With the passage of time, the definitions put forward by the above classical economists have partially lost their appeal because the scope and boundaries of economics have largely expanded since the time they represented.
A contemporary definition of economics was given by Robbins. In his words, “economics is a science which studies human behaviour as a relationship’ between ends and scarce means which have alternative uses”. Undoubtedly, Robbins’ definition has broadened the scope of economics but it has failed to stress the importance of objective function in allocating scarce resources.
Stigler bridged this gap by defining economics as, “the study of principles governing the allocation of scarce means among competing ends when the objective of allocation is to maximize the attainment of the ends.”
In economics, not only the benefits of an action, but also the costs of that action are to be considered in order to derive the net benefit out of’ it. From this point of view, Stigler’s definition can be criticised, since it has not explicitly mentioned the cost aspect. Professor Samuelson, however, has incorporated this aspect while defining economics.
According to Samuelson, “economics is the study of how man 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 people and groups in the society. It analyses the costs and benefits of improving patterns of scarce allocation.”
Generally, economics is divided into two broad categories – micro economics and macroeconomics. Microeconomics is a study of business units as an individual entity like a consumer or a firm.
On the other hand, macroeconomics, analyses the economy as a whole and examines behaviour of various parameters like price level, money supply, tax policy of the government, interest rate etc. each of which, either in isolation or in a combined effect with other parameters determine performance of an economy.