, and by what proportion. Economists use index numbers to assist create comparisons between countries and over time.

Correlation analysis will facilitate confirm the strength of specific causative relationships so sturdy and weak relationships are often known. as an example, it'd be potential to demonstrate that, of all the factors that have contributed to falling house costs, the reduced handiness of credit is that the single biggest issue.

The role of the skilled social scientist

Professional economists apply their skills of description, analysis, model building, and prediction to get data and, from this, offer recommendation to personal companies, to governments and alternative organisations.

Providing data

The first operate of the social scientist is to supply data, referred to as economic intelligence, from that selections are often created. For companies to survive and succeed, they have to require many choices, however every call carries with it a risk. The skilled social scientist will facilitate cut back such risks by gathering and analysing economic intelligence. This economic intelligence is merely helpful once it are often place into associate degree economic model, and so applied to the selections that require to be taken.

The second operate of the skilled social scientist is to interpret the information that has been gathered and supply enlightened recommendation to companies, organisations, and governments concerning the possible prices and advantages of the selections they create.

The evolving role of the economic expert

Over time the role of the skilled economic expert has broadened. In recent years a lot of interest has been shown within the interconnections between political economy and science, and there has been a substantial increase within the quality of activity political economy. this is often each in terms of the amount of Universities giving courses in activity political economy, and in terms of however public policy manufacturers have turned to the present branch of political economy, particularly within the wake of the money crisis. whereas it's its critics, activity political economy has captured the imagination of a replacement breed of economists searching for Associate in Nursingswers in an more and more unsure and unpredictable world, and to what typically seem to be the failings of some ancient 'micro' theory. In terms of 'macro' theory, events will challenge existing assumptions and cause a demand to switch existing models, or utterly replace them. for instance, the money crash of a twenty years past light-emitting diode to a radical re-thinking of the character of economic risk, and to the institution of higher ways in which to grasp why banking systems will fail, still as develop simpler ways in which to manage them. Similarly, the emergence of cryptocurrencies, like Bitcoin, have forced economists to appraise the character of cash in an exceedingly globalised world. commerce relationships between countries, and theories to elucidate them, have conjointly been anaesthetize the spotlight as a results of Brexit.

Economics within the lightweight of thoughts given by academician Robins

Lionel Jerome Robbins was a peculiar English person within the political economy world of the Twenties. His tools were the London college of political economy and a renowned 1932 essay on economic methodology. it absolutely was his 1932 Essay on the character and Significance of political economy wherever Jerome Robbins created his Continental credentials clear. He redefines the scope of political economy to be “the science that studies human behavior as a relationship between scarce suggests that that have different uses.”

Some other economists like Scitovosky, Harvey, Stonier and Hague conjointly offers scarceness definition of political economy. They imply some criticism within the welfare definition that’s why they offer there scarceness definition. In alternative words they assert,

“Economics is that the study of these principles on that the resources of a community ought to be therefore regulated and administered on secure communal ends while not waste.”

 options of scarceness Definition

The “following are the options of the scarceness definition:

   Wants are Unlimited. Human needs ar unlimited. In political economy we have a tendency to study the needs of human that are associated with the products and services. those a specific wish is glad another is made. so the person ne'er glad all his needs.

   Limited Resources. The resources, that ar glad human needs, ar scare suggests that restricted in quantity. a person needs to decide that wish needs to satisfy and that needs to leave. needs ar larger than resources.

  Resources have different Uses. this is often the third vital drawback of Associate in Nursing economy that the resources are having different uses. for instance milk is employed to create variety of product like curd, tea, butter, and cheese etc. if additional is employed to tea then less quantity is on the market for alternative things.

  Wants amendment with Time. this implies that the needs of a person is modified with time and that they are stay same. like wish disagree in urgency. oldsters wish food, house and every one the facilities to his kid however if the kid sick, the wish is modified to medical facility.

  Opportunity value. we have a tendency to cannot fulfil our needs at the same time. If we have a tendency to complete our one wish we've got left another. for instance, if one have Rs- five however he wish 2 factors pen and food then he pay it on one thing and left another.


The following are the deserves of the scarceness definition:

1. political economy is Positive Science. per this definition political economy could be a positive science. This deals with the economic activities. it's not told regarding the welfare.

2. justify Economic drawback .This definition have additional reasons to elucidate the economic drawback. The political economy issues ar thanks to the restricted resources, unlimited needs and different uses of the on the market resources. This definition explains additional clearly regarding the economic drawback.

3. Study Human Behaviour. This definition is study human behaviour and conjointly regarding the social man. political economy study the all activities of man within the society. political economy study the behaviour of each the individual and social.

4. Universal. This definition thinks about with the universe. It connected with needs and scare suggests that of the person within the universe.

Criticisms of scarceness Definition

Following ar the most criticisms of the scarceness definition:

1. political economy isn't solely a price theory. per this definition given by Jerome Robbins, political economy has been involved to the speculation useful however the scope of political economy is incredibly huge. It conjointly includes the study of value and employment conjointly.

2. Not use social aspects of economic activities. This definition is wrong once it holds that the activities of these United Nations agency live outside the society conjointly from the a part of political economy.

3. Not conform the construct of wealth. This definition doesn't use the construct of wealth. it's solely involved therewith to allocation of resources in such a way by that we have a tendency to get most satisfaction. Not tell regarding the products, that ar needed to satisfy our needs.

4. political economy isn't solely a positive science. per this definition political economy is simply a positive science that deals with satisfactions of our needs. Bu} political economy is additionally a normative science.

5. political economy isn't solely small analysis. per this definition political economy thinks about with the satisfaction of individual unlimited needs with scare resources.

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