Q.1a. Critically explain the welfare definition of Economics.

ANS- Welfare definition is also called as Neo-Classical definition of economics. Alfred Marshall gave this definition in his book called Principles of Economics which was published in 1890.

Alfred Marshall defined Economics as the study of mankind in the ordinary business of life. The definition is not concerned with wealth but with the acquisition of wealth and usage of wealth by man. Marshall gave primary importance to man and his welfare and secondary importance to wealth. Hence Economics according to Alfred Marshall is study of man one side and study of wealth on the other side.

The other economists who supported the welfare definition were Prof. Edwin Cannon, Prof. Pigou, Prof Ely, Penson etc.

FEATURES OF WELFARE DEFINITION

1. Study of Mankind: Welfare Definition believes Economics as a social science, a science which considers man not in isolation but as a member of the society, engage in different economic activities. Hence Economics is the study of economic activities of man which are concerned with the material welfare of man.

2. Ordinary business of life: According to welfare definition economics studies economic activities of an ordinary man. An ordinary man works to earn and to spend his earnings to get the satisfaction from his earnings.

3. Study of individual and social actions: Economics studies man as a member of a social group and social activities of man which are concerned with material welfare.

4. Material welfare: Welfare definition treats economics as a subject which studies the welfare of man on the ground of material type. It excludes non material activities such as political, social, and religious, the other services like the services of doctors, lawyers, teachers, actors, singers, etc.

CRITICISM OF WELFARE DEFINITION

1.Limited Scope for Economics: Marshall’s definition has limited the scope of economics by including only materialistic things. It does not include non-material things like the services of doctors, teachers etc.  Which are also provide welfare to man. According to Robbins ends refers to wants which is unlimited in nature. Wants are endless and monotonous [Repetitive] in nature. Satisfactions of all wants are not possible, but they have priority in satisfying them.

2. Absence of clear concept of welfare: Marshall’s definition has too much concentrated on the goal of welfare. The concept is subjective and uncertain because welfare differs from man to man, from time to time and place to place.

3. Lacks Universal Application: Welfare definition covers the activities of those who live in society but what about those who lives outside the society. Economic problem arise even for the people who lives outside of society. So this definition lacks universal application.

4.Quantitative measurement of welfare is not possible: Welfare cannot be measured as it depends on the feeling of persons. For E.g. No two people get the same satisfaction with the quantity purchased by spending equal amount of money. A poor man can get more satisfaction than a rich man.

Conclusion.

It is true that the welfare definition of Marshall lost much of its importance after Scarcity definition of Robbins, but it thrown light on several important aspects like Economics as a social science, as a study of man in relation to wealth and Economics is considered as a science as well as an art. The welfare definition has clearly brought out these points.

Q.1b. What is Capitalism? Explain the merits and demerits of Capitalism.

ANS-The free enterprise system is called also as capitalism. It is a system of economic organization featured by the private ownership and the used for private profit of man-made and natural made capital. Capitalism is a system of production for profit under which instruments and material of production is you privately owned and the work is done mainly by hired labor that subsistence security and freedom seem dependent on the will of the owners. Who control the organization of factors of production the product belonging to the capitalist owner or owners? The merits and demerits of capitalism is purely based on the type of private sector.

Merits of capitalism:

•  Automatic working: Capitalism functions automatically through the price mechanism and market forces of demand and supply. Adam Smith says that and invisible hand will adjust the imbalance if any arise.
• Incentive to hard work: The entrepreneur and workers are to work hard and work more efficiently to earn higher profit and wages.
• Higher rate of capital formulation: People save a part of the income so that it can be invested to earn more income and leave larger property for the hires.
• Economic development and prosperity: There is tremendous increase in the productive power and production of all types of goods.
•  Optimum utilization of resources: The limited resources of the community are put to the most economical uses in order to make maximum profit.
• Reward to the risk: The richest reward that is profit under capitalism goes to the about, the most daring as well as the most prudent entrepreneur.
• Goods for lower prices: In capitalism production is taken on large scale and the goods are produced at lower cost and this leads to the availability of goods for lower price
• Rising standard of living: With industrialization incomes of workers are increase along with the increase of their productivity
• Individual freedom: People enjoy freedom as customers, and are free to spend their income as the like and sell their produce where they are please to sell.
• Maximization of welfare: Every individual achieves maximum satisfaction under free enterprise and if all people are equilibrium, the social welfare will at maximum.

Demerits of capitalism:

• Economic crisis: It is characterized by regular booms and depression of trade cycle. The fluctuation of trade cycle result from maladjustment in the market forces of demand and supply.
• Inequalities of income and wealth: Private ownership of factors of production automatically results in inequalities of income and wealth.
• In efficiency and wastage: competition leads to wastage. Colossal expenditure is incurred on advertisement and salesmanship to defeated rival.
• Unemployment: With the mechanization of production the workers are thrown out of employment temporary and it increases the army of unemployed.
• Class conflict: The interest of workers and owners’ conflict with each other and leads to class conflict of strikes and lock outs.
• Concentration of economic power: With the increase of unearned incomes of owner, it leads to more investment by the same person and they will become monopolist by destroying their rivals so that take can reach supreme in their line of production
• Exploitation of labor: They buy labor by paying minimum wages and labor is thus thrown to exploitation.
• Disregard for human welfare: For the sake of high profit they produce harmful products which are harmful to the health.
• International rivalry and conflict: For world market countries like UK and Germany waged to world wars.
•  Malpractices: To occupy markets the producer pay handsome amount to politicians and officials. They dump the market to avoid competition; they evade taxes to maximize the profits.

Q.2 SHORT NOTES:

a. Concept of Demand:

The term demand is different from desire, want; wish etc. In economics the concept demand has different meaning. Any want or desire will not constitute demand. Demand refers to the total or a given quantity of a commodity that are purchased by a consumer in the market at a particular price at a particular time. The other aspects of demand are as follows. Demand is always at price, It should be always expressed in terms of specific quantity, It always created in the market and It is relative to a person, place and time. Demand is desire to buy plus willingness to pay plus ability to pay. The determinants of demand are as follows.

Determinants or factors of demand:

Demand for a commodity or service is determined by number of factors all such factors are called as demand determinants

1. Price of the given commodity: Price of the commodity which is based on cost of production determine the quantity to be purchased by the consumer generally higher the price lower would be the demand and vice versa.
2. Quality of the product: Super quality goods normally command higher price and generally it is demanded by particular segment of the society. ordinary goods are usually cheaper and are demanded by common people.
3. Improvement in educational standards: Demand for goods like TV sets, music computers and other such electronic goods will go up with higher education standards.
4. Inventions and innovations: Development of new product will affect the demand for old product.
5. Technology changes and its impact on production: Technology improvement minimize cost of production and maximum output, hence a firm can sell at a lower price.
6. Profit margin: Higher profit margin leads to higher price and lower demand and vice versa.
7. Price of substitute or complements: Most of the commodities have either substitute or compliment. When price of these articles rise, the demand for a given commodity increases. This is because now the commodity has become cheaper in terms of its related goods.
8. General Price level: There will be greater demand for goods and services in case of lower price level and high price level.
9. Future trend in price: When people anticipate future rise in price, the current demand would go up on the contrary people buy less if they expect future fall in price.
10. Size and growth of population and its composition: A large population with the higher rate of growth creates greater demand for goods and services, the age structure and sex ratio and composition of the population determines also the nature and types of goods and services demanded in a society.
11. Consumers taste and preference etc.: A change in taste, customs and habits traditions and styles of people fashions of the day etc. Profoundly affect and alter the demand for goods and services in any society.
12. Weather and climatic condition: There will be greater demand for goods like ice cream, cold drink etc. during summer and large demand for hot drink like coffee, tea and milk etc. during winter.
13. Conditions of trade economy: Condition existing in a particular period of time affects the demand for goods during the period of prosperity more goods are demanded where as lower quantities purchase during the recession and depression.
14. Level of saving and pattern of expenditure and taxation: Higher saving would reduce current demand vice versa. The taxation policy of country can either curb consumption or stimulates the level of consumption in an economy.
15. Supply of money in circulation: Larger supply of money in circulation higher would be the demand for goods and vice versa.

b. Socialism:

Socialism is also called as planned economic system. It is an economic organization of society in which the material means of production or own by the whole community and operated by organs representative of and responsible to the community. According to a general economic plan all member of the community being entitle to benefits, from the result of such socialized planned production on the basis of equal rights. The merits and demerits of socialism explains the nature of socialism promptly.

Features of socialism:

•  Socialism is an alternative system of capitalism in socialism, there is social ownership of means of production and no private enterprise.
•  There is central authority with adequate powers to determine the objectives and co-ordinate societies efforts to attain those objectives.
• Social is economist necessarily a centrally planned economy.
• Equitable distribution of income is an essential feature of socialism
• Socialism is distinguished by social welfare and social security
• Equal opportunities are provided to all.
• The socialism aims to establish classless society where the distinction between the rich and the poor has completely disappeared.
• The other features are.
• Public Ownership: Socialism emphasizes the ownership of key industries, resources, and means of production by the state or the community.
• Central Planning: Economic planning by the state is a characteristic feature. Central authorities may determine production targets, resource allocation, and distribution of goods and services.
• Social Welfare: Socialism often seeks to ensure a more equitable distribution of wealth and resources, with a focus on providing essential services like healthcare, education, and social security.
• Reduced Economic Inequality: The goal is to reduce economic inequality by minimizing the disparities in income and wealth between different segments of society.
• Collective Decision-Making: Socialism often promotes collective decision-making processes, involving workers, communities, or the state in major economic and social decisions.
• Equal distribution of income: in a socialist type of economic system there will be equal distribution of national income.

Merits of socialism:

•  Social Justice: The goal of socialism is social justice under socialism the inequalities of income are reducing to the minimum and the national income is equitably distributed.
• Economic use of resources: The production resources of the nation are more economically and optimally allocating among the various productive uses.
• Full employment: Under socialism social ownership of factors of production an adoption of central economic planning enables the main importance of full employment.
• Economics stability: Socialism ensures economic stability by eliminating trade cycles through the control of state on production.
• Stability of price: The prices are fixed by the authority but not by the demand and supply forces as per market mechanism and hence prices remains stable
• Production of goods according to social priorities: Goods are produced according to social priority and not on the basis of maximization of private personal profit.
• No exploitation: In socialism there is no class of employers exploiting workers. Under social ownership, workers are in a sense of co-owners of the factories and firms where they’re working.

BEST OF LUCK

• Author
• Recent Posts

Haseena Banu

Haseena Bano is the Editor at Ecolaw.in, a dedicated platform providing comprehensive resources for BA LLB Economics courses. She also serves as a Professor of Economics at Al-Ameen College of Law, where she brings her academic expertise and passion for teaching to shape the next generation of legal professionals. With a deep understanding of both economics and law, she plays a pivotal role in bridging theoretical concepts with real-world applications.

Latest posts by Haseena Banu (see all)

• explain the measures taken by the govt towards small scale industries. - September 18, 2026
• Explain the cash balance theory of money. - July 7, 2026
• MAJOR-ECONOMICS-2 MONEY BANKING AND INTERNATIONAL TRADE. - July 6, 2026