Unit 1 Economic Laws

Unit – I Topic: IV Economic Laws & their nature Like all other sciences, economics also collects facts and undertakes their systematic study. The fats are analyzed and conclusions drawn. These conclusions establish causal relationship between the concerned facts. These conclusions are called as economic laws. DEFINITION OF LAW: Law means “rule of conduct”. “A law expresses the casual relationship between two sets of phenomenon”. “The term law means nothing more than the general proposition or statement of tendencies, more or less certain, more or less definite.” By Marshall. TYPES:

Statutory Laws

Moral Laws Social Laws

Scientific Laws Procedural Laws

a) Statutory Laws These laws are framed and enforced by the government with the national boundaries. Citizens violating these laws are liable to be punished. b) Social Laws These laws are framed by different societies in order to regulate the social life of their members, for instance, laws relating to marriages, festivals etc. Those violating social laws are liable to be boycotted by the society. c) Moral Laws These laws are framed to regulate the life of a man form the moral point of view. These laws enjoin on the people “what they should do” and “what they should not do”. d) Procedural Laws Under these laws, procedures are laid down to perform different functions smoothly. For example, rules of games, rule of examinations etc. e) Scientific Law These laws establish a relationship between cause and effects. These laws can also be referred to as generalization. These laws state, if such a cause takes place such an effect is likely to follow. ECONOMIC LAW: These are the scientific laws as they establish relationship between economic causes and their effects. For example, Law of Demand states: “when the price of a commodity rises its demand is likely to contract.” It is a scientific law because it seeks relationship between the cause and the effect. 1

DEFINITION OF ECONOMIC LAW: 1. “Economic laws or statements of economic tendencies are those social laws which relate to branches of conduct in which the strength of motives chiefly concerned can be measured by a money price.” By Marshall. The above stated definition has the following components: • Economic Laws are mere statements of economic tendencies. • These laws are concerned with such ends of man as can be measured by money. 2. “Economic laws are statements of uniformities which govern hymen behavior concerning the utilization of limited resources for the attainment of unlimited ends.” By Robbins. NATURE OF ECONOMIC LAW: 1. Economic Laws are Human Laws: They are concerned with human behavior. These laws tell us about the expected behavior of such economic units as consumer, producer, employer, employee, debtor, creditor etc. under given circumstances. 2. Statement of tendencies: Economic Laws express tendencies. They are not exact laws. For example, law of supply states that with fall in price, supply is likely to fall but it does not claim categorically that fall in price must be followed by fall in supply. This law simply refers to the tendencies found in the relationship between price and supply. 3. Generalization: Economic Laws do not explain any particular phenomenon; rather they refer to the general features found in all phenomenons. For example law of demand applies to all the products and not to any single product or category of products. 4. Economic Laws are positive: These laws are positive, they state how men will behave under given circumstances or how they are likely to behave rather than stating how they must behave. 5. Economic Laws are Hypothetical: Hypothetical proposition is the proposition, which becomes valid only if certain conditions are fulfilled. Economic laws are also valid only if certain assumptions hold good. They are hypothetical because they too assume the ceteris paribus clause (i.e. other things being equal) 6. Economic Laws are Abstract: As economic laws do not depict reality fully, they depict only some important variables. These laws study the causal relationship between some important variables and assume other less important variables to be constant.

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7. Economic Laws are relative: They are relative because they are valid only under some given conditions. When these conditions undergo change, there is a change in economic laws as well. 8. Economic Laws are uncertain: Unlike scientific laws these laws express probabilities. In the words of E H Brown, “ Economic laws are inexact because they deal not with a constant, uniform and inert matter but with the changing and thinking human being.” 9. Economic Laws are Axiomatic: There are some economic laws, which do not require any proof to establish their veracity. For example, higher profits are preferred to lower profits. 10. Some Economic Laws are universal: Some economic laws have universal validity. For example, law of diminishing returns and laws of demand and supply are universal laws as they apply everywhere. 11. More exact than the Laws of other Social Science: As compared to the other social sciences, laws of economics are more exact, true and perfect. It is so, because economics have a measuring-rod, in form of money, to measure economic activities of the man. Other social sciences lack such a measure. 12. Economic Laws are qualitative: These laws do not express the phenomenon in quantitative terms, rather they tell about the direction of their change. DIFFERENCE BETWEEN PHYSICAL SCIENCE:

ECONOMIC

LAWS

AND

THE

LAWS

OF

1. Economic Laws are less exact: According to Peterson, “Economic Laws are less exact than the laws of physics and biology.” For instance, there is a law of chemistry explaining that when two parts of hydrogen and one part of oxygen are mixed at a certain pressure and temperature, the result will be water. Economic laws are not so exact. For example, law of demand cannot assert categorically that if price of commodity is doubled its demand must contract by one half. 2. Economic Laws are not so permanent Economic laws change with change in time and conditions. Most economic laws are fickle. In short, we can say that laws of economics are not as exact as that of natural sciences. But it must be accepted that laws of economics are as much scientific as the laws of natural sciences. These laws are more exact than the laws of other social sciences. *****************

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