B.A. LL.B. (Five Years) Sem 1 Principles of Economics 2025 Feb (100 marks) Question Paper with Solutions

Every person faces this problem daily. A student must decide how to divide a limited allowance between books, food and travel. A farmer must decide which crop to grow on limited land. A government must decide how to divide its budget between schools, hospitals and defence. Economics studies all such choices.

2. The basic economic problem

The economic problem arises from two facts.

1. Human wants are unlimited. When one want is satisfied, another arises.
2. Resources are scarce. Land, labour, capital and time are limited, and each can be used in more than one way.

So every society must answer certain central questions:

1. What to produce, and in what quantity.
2. How to produce, with which techniques.
3. For whom to produce, that is, how to share the output.
4. How to employ resources fully and achieve growth.

3. Why there are several definitions

Economists have defined their subject in different ways at different times, depending on what they thought was most important.

Smith described the aims of political economy in this way. Political economy, he wrote, "proposes two distinct objects; first, to provide a plentiful revenue or subsistence for the people", and "secondly, to supply the state or commonwealth with a revenue sufficient for the public services". In short, "It proposes to enrich both the people and the sovereign."

The classical economists who followed him kept this view. John Stuart Mill opened his Principles of Political Economy (1848) with the words: "Writers on Political Economy profess to teach, or to investigate, the nature of Wealth, and the laws of its production and distribution."

So the wealth definition can be put simply: economics is the science that studies wealth, its production, exchange, distribution and consumption.

5. Two great ideas from Smith

The division of labour. Smith described a small pin factory where ten men, dividing the work into about eighteen operations, could make "upwards of forty-eight thousand pins in a day". Working alone, he said, each "certainly could not ... have made twenty, perhaps not one pin in a day". Specialisation multiplies output, and this was a key cause of the wealth of nations.

3. It produced lasting ideas, including the division of labour and the working of markets.
4. Its subject matter is measurable, giving the young science something concrete to study.

8. Criticism of the wealth definition

1. It gives wealth more importance than man. Wealth is treated as the goal and man as the means. In truth wealth matters only because it serves human life.

2. It made economics unpopular. Thomas Carlyle called economics "the dismal science" in 1849. John Ruskin answered the wealth view with the line "There is no wealth but life" in Unto This Last (1860). To them it was a selfish science of getting rich.

3. The meaning of wealth is too narrow. Only material goods were counted, so services were left out. On this view, a doctor, teacher or lawyer produces nothing, which is clearly wrong.

4. Economic man is unrealistic. People are moved by love, duty, religion, patriotism and charity, not only by self-interest.

11. Why the wealth view still matters to a law student

The creation of wealth depends heavily on law. Exchange needs contracts that courts will enforce. Investment needs secure property rights. The division of labour needs markets that are open and honest. Smith's question, what makes a nation rich, therefore leads straight to legal institutions. When a lawyer studies contract, property, company or competition law, he is studying the rules that let wealth be produced and exchanged. The wealth definition was too narrow as a definition of economics, but the question it asked remains one of the most important in public life.

Conclusion. Economics is the social science that studies how scarce resources are used to satisfy unlimited wants. It answers the questions of what, how and for whom to produce. Its first definition, the wealth definition of Adam Smith and the classical economists, called it the science of wealth. That definition gave economics its start and lasting ideas such as the division of labour and the invisible hand. But it placed wealth above man, counted only material goods, assumed a selfish economic man and ignored scarcity. It was therefore replaced by Marshall's welfare definition, though it remains the foundation on which later definitions were built.