Unit 1

Introduction to
Economics
Introduction
Economics is about making choices.

Where should we go for dinner?

Which job or career should I go for?
What are the pros and cons of joiing MBA versus taking a job or inventing
the next, best Internet startup?
Which roommate should take for washing the dishes?
Can I get that dog as a pet?
Should I get married, have children, and if so, when?
Which politician should I vote for when they all claim they can improve
the economy or make my life better?
What is “the economy,” anyway? 
Economics Meaning, NATURE
The term economics comes from the Ancient Greek οἰκονομία
(oikonomia, "management of a household, administration") from οἶκος
(oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the
house(hold)".

1776 by Adam Smith, “An inquiry into nature and cause of wealth
of a nation.” He explained how a nations wealth is generated. He
considered that the individual in the society wants to promote only his
own gain and in this, he is led by an invisible hand to promote the
interest of the society though he has no real intention to promote the
society’s interest.
He explained only about wealth and not in terms of human welfare.
Alfred Marshall

Alfred Marshall, (1842- 1924) , economics is a study of mankind in the

ordinary business of life.
Marshall defines economics as “a study of men as they live and move and
think in the ordinary business of life.” He argued that economics, on one
side, is a study of wealth and, on the other, is a study of man .
It studies both individual and social actions aimed at promoting economic
welfare of people.
Marshall makes a distinction between two things. Material ( can be seen )
and non material things. And considered only material things that are
capable of promoting welfare of people.
But immaterial things such as services of docs, teacher also promote welfare
of people.
Alfred Marshall
Marshall’s definition is based on welfare but there is no
clear cut definition of welfare.
Definition of welfare varies from person to person, country to country,
etc.
Generally welfare means happiness or comfortable living conditions of
an individual or group of people.
The welfare of an individual or nation is dependent not only on the
stock of wealth possessed but also on political, social and cultural
activities of the nation.
Lionel Robbins
Economics is a science that studies human behavior as a relationship
between ends and scarce means which have alternative uses.
1. Ends refer to human wants. Human beings have unlimited number of
wants.
2. Resources or means are limited.
3. The scarce means or limited resources are capable of having alternative
uses. Hence anyone will choose the resource that will satisfy his
particular want. Thus economics is a science of choice.
Robbins does not make any distinction between goods conducive to
human welfare. In the production of rice and alcoholic drink, scare
resources are used. But the production of rice promotes human welfare
while production of alcoholic drinks is not conducive to human welfare.
Paul Samuelson
The study of how men 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 of society.

The definition covers various aspects like production , distribution and

consumption.
Economics is therefore rightly considered as the study of allocation of
scarce resources (in relation to unlimited ends ) and of determinants of
income , output, employment and economic growth.
Definitions
‘Economics’ is defined as the study of how the humans work together
to convert limited resources into goods and services to satisfy their
wants (unlimited) and how they distribute the same among themselves.

Economics is a science that deals with the production, distribution, and

consumption of goods and services.
It shows how scarce resources can be used to increase wealth and
human welfare.
The central focus of economics is on scarcity of resources and choices
Among their alternative uses.
The resources are limited or scarce.
This scarcity induces people to make choices among alternatives and
the knowledge of economics is used to compare the alternatives for
choosing the best among them.
For eg. A farmer can grow paddy, sugarcane, banana,cotton,etc. in his
garden land. But he has to choose a crop depending upon the
availability of irrigation water.
 MEANING
A focus of the subject is how economic agents behave or interact and how
economies work.
Consistent with this, a primary textbook distinction is between
microeconomics and macroeconomics.
Microeconomics examines the behavior of basic elements in the economy,
including individual agents (such as households and firms or as buyers and
sellers) and markets, and their interactions.
Macroeconomics analyzes the entire economy and issues affecting it,
including unemployment, inflation, economic growth, and monetary and fiscal
policy.
Two major factors that are responsible for the emergence of economic
problems.
1. existence of unlimited human wants 2. the scarcity of available resources.
The numerous human wants are to be satisfied through scarce resources
available in nature.
Economics only tells us how a man utilizes his limited resources for the
satisfaction of his unlimited wants.
1.Economic activities :- wants---efforts—satisfaction, sums up the subject-
matter of economics.

WANTS

SATISFACTION EFFORTS
Economics not only covers the decision making behavior of individuals
but also the macro variables of economics like national income, public
finance, international trade, inflation, employment, monetary, fiscal
policy, etc.
Division of economics
1.Traditional approach:-
a. Consumption
b. Production
c. Exchange
d. Distribution
2.Modern approach:-
a. Micro economics (Price theory)
b. Macro economics (Income and employment theory)
3.Growth Economics
 SCOPE OF ECONOMICS
a. Whether Economics is a science?
Economics is no doubt a Science, but it is not a pure (exact) science like Physics, Chemis­
try,
Biology or even Mathematics. Economics is a social science concerned with how we
solve society’s economic problems. Because of the abundance of economic data and
the ample opportunity for scientific research in the real world, Samuelson calls it ‘the
queen of social sciences’.
Economics is a science since its laws have widespread soundness such as the law of
diminishing returns, the law of diminishing marginal utility, the law of demand etc. It is
called as a science since its self-remedial nature. It goes on amendments in the dawn of
new specifics based on interpretations. Hence Economics is a science like any other
science that has its own generalizations , theories or laws of economics which traces
out a casual relationship between two or more phenomena.

It is divided into two parts 1. Micro economics 2.Macro economics.

a. Whether economics is a science or an art?
According to some scientists, it is a pure science whose task was just to explain the
cause of economic phenomena such as unemployment, inflation, slow growth or
even trade deficit.
According to classical writers, economics is simply the study of cause and effect
relationship.
However, neo-classical and modern economists have pointed out that economics is
both a science and an art. economics has both a theoretical side and a practical or
applied side.
Inflation, unemployment, monopoly, economic growth, pollution,free markets
versus central planning, poverty, productivity and other current issues are all
covered in the study of economics. 
Economics is relevant not only to the big problems of society, but also
to the personal problems, such as one’s job, wages, unemployment, the
cost of living, taxes and voting.
The practical application of scientific techniques is the Art of Economics.
Some economists consider economics as a science and art while few
others as science and applied science. It is considered as newest of
science and oldest of arts and the queen of all the social sciences.
Economics as a Positive Science 
As per the nineteenth century experts, economics is a positive science. Since it seeks
to explain what has actually happened but not what is ought to happen. According
to J.N.Keynes, Positive science is defined as"A body of systematised knowledge
concerning what ought to be and concerned with the ideal as distinguished from the
actual."

Normative Economics 

With contrast to the Positive Science, Normative Science deals with the "what is
ought to happen" cases. That is predictions of future economic development with
regards to the present conditions are discussed in this. The postulations on which
economic laws, theories or principles are based relate to man and his problems. If
we attempt to test and forecast fiscal actions on their basis the subjectivity elements
always penetrates. Therefore, the laws of economics are at best propensities.
Conclusion 

Economics is concerned with human well-being as well as ethical values.

It is science and an art, since the scientific principles are applied
practically. It is both positive and normative science since the actual
happening and the future happenings are dealt. Hence the scope and
nature of economics deals in with all the above as explained by the
economists.
ECONOMIC LAWS
Meaning of Economic Law:
Every science has its certain laws.
Thus, like other sciences, eco­nomics has its own laws, too.
Some of the most important economic laws are —
The Law of Diminishing Returns or the Law of Variable Proportions,
The Law of Returns to Scale,
The Law of Diminishing Marginal Utility,
The law of demand
The law of supply
 METHODS OF ECONOMICS

1.Deductive Method:- We start with a few indisputable facts about human nature o
general principles and draw inferences about individual or particular cases.
From general to particular
Eg. We assume that self-interest alone governs human behaviour and we explain or
predict about the behaviour of a particular individual on this assumption.
Merits:- 1.Simple method
2.Explains complex phenomena
3.It is certain
4.Easy to apply
Demerits :- 1. assumptions are imp.
2. method is dangerous in terms of practical policy
 METHODS OF ECONOMICS

2.Inductive Method:- We first collect relevant facts and on their basis

draw conclusions. From particular to general. We rely on
observation and experimentation for collecting facts.
Merits :- 1. It can be applied for the verification of conclusion
2.It is more suitable since it is based on facts rather than
on abstract reasoning.
3. It is more suitable and useful in the formulation of
economic policies for particular countries .
Demerits:- 1.Important facts can be ignored for hurried
conclusion.
 IMPORTANCE OF ECONOMICS
1.Theoretical Importance :-
a. Informative
b. Mental Training
c. Understanding functioning of the economic system
d. Teaches Mutual Dependence
e. Useful citizenship
2.Practical Importance :-
a. Professional Value (Banker, businessmen etc.)
b. Useful for household
c. Useful for labor Leaders
d. Solving problem of poverty.
 BASIC CONCEPTS OF ECONOMICS
a. GOODS H.EQUILIBRIUM
b. UTILITY I. STATIC
c. VALUE J. DYNAMICS
d. WEALTH
e. INCOME
f. SAVING
g. INVESTMENT
 Goods
The term goods is used in ordinary language to mean
physical things which are bought and sold in the
market.
In economics the term is used in a wider sense.
Goods, in economics, mean anything which has
the power to satisfy human wants, or, in other
words, anything which has utility. Thus, the
term includes material things like rice, bread,
cloth, etc. It also includes non-material things
like the services of the doctor, lawyer and
musician.
Goods and services are used to satisfy human wants.
 Goods
DEFINITION:- ANYTHING THAT CAN SATISFY
A HUMAN WANT IS CALLED A GOOD IN
ECONOMICS.
KINDS OF GOODS :-
A. Material and non-material:
Rice, vegetables, books, houses, water, air, etc., Are
examples of material goods. The services of a
doctor, the goodwill of a business, etc., Are
examples of non-material goods.  
b. External and Internal:
Physical things are external to men and are called external goods, e.g.,
furniture.
Internal goods are qualities which enable a person to perform a service
and thereby satisfy a human want. The musician has certain qualities
which enable him to give pleasure to other human beings.
c. Transferable and Non-transferable:
The ownership of goods like houses, agricultural farms, furniture, etc.
can be transferred from one person to another. They are called
transferable goods. There are types of goods which cannot be
transferred, e.g., the musician’s ability or the doctor’s skill.
d. Free and Economic Goods:
Some goods ready for use are supplied by nature in such abundance
that no one has to make any sacrifice in making more use of them. 
such goods are free goods, because many of them are not bought and
sold. So they have no price. Examples of free goods are air, sunshine,
wild flowers in the woods.
Goods which can be marketed are called economic goods or
commodities. It has an opportunity cost which is reflected in the market
price or value. Food, clothing and housing are all examples of economic
goods.
e. Consumer Goods and Capital Goods:
Some goods yield satisfaction directly as the consumer uses them, as
does bread or a Maruti car. These are called consumer goods. Other
goods help produce consumer goods.
Capital goods are tangible property. People use them to produce other
goods or services within a certain period. Machinery, tools , buildings,
computers or other kinds of equipment that are involved in production
of other things for sale are capital goods.
Goods
7. Private and public goods
Private goods are the property of private
individuals, e.g land or building owned by them
exclusively and not shared with others.
Public goods:- are those which are common to all
and are owned by society collectively, eg. A
college or a hospital.
Goods

8. NECESSARIES , COMFORTS AND

LUXURIES. :- GOODS CAN ALSO BE
CLASSIFIED AS NECESSARY, COMFORTS
AND LUXURIES
NECESSARY :- FOOD, CLOTHING, SHELTER
COMFORT :- MOBILE
LUXURY :- APPLE MOBILE.
UTILITY
UTILITY
Utility is a basic concept involved in the analysis
of demand or consumer behavior.
Economists say that a consumer derives utility
from a commodity.
It refers to the quality of the commodity to
satisfy his want.
Def:- Utility means the want-satisfying power or
capacity of a commodity.
Mean:- A consumer constitutes his demand for a
commodity on the basis of utility derived from
the commodity.
 UTILITY
Characteristics of utility:-
1. It depends on human wants
No utility of drinking for non drinker , no utility of smoking for non
s m o k e r.
2. Depends on use
If we make an appropriate use of a product it will yield high amount of
uti
l i t y. C o n v e r s e l y, i f w e m i s u s e i t , i t u t i l i t y w i l l f a l l .
3. Depends on knowledge
We c a n i n c r e a s e t h e u t i l i t y b y t h e a d v a n c e m e n t o f k n o w l e d g e . F o r
example, solar energy exist centuries ago but it give a little
u t i l i t y.  
4. Depends on ownership
The commodity lying in a shop has a utility in it but will not give you
unless you buy it. Hence, utility can be obtained only by ownership.
 UTILITY
Depends on Number
The utility of some products will increase by an increase in the number of that product
with the people. For example the utility of a telephone will increase in case the number of
telephone connections in the city increase.
Depends on Form
As a product it also depends on its form and hence called form utility. Take the case of
wood. It does not have much utility in it. But if wood is changed into chair its utility
will go up.
Depends on Place
The utility of certain products depends on the place, where they are being used. For
example, woolen clothes do not give place utility in the equator region whereas
they give a lot of utility in cold region.
Depends on Time and Season
The products utility depends on time and season as well. For example, electric light gives a
lot of utility during night time but it decreases during the day time. Similarly, ice has utility
for the people during summer season and loses it during the winter season.
UTILITY
TYPES OF UTILITY
1.Form :- utility created by changing the form or
shape of materials. Eg. Cabinet turned out from
steel or wood.
2.Place:- place utility is created by transporting
goods from one place to another. Place utility of
a commodity is always more in an area of
scarcity than in an area of abundance eg. Kashmir
apples fetch higher prices in mumbai than in
srinagar.
UTILITY
TYPES OF UTILITY
3.Time :- hoarding, storing and preserving
certain goods over a period of time may lead to
the creation of time utility for such goods, e.g by
hoarding or storing food grains at the time of a
bumper harvest and releasing their stocks for sale
at the time of scarcity, traders derive the
advantage of time utility and hereby fetch higher
prices for food grains.
Value
Frequently used term in economics
Confusion of usefulness
Value-in-use
Value-in exchange
VALUE
The term used in two senses:-

1.Value in exchange:-
It refers to the goods that can be obtained for it. We
cannot exchange fresh air for anything ;its value in
economic sense is therefore zero even though it is
otherwise so valuable. A pencil on the other hand has
value because it can be exchanged for something.
 VALUE
The term used in two senses:-
2. Value in use:- for this economist use the term
utility . for eg. We often says education has great value,
or that fresh air is very valuable. Here the term is used in
the sense of usefulness.

Three imp. Qualification for a good to become

value:-
1. It must possess utility
2. It must be scarce
3. It must be transferable or marketable.
VALUE
•D EF I N ITI O N A N D M EA N I N G : -
TH E VA L U E O F A CO MM O D I T Y, M E A N S T H E
CO MM O D I T I ES O R S ERV I CES T H AT W E G E T I N RET U RN
F O R I T; I T I S , I N SH O RT, I T S P U RC H A S I N G P O W E R I N
TE RM S O F O T H ER C O M MO D I TI E S A N D S ERV I C ES ; I T I S
I T S P O W ER O F CO MM A N D I N G O TH ER T H I N G S I N
EX CH A N G E F O R I TS EL F.
 VALUE
•VALUE IS NOT THE SAME AS THE PRICE
•VALUE IS A RELATIVE TERM

CONCLUSION :- THERE CAN BE A

GENERAL RISE IN PRICES, BUT THERE
CANNOT BE A GENERAL RISE IN VALUES.
WEALTH
•In ordinary language wealth conveys an idea of
prosperity and abundance, it means richness, property
etc.
•But in economics anything which has value is called
wealth .
•In economics the term wealth is synonymous with
economic goods.
WEALTH
•Economic goods are scarce and command a price in
the market.
•But scarcity alone does not make a good wealth. If it
is a useless thing e.g a rotten egg. Nobody will pay
anything for it, nobody would like to have it and it
will not be wealth.
•It is wealth only if man needs it and uses it. Even a
harmful thing will be regarded as wealth provided it
possesses utility and can satisfy a want.
WEALTH
•There are three attributes of wealth
1.Utility
2.Scarcity
3.Transferability or marketability
Documents of title like bills of exchange, bills of
landing, documents of property and insurance
policies are also wealth. They are valuable because
they represent title of property. Hence they are
sometimes called representative wealth
WEALTH
•Money and wealth:-
All money is wealth but all wealth in not money, as
wealth is understood in the ordinary speech. Wealth
takes so many forms, it consists of all kinds of
property and money is only one kind of wealth.

•Wealth and income :-

Income is what wealth yields. It is a fund and
income is a flow.
WEALTH
•Wealth and welfare.
Wealth is the means(wants) and welfare the
end(resources). The idea of welfare varies from
individual to individual from time to time. Wealth has
a definite meaning. What is regarded as wealth by
economists may not necessarily be good and useful.
Increase in wealth does not necessarily mean an
increase in welfare.
WEALTH
•Classification of wealth :-
1.Individual wealth :-the wealth of an individual
consists of
a. His material possessions or property like cash,
land, buildings, live-stock, furniture and stocks
and shares.
b. Non-material goods like the goodwill of his
business which commands a price in the market.
WEALTH
•Classification of wealth :-
2.Personal wealth :- personal qualities like skill,
ability and intelligence are wealth . But they are
given only the courtesy title of personal wealth.
3.Social or communal wealth :-it consists of state and
municipal property that is, things owned by a
society or community in common. They include
among other things, the assembly chamber, roads,
dams. Etc
WEALTH
•Classification of wealth :-
4.National wealth :-
National wealth is used in two terms, narrow sense it
is the aggregate wealth of all citizen. Wide sense
national wealth includes mountains, a good
government etc.
5.Cosmopolitan wealth:- it is the wealth of the whole
world, a sum total of the wealth of all nations.
WEALTH
•Classification of wealth :-

6. Negative wealth :- this refers to debts owned by

individuals or states . if wild pigs or cattle are
damaging the crops, it may be regarded as negative
wealth.
INCOME
* Income is what wealth yields. A man possess a lot of
immovable property. Wealth is a fund and income a
flow. The amount of money which these assets yield is
an income.
•Wealth is considered as a fund , income is a flow.
INCOME
Types of income
•Income expressed in terms of money per month or
year is his money income.
•Real income of a person consists of goods and
services that he purchases with his money income.
Real income depends on prices.
•National income may be defined as the aggregate
factor income which arises from the current
production of goods and services by the nation’s
economy. Includes both income produced inside the
country and that earned by its nationals abroad.
SAVING
A part of the current income is consumed or spent and
a part there of is saved and invested. The excess of
income over consumption is the saving made by the
people
•3 forms
1.Cash or liquidity
2.Bank balance
3.Some investment.
INVESTMENT
•Investment means an addition made to the nation’s
physical stock of capital like the building of new
factories, new machines as well as any addition to the
stock of finished goods or goods in the pipelines of
production.
•Investment thus includes additions to inventories as
well as to fixed capital.
INVESTMENT
1. Ownership investments
Ownership investments are what comes to mind for most
people when the word "investment" is batted around.
They are the most volatile and profitable class of
investment. The following are examples of ownership
investments:
Eg. Stocks, business, real estate
2. Lending investments
Lending investments allow you to be the bank. They tend
to be lower risk than ownership investments and return
less as a result.  
Eg. Bonds, your savings account
 EQUILIBRIUM
•Th e w o r d eq u i lib r i u m is v e r y f r e q ue n t ly u s ed in m o d er n
e c o n o m ic a na ly sis.
•I t m e a n s a sta te o f b al a n c e .
•I t r e f e r s t o a sta te w h e n a s it ua t io n i s i d ea l o r o p tim u m s o
th a t n o a d v a n ta g e c a n b e ob t a in e d b y m a ki n g a c h an g e .
•Fo r e g . A co n s um er is s a i d to b e i n a n e q u i lib r i u m p o s i tio n
w h e n h e is d e r i vi n g m a x i m u m s a t is f a c ti o n a n d a p r o d u c e r o r
a f ir m i s sa i d to b e i n e q u ili b r iu m p o s iti o n w he n it is
m a k in g a m a x i m u m p r of it o r in c u r r i n g a m in im u m lo s s .
 EQUILIBRIUM
•TH E TE RM EQ U I L I BR I U M I N D I CATE S A N I D EA L
CO N D I TI O N O R W H E N CO M P LE T E A D J U S TM EN T H A S
BE E N MA D E TO CH A N G E S I N A N EC O N O MI C SI TU AT I O N .
T H E RE I S N O I N CE N T I V E FO R A N Y M O RE C H A N G E.
•TY P E S O F EQ U I L I BR I U M :-
A . STA BLE E :- TH ERE I S S A I D TO BE A S TA B LE
E Q U I LI B RI U M W H E N T H E O B J EC T, O N W H I CH F O RC ES
A R E A C TI N G , A F TER H AV I N G BEE N D I S T U RB ED , TE N D S
TO RE S U ME I TS O RI G I N A L PO S I TI O N .
TYPES OF EQUILIBRIUM:-
a. Stable E:-
Neutral Equilibrium
The situation of neutral equilibrium crops up when demand and supply
curves go together in a range of prices or in a range of quantities. The
Neutral equilibrium is finely detailed in the following diagram:
EQUILIBRIUM
•2.UNSTABLE E:- WHEN A SLIGHT DISTURBANCE
EVOKES FURTHER DISTURBANCE, SO THAT THE
ORIGINAL POSITION IS NEVER RESTORED, IT IS A
CASE OF UNSTABLE EQUILIBRIUM.
•3.NEUTRAL E:- ON THE OTHER HAND, WHEN THE
DISTURBING FORCES NEITHER BRING IT BACK TO
THE ORIGINAL POSITION NOT DO THEY DRIVE IT
FURTHER AWAY, IT IS CALLED NEUTRAL E.
EQUILIBRIUM
•4.SHORT TERM E:- IN THE CASE OF SHORT
TERM EQUILIBRIUM, ECONOMIC FORCES DO
NOT GET SUFFICIENT TIME TO BRING ABOUT
COMPLETE ADJUSTMENT. EG. SUPPLY IS
ADJUSTED TO CHANGES IN DEMAND WITH THE
EXISTING MEANS OF PRODUCTION, FOR THERE
IS NO TIME TO INCREASE THEM OR DECREASE
THEM.
EQUILIBRIUM
•5.LONG TERM EQUILIBRIUM :- IN THE CASE OF
LONG TERM EQUILIBRIUM, THERE IS AMPLE
TIME TO CHANGE (INCREASE OR DECREASE)
EVEN THE MEANS OF PRODUCTION OR THE
RESOURCES AVAILABLE. FOR EG. IF DEMAND IS
INCREASED, THE SUPPLY WILL ALSO BE
INCREASED NOT ONLY WITH THE EXISTING
PLANT AND MACHINERY BUT ALSO BY
INSTALLING NEW PLANTS AND MACHINERY AND
THERE IS ENOUGH TIME FOR THAT PURPOSE.
EQUILIBRIUM
•6.CONSUMER E:- CONSUMER’S EQUILIBRIUM
INDICATES THAT HE IS GETTING THE MAXIMUM
AGGREGATE SATISFACTION FROM A GIVEN
EXPENDITURE AND IN A GIVEN SET OF
CONDITIONS RELATING TO THE PRICE AND
SUPPLY OF A COMMODITY.
EQUILIBRIUM
•7. GENERAL EQUILIBRIUM :- SUCH AN
EQUILIBRIUM IS NOT CONCERNED WITH A SINGLE
VARIABLE, BUT WITH A MULTIPLICITY OF
VARIABLES. IN GENERAL EQUILIBRIUM ALL THE
ORGANIZATIONS WORKING IN THE ECONOMY
AFFECTED. IT IS IN SHORT AN EQUILIBRIUM OF
THE ENTIRE ECONOMY.
•8.PARTICULAR E:- IT COVERS A SINGLE
ORGANIZATION IN THE ECONOMIC SYSTEM.
STATIC
Meaning :-
The term statics connotes a position of rest or absence of movement.
However in economic statics does not imply absence of movement,
rather it denotes a state in which there is a continuous, regular, certain
and constant movement without change.
STATIC
In economics, the concept of static refers to a situation where there is a
movement. But this movement is continuous, certain, regular and
constant. Static economics does not deal with the unexpected changes.
It studies only the expected economic activities. There are no windfall
changes or fluctuations in economic activities. According to Prof.
Harrod, “An economy in which rates of output are constant is called
static.”

Economic activities are repeated in different time periods in a static

economy. No changes in economic activities occur. For example, India’s
national income increased by 5% in 1977-78. The increase in 1978-79
and 1979-80 was also 5%.
STATICS
The stationary state is an economy in which the tastes, resources and
technology do not change through time.
STATICS
Importance :-
It is only through the method of economic statics that we study how an
individual allocates his income on the purchase of various commodities
to maximize his satisfaction, how a producer combines his inputs in an
optimal way to maximize his profit, and how the national product is
distributed.
The significance of economic statics lies in penetrating the complex
problems in a simple way.
STATICS
Limitations :-
•The static analysis suffers from a few serious shortcomings. It takes us
far away from the reality.
•It assumes variable data such as population tastes, resources and
techniques etc., to remain constant. But the actual world is a dynamic
one where the data are continuously changing.
DYNAMICS
The word dynamics means causing to move.
In economics, dynamics refers to the study of
Economic change.
The main purpose is to know as to how a complex of current events will
shape themselves in the future.
Economic Dynamics is thus a process of change through time. In
dynamic economic analysis we investigate the behaviour of the system
which results from the passage of time.
DYNAMICS
Significance of Economic Dynamics :-
It is more realistic and light-giving than economic statics.
It takes us closer to reality. Here is no assumption of other things
remaining the same.
It relates to a developing economy.
DYNAMICS
Limitations :-
Though dynamics is a more realistic method, it is essentially very
complex and only a few economists equipped with the techniques of
advanced mathematics can make use of it.
Thank you !