4. ECONOMICS -DEFINITIONS Wealth Definition
Adam Smith considered as the father of
Economics, in his MAGNUM OPUS – “An
Inquiry into the Nature and Causes of Wealth
of Nations” published in 1776 defined
economics as a Science of Wealth”.
The central theme of economics was
production and consumption of wealth. The
followers of Adam Smith known as Classical
Economists followed this definition. However,
this elicited much criticism as it make people
greedy and selfish.
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5. II. Welfare Definition:
Alfred Marshall was a great professor of Economics who taught in
Cambridge University and wrote his famous treatise “Principles of
Economics” in 1890.
Marshall defined Economics as a “study of mankind in the ordinary
business of life; it examines that part of individual and social action
which is most closely connected with the attainment and the use of
material requisites of wellbeing”.
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6. III. Scarcity Definition
The main proponent of “scarcity” is Prof.Lionel
Robbins who was a critic of welfare definition.
“The nature and significance of Economic
Science” published in the year 1932 defines
Economics as a ”Science which studies human
behaviour as a relationship between ends and
scares means which have alternate uses”.
IV. Growth Definition
Prof.Paul A. Samuelson, the 1st American to win Nobel prize in
Economics has given the growth oriented definition of economics
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7. Political economy, or Economics is a
study of mankind in the ordinary
business of life; it examines that part of
individual and social action which is
most closely connected with the use of
the material requisite of wellbeing –
Alfed Marshall-Principles Of Economics.
Economics is the study of how societies
use scares resources to produce
valuable commodities and distribute
them among different people- Paul. A.
Samuelson
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8. Twin themes of economics .
SCARCITY&EFFICIENCY.
Economics is a science which
studies human behavior as a
relationship between ENDS
and SCARRCE MEANS which
has alternative uses.
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9. WHY STUDY ECONOMICS
To make money
To get insight into human nature
To pass MBA examination
To develop your life
To enable you to choose a career
To use your limited resources to
your best satisfaction and
advantage
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10. To take a Ph.D
To become economic advisor to PM or
even to become PM like Manmohan Singh
or Chanakya
To initiate a revolution like Karl Marx
To buy low and sell high
To speculate in shares and securities
To bargain in D-market
To make the earth a better place to live
& other infinite reasons
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11. FOCUS AREAS OF ECONOMICS
Analyses how institutions and technology
affect prices and allocation of resources
among different users
Explore behaviour of financial markets,
interest rates and stock prices
Examine distribution of income and how it
can be made more just
Studies the business cycle and examines
how monetary policy can be used to
moderate the swings in unemployment
and inflation
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12. Studies international trade and impact of
trade barriers
Looks at growth in developing countries and
proposes ways to encourage efficient use of
resources
Asks how government policies can be used
to pursue important goals such as rapid
economic growth ,efficient use of resources,
full employment, price stability, and a fair
distribution of income
And many more can be added
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13. SCARCITY ?
The condition in which wants are forever greater
than the available supply of time ,goods &
resources.
Scarcity occurs for economic goods only. It does
not occur for free goods like air, water etc.
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14. WHAT DOES SCARCITY
FORCE US TO DO?
Scarcity force us to make choices ie if A&B are
two products and a person has money only to buy
any one of them either A or B and if he selects B,
then A is the opportunity cost to buy B.
Scarcity leads to choice,and choice to
opportunity cost.
Opportunity cost is the cost you have foregone.
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15. WHAT ARE RESOURCES?
The basic categories of inputs-land ,labour and
capital.
Land-all natural resources supplied by earth
Labour- the mental and physical capacity of
workers to produce goods& sevices.
Capital- the physical plants machinery&
equipment used to produce other goods.
Financial capital- the money used to purchase
capital
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16. WHAT IS ENTREPRENEURSHIP?
Entrepreneur is one who co-ordinates land, labour,
and capital resources.
The creative ability of individuals to seek profits by
combining resources to produce innovative
products.
Entrepreneur organizes resources to produce
goods& services.
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17. WHAT IS ECONOMICS ?
Economics is the study of how societies use scares resources
to produce valuable commodities and distribute them among
different people.
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19. WHAT IS POSITIVE ECONOMICS?
An analysis limited to
statements that are verifiable
i.e. based on facts
It does not give any value
judgement
Objective
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20. WHAT IS NORMATIVE
ECONOMICS?
When judgement comes in
economics it becomes
normative economics ie value
judgement
Say what is good or bad
subjective
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22. EFFICIENCY
Efficiency means that the economy’s resources are being used as
effectively as possible to satisfy people’s needs and desires.This leads
to Produtive Efficiency.
Productive efficiency means that the economy cannot produce more
of one good without producing less of another good.
Productive efficiency means that the economy is on its production
possibility frontier.The economy has to make a “ trade off “ or sacrifice
of one good for another.Q ?
What is PPF?
What is trade off ?
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25. EQUITY
Equity means fairness and justice to all
Markets need not produce fair distribution of income
Inequality in income and consumption will lead to
serious consequences.
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26. GROWTH
Growth means producing and consuming more of
goods and services year after year.
It also should be without the alternate bouts of
inflation, unemployment, recession, depression and
boom .
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27. MARKET & GOVERNMENT
Medieval times the aristocracy and town guildes
directed much of economic activity
Feudalism gradually gave way to “market
mechanism” or “competitive capitalism”
19th
century was the age of laissez-faire- leave us
alone- least government interference
Welfare state in the west- socialist revolution in
Russia, East Europe ,and China from early to close
of 20th
century
By 1990 command economies dismantled and
replaced by market and government intervention
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28. QUESTIONS ?
What exactly is a market economy?
What makes it so powerful?
What is the capital in capitalism?
What government controls are needed to make
markets function effectively?
Why do societies redefine the role of government
and market from time to time?
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29. WHAT IS A MARKET & PRICE
A market is a mechanism through which buyers and
sellers interact to set prices and exchange goods
and services.
What is price?
In a market system everything has a price, which
is the value of the good in terms of money. Prices
represent the terms on which people and firms
voluntarily exchange different commodities.
Prices also serve as signals to producers and
consumers
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30. MARKETS SOLVES THE 3 QS
A market equilibrium represents a balance among all the
different buyers and sellers.
Market solves “what” “how” and for “whom”
What to produce- depends on demand- profit, consumer
preference, shift in consumer habit
How to produce- what kind of products, at what cost, technology,
profit, competition in the market, new technology, new and better
products- again determined by the market
For whom to produce –who demands, who can and will pay. Who
has the purchasing power.
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31. THE INVISIBLE HAND
Every individual endeavors to employ his
capital so that its produce may be of greatest
value. He generally neither intends to promote
the public interest ,nor knows how much he is
promoting it. He intends only his own security,
only his own gain. And he is in this led buy an
invisible hand to promote an end which was no
part of his intention. By pursuing his own interest
he frequently promotes that of society more
effectually than when he really intends to
promote it.
Adam Smith- WEALTH OF NATIONS ( 1776)
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32. THREE DISTINGUISHING
FEATURES OF
ADVANCED CAPITALIST
ECONOMIES
Trade, specialization, & division of labour- gains
from trade
Use of money, -money is the medium of exchange
Use of capital-capital paves the way for indirect
way of production, using produced means of
production or “capital goods”. In a market
economy capital is privately owned. The ability of
individuals to own and profit from capital is what
gives capitalism its name.
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33. ROLE OF GOVERNMENT
Increase efficiency -> by promoting
competition, curbing externalities like
pollution, and providing public goods
Promote equity-> by using tax and
expenditure programs to redistribute
income towards particular groups.
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34. Foster macro economic stability and
growth-> by reducing unemployment
and inflation while encouraging
economic growth, through fiscal policy
and monetary regulation.
Fiscal policy involves governments
power to tax and power to spend
Monetary policy involves
governments power to control
money supply and interest rate.
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35. USING THESE TWIN TOOLS
GOVT. CAN
Influence level of total spending
of output
The level of employment and unemployment
Price level and inflation
Equity and social justice
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37. MICRO ECONOMICS
Microeconomics is the study of particular
firms, particular households, individual
prices, wages, incomes, individual
industries, particular commodities etc.
Microeconomic theory provide the frame
work with in which the economist describes
and analyses the behavior patterns and
interrelationship of the elementary
economic units like consumers, firms,
industries, commodities, and markets.
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38. The main objective of microeconomic
theory is to explain and predict how
production, exchange and distribution
of goods and services responds to the
incentive structure operating in a given
society. It is concerned with,
Theory of demand
Theory of production and cost
Factor price-Theory of distribution
Theory of economic welfare
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39. MACROECONOMICS
Macroeconomics concerns
with such variables as the
aggregate volume of the
output of an economy with
the extent to which its
resources are employed with
the size of the national
income and with the general
price level.
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40. Macroeconomics deals not with individual
quantities but with aggregate of these
quantities, not with the individual income but
with the national income, not with the individual
prices but with price levels, not with individual
outputs but with the national output. It studies
the following,
National income
Full employment
Utilization of economic resources
Aggregate saving and investment
Price level
output of firm
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41. MICRO VS MACRO
1 - Micro is the branch of economics, which studies individual
economic variables like demand, supply, price etc.
Macro is the branch of economics which studies aggregate
economic variables, like aggregate demand, aggregate supply,
price level etc.
2 –MICRO has a very narrow scope i.e. individual, a market etc BUT
MACRO has very wide scope. The whole economy
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42. 3 – Evolution of microeconomics took place earlier than
macroeconomics. ADAM SMITH ALFRED MARSHALL
MACRO evolved only after the publication of Keynes book.” General
Theory of Employment, Interest, and Money. ” ( cont.)
4 –Demand, supply,market firms etc relate to microeconomics
Aggregate demand, aggregate supply, national income etc relate
to macro economics
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43. 5 – Micro is helpful in analysis of an individual economic unit like
firm.
Macro is helpful for analyzing the level of employment, income,
economic growth etc.
6- Theory of demand, theory of production, price determination
theory etc. develop from micro economics
Theory of national income, theory of employment, theory of
money, theory of general price level etc develop from
macroeconomics.
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