Economics & economy

Allocate – division
Economic problem – scarcity , choice
Oc – loss of other alternate wen 1 alternate is
choosen
 Greek word – household management
Economics 1. Oikos –household
2. Nemein – management

• It is a science (Branch of knowledge) which studies human behaviour

(activities) as a relationship between ends and scarce means which have
alternative uses to achieve
1. Consumer – maximum satisfaction
2. Producer (production of goods & services ) – maximum profit
3. Nation – maximum social welfare
 Human / market needs/ wants /ends
1. Unlimited / Recurring /Multiple/innumerable – As 1 need is over another is generated
2. These wants have been increasing day by day . They r effected (actual) or generated (jealousy)
3. These r satisfied by Resources / wealth but not fully satisfied (unsatisfied) at any given time as
resouces r limited with alternative use .
• Food, shelter, cloth , education & health

Resources(goods & services) /input / money /

wealth(scarce means)
• 2 basic characteristics –
1. Scarcity / limited (shortage)– supply of resources < demand of resources .
No matter how much resources r there& what the price is , they r still limited / scarce in relation to
unlimited human / market needs / wants. (can’t fulfill all needs)
Scarcity of resources exist at both micro & macro level .
Only if certain goods r available at 0 price & involves no opportunity cost (OC) .
All resources r not equally scarce all the time , some might be scarce & others be less scarce
acc to Mcc Connell – scarcity is a situation in which there is not enough of resources to meet all
human wants

2. Alternative uses – scarce Resources can be allocated to alternative use eg – land (cultivation or building )
 • It is the process of selection from available limited alternatives
• It emerges/arises because :-
1. Resources r scarce
Choice / 2. Resources can be allocated to alternative use
sacrifise 3. Wants is unlimited
economic problem • Choice leads to decision making which results to efficient usage of limited
resources ( economising / economical use of scarce resources) in the
economy in a manner that
1. Consumer – maximum satisfaction
2. Producer (production of goods & services ) – maximum profit
3. Nation – maximum social welfare
(which wants to be satisfied first & which later)

• In reality Resources r limited & wants r unlimited . This leads to

1. Scarcity
2. Choice
3. Economic problem arising out of scarcity & choice
4. Scope of economics

• But if in hypothetical situation Resources r unlimited & wants r limited . This leads to
1. No Scarcity
2. No Choice
3. No Economic problem
4. No Scope of economics
Micro economics
Greek (mikros –small)
1. Study of economic relationships /
activities / problems at individual
level ( partial -1 aggregation )
2. It is basically concerned with
determination of output & price
for an individual firm or industry
It is called theory of price .
3. Its study assumes that macro
variables remain constant
4. Market forces (of supply &
demand ) play a significant role in
context of microeconomic
problems ( product pricing ,
factor pricing )
5. It includes study of demand
theory , production theory , price
determination , factor pricing
Macro economics
Greek (makros –large)
1. Study of economic relationships /
activities / problems aggregate at the
level of economy as a whole (country)
( general – all aggregation )
2. It is basically concerned with
determination of aggregate output &
general price level in the economy as a
whole
It is called theory of income &
employment .
3. Its study assumes that micro variables
remain constant
4. Government policies(monetary & fiscal )
play a significant role in context of
macroeconomic problems
( unemployment , poverty , inflation )
5. It includes study of aggregate demand &
aggregate supply of all goods & services
in the economy eg – national income ,
total employment , general price level
Positive economics
1. These statements do not reflect
any value judgement / opinion
of the economists
2. These statements highlight the
facts & figures, nature & extent
of economic problems / issues
or analyse the economic
behaviour of ppl related to past
, present & future
3. These statements are verifiable
for truth (facts & figures can be
verified as true or false )
4. These statements are related to
what was , what is , what could
be
5. Eg-22% of ppl in India r poor
Normative economics
1. These statements reflect value
judgement / opinion of the
economists . Dif economist may
offer dif solution to an economic
problem which may not be best
solution to it
2. These statements leads to
controversies & debates
3. These statements are not
verifiable for truth (facts & figures
can not be verified )
4. These statements are related to
what ought to be as a solution to
economic problems
5. Eg-Farmer should always be
granted subsidies to ensure fair
returns on their investment
 Economy
• The nature & level of dif economic activities performed by the ppl of an
area to earn their living. This is system is called economy .
• An individual is himself not capable of producing all goods & services
which he needs for satisfaction of wants . He depends upon others . Thus
mutual interdependence & exchange are core elements of an economy .

Simple economy Complex economy

1. Income level of ppl is low
2. Wants are multiple but not so
enormous .
3. Mutual interdependence is
limited
4. Degree of exchange is
moderate
1. Income level of ppl is high
2. Wants are multiple as well as
enormous.
3. Mutual interdependence is
very high
4. Degree of exchange is very
high
 Organisation of economic activities : types of economies
Economic activities [production , consumption ,investment ,exchange ] r controlled / regulated by govt
of a country
Controlled / centrally planned
economy
• These r the economies
where the economic
activities r firmly controlled
by the govt or some
central authority
• Economic decissions r
driven by the motive of
ocail welfare
• The consumer is not
sovereign
• Most resources
controlled /owned by the
govt
• Public sector dominates
the economic activity
• China , russia , north korea
Free economy / market
economy
• These r the economies
where the economic
activities r controlled by
market forces
• Economic decissions r
driven by the motive of
profit maximisation
• The consumer is
sovereign
• Most resources
controlled /owned by the
ppl
• Private sector dominates
the economic activity
• Usa , uk
Mixed economy
• These r the economies
where the economic
activities r governed by the
free play of market forces
but are regulated by the
government
• Economic decissions r driven
by the motive of both profit
maximisation & Socail
welfare
• The consumer is sovereign
• Most resources controlled
/owned by both ppl & govt
• Both Public sector & Private
sector dominates the
economic activity
• India
 Important names
•  Robbins : "Economics is the science which studies human behaviour as a
relationship between ends and scarce means which have alternative uses.

• Adams Smith : father of economics

• J.m Keyens : father of modern macro
economics – The General(macro) Theory of
Employment, Interest and Money (1936.)
• Ragnar Frisch: 1933 divided economics in two
parts
 Market econies promote disparities in income
distribution even when resources r optimally utilized ?

• In market economies , resources r optimally utilised because

every producer focuses on maximisation of output per unit
input . But disparities in income distribution r highly pronounced .
Because
1. Resources r allocated to the production of those goods which
yeild high profits . So that goods r produced largely for the richer
sections of the sociey & poor suffer deprivation
2. In market economies , some jobs r outsourced from rest of the
world where labour cost is low . This cuases loss of
employement opportunities in domestic economy , accordingly
wage component of GDP tends to shrink even when profits tend
to rise
 Positive statements / facts
• On independence , poverty in India affected
larger %age of population than now
• 22% of ppl in India r poor
• If population of India continue to grow at the
existing rate it may exceed 22% in forthcoming
year