Economic Principles by Paul.A.Samuelson

Definitions of Economy

• Paul A. Samuelson's (1948) definition: Economy is the study of how people and society choose to employ scarce productive resources to produce various commodities over time and distribute them for consumption now and in the future among various persons and groups of society.

Scarcity

• Scarcity does not mean that only a little of something is available, but rather that the resource is limited and wanted.
• Goods are tangible things that satisfy our wants, while services are intangible things that satisfy our wants.
• Economic assumptions: • Humans have unlimited wants. • Goods and services are scarce. • As a result of unlimited wants, scarcity can't be eliminated, but it can be reduced by making the right choices.

Alfred Marshall's (1890) Definition

• Marshall's definition is known as the Welfare Definition.
• It includes the study of man in the ordinary business of life, examining how a person gets his income and how he invests it.
• Welfare is the social effort to promote the basic physical and material wellbeing of people in need.
• Limitations of this definition: • It ignores the problem of scarce resources with unlimited potential uses. • It analyzes the material aspects of human welfare and ignores non-material aspects. • It does not provide a clear link between the acquisition of wealth and welfare.

Lionel Robbins' (1932) Definition

• Robbins' definition is known as the Scarcity Definition.
• It studies human behavior as a relationship between ends and scarce means with alternative uses.
• Scarcity states that the society has insufficient resources to fulfill all human wants and needs.
• This definition requires the efficient use of resources for optimization.

Maslow's Hierarchy of Needs

• Maslow's hierarchy indicates that individuals must satisfy lower-order needs before they can satisfy higher-order needs.
• Lower-order needs include physiological and safety needs, while higher-order needs include social, esteem, and self-actualization needs.
• Maslow's theory allows us to see different levels of economy in a specific order.

Adam Smith's (1776) Definition

• Smith's definition is known as the Wealth Definition.
• It deals with the production, distribution, and consumption of wealth.
• Wealth is the stock of goods existing at a given time that have a money value.
• Limitations of this definition: • It ignores all non-wealth aspects of human existence. • It over-emphasizes the material aspects of well-being and ignores non-material aspects. • It assumes that human beings act as rational economic agents who mindlessly strive to maximize their own well-being.