Introduction to Economics

Definition
• Economics may be defined as the study of
how people, firms, society choose to
employ scarce productive resources, that
have alternative uses, to satisfy wants
which are unlimited and of varying
degrees of importance.
 History
• Koutilya’s Artha Sastra 3-4 Century B.C.
• Akbar’s 1556 reforms-Wazir, Diwan, and
Bakshi.
• Adam Smith The Wealth of Nations 1776
• John Maynard Keynes ‘ The General
Theory of Employment, Interest, and
Money’.1936
• Karl Marx Das Capital 1867.
 Specialisations
• Public Finance, Welfare Economics,
Development Economics, Agricultural
Economics, Industrial Economics,
International Trade and Commerce, Urban
Economics Rural Economics,
Econometrics.
 Economics-A science
• As in other science disciplines, in economics
also the relevant facts are systematically
collected, classified, analysed, and inferences
are drawn.
• Measuring rod used in above analyses generally
is money.
• Unlike in pure sciences such as physics,
chemistry, the postulations arrived through
economic analysis may not always able to pass
the tests with regard to validity universally and
in perpetuity.
 Constraints on Economic Analysis
• It is the general observation that the number of variables which are
to be reckoned in an economic analysis are very large in number
and the inter relationships many among them are inextricable. It is
not easy to determine which is the causative factor which is effect.
That besides the setting it self is often found to be undergoing shifts
over period of time.
• The analyses have to deal with human behaviours- attitudes,
satisfactions, perceptions etc. These are difficult to predict and pose
serious problems of measurement.
• The above necessitate making a number of assumptions before
proceeding with the analysis. A frequent one is Ceteris- paribus ie.
Other things remaining the same.
• The validity of Economic laws is thus conditioned by the
assumptions underpinning the analysis by which they are arrived at.
 Objective of Economic Analysis
• The objective of economic analysis is to help improved
decision making with regard to employment of scarce
productive resources for meeting various needs. Even so
it is not uncommon that scholars making distinction
between pure and applied economics. The former term
is used to refer to the body of economic postulations
deduced either relying on appriory logic or by
conducting field investigations on very large scale over
cross section of situations and at different periods of time.
That is they have near universal validity. Applied
economics refers to the f methodologies/ techniques
developed taking cues from pure economics, to help
problem solving in specific situations.
Normative and Positive Economics
• Under Normative economics the focus
economic analysis is to find what ought to
be the situation. Positive economics aim is
find out how situations are shaping up and
the causative factors of those changes.
 Micro Economics
• Micro Economics is the study of the economic
system from perspective of individual
households, business firms and manufacturing
units. Its focus is on finding the rationale by
which above arrive at their choices ie
households about the items to be included in
consumption basket, manufacturing units about
the goods to be produced and so on.
• Since price is the principle determinant in the
above decisions the micro economics is also
referred to as Price Theory.
 Macro Economics
• Macro Economics is about the over all
performance of the nation’s economy. The
focus here is on issues such as
unemployment, inflation, marginalisation
and poverty, economic growth, balance of
payments and public debt. How economic
systems could be made to sub serve
Nation’s long term development goals
including those in regard to social
engineering.
 General features of Economic
analysis
• The major planks of economic analyses-
Production, distribution, and consumption. Given
that there is wide gap between resources
available and wants to be met, the analyses
centers around finding answers to the questions
what are to be produced, to whom those
products are to be reached and what purposes
they are to be used.
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