1. Economics is a science of choice

Economics tells us how a man makes use of his scarce means having alternative uses for the satisfaction of his unlimited ends on the basis of his scale of preference. It is concerned with economising. To overcome scarcity choice has to be made for rational adjustment between unlimited ends & limited means. Since this involves choice making economics is also called a science of choice.

2. Economics is analytical in nature

Economics is analytical in nature-& not classificatory (as indicated by the previous definitions).It does not deal with vague concepts like welfare-material & non-material.

It is based on factual data which is ascertainable.

It deals with all human activities & emphasis a particular aspect of human behaviour arising out of multiplicity of ends & scarcity of means, that gives rise to an eco problem. It is both analytical & scientific.

3. It is a universal definition

It is a universal definition as scarcity of means is found everywhere in the world be it rich or poor country, planned or unplanned, developed or developing, capitalist or communist etc.

4. According to him economics is a pure and a positive science.

It describes how people behave while using their limited means to satisfy their unlimited ends. It does not mention how people should behave. i.e. a light-bearing science not a fruit bearing science.

It makes economics a science neutral between ends, a , morally colourless science.

It implies economics is a science not an art ie a theoretical not a practical science.

According to him the purpose of economics is to explain and explore and not to advocate and condemn.

5. It is a challenge to scarcity-

It is a challenge to scarcity i.e. economics is a study of disposal of scarce means, it is essentially a science dealing with scarcity & states that economising is a way to overcome scarcity & make life happier.

6. It has widened the scope of economics

It has widened the scope of economics as it includes all economic activities.


Whether a person is a consumer a producer or an economic administrator, in his economic life he is constantly faced with one economic problem or the other, which he has to solve. The community as a whole too, constantly faces economic problems.

Economic problem therefore relates to the choice of economic decisions which have to be taken almost daily. To choose or not to choose or whether to choose from the competing ends or from various alternative methods of production is the real problem.

Making decisions regarding the ends it be pursued & means to be used for their satisfaction & further more important is that the ends have to be achieved with maximum efficiency or with little or no waste i.e. economic problem is how to achieve maximum satisfaction from the limited resources at our disposal.

As Stigler states “economics is the study of the principles governing the allocation of scarce means among competing ends when the objective of allocation is to maximise the attainment of ends”


According to Robbins, all four conditions have to be present for an economic problem to arise. viz.

a) multiplicity of ends

b) Scarcity of means;

c) gradability of ends &

d) alternative uses of means;

Economic problem would not arise if any one or more than one of the above four factors is absent. Eg ends being limited or of equal importance or means being unlimited or having specific uses.

Therefore according to Prof Lionel Robbins, “multiplicity of ends alone or scarcity of means alone cannot create an economic problem, nor merely the alternative applicability of scarce means. But when time & means for achieving ends are limited & capable of alternative application & the ends are capable of being distinguished in the order of importance, then behaviour necessarily assumes the form of choice i.e. it has an economic aspect.”


1. Economic problem arises due to imbalance between unlimited ends & limited means .It is therefore a question of a rational adjustment between the two. (eg. if ends were limited or means had specific uses — no eco problem.) Therefore scarcity is the root cause of the economic problem.

2. Economic problem is a problem of economising (because of scarcity.) i.e. satisfying maximum ends in with the given limited means. Therefore it is concerned with optimum allocation of resources.

3. Economic problem is a problem of choice.

(a)Rational choice

(i) between unlimited ends i.e. on the basis of the scale of preference;

(ii) between present & future wants & resources; on the basis of the mini-max principle i.e. economising the use of resources & optimum allocation of resources.

(b) Economic choice

It is concerned with economic choices only. Choice between two attractive boys for one’s own daughter’s marriage; between two candidates contesting election; between a black Fiat & a white Fiat are non-economic choices & therefore not included in economic.

Choice between a film-show or a meal out of the given limited income; An electric or a steam engine by railways etc. is an economic choice because it involves consideration of costs & availability of means. This, however differs from person to person & country to country.

4. Economic problem does not have an ethical significance.

It relates to adjustments between satisfaction of ends by scarce means, it is not concerned with the moral aspect eg. production of alcohol has no social justification on moral grounds but it is an economic problem, because choice is made & resources are allocated for its production.(it may be right or wrong; good or bad–ethical problem.)Similarly what, how, how much to produce etc are economic problems.

5.Economic problem is different from technical problem.


Economic activities of an individual, is nothing but an effort to solve his economic problem.

1. Scale of preference

The important characteristics of human wants provides the first solution i.e. “wants are unlimited but ALL WANTS ARE NOT OF EQUAL IMPORTANCE OR OF EQUAL URGENCY” & therefore wants can be satisfied on the basis of the scale of preference.

Practically every person & every country solves their economic problem in the same manner ie on the basis of a scale of preference and therefore the concept of scale of preference is universal in nature.

The scale of preference however differs from person to person & nation to nation and time to time therefore the scale of preference itself is subjective

2.Mini-Max principle

Scarce resources HAVE ALTERNATIVE USES & therefore should be put to the most economical use i.e. optimum/efficient/best utilisation & minimum

As a producer-maximum profits in minimum costs

As a consumer-satisfaction profits in minimum income

As a government-maximum welfare in minimum expenditure

One has to select the right resource for satisfying a particular end & therefore the mini-max principle should be applied. Here the displacement cost should be minimum.

In the long-run it is also necessary make an effort to increase the availability of resources.

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