KAKATIYA INSTITUTE OF TECHNOLOGY AND SCIENCE WARANGAL

B.TECH VI SEMESTER
MANAGEMENT , ECONOMICS AND ACCOUNTANCY
COURSE CODE: U18MH602

Dr.S.SARIKA

Assistant Professor
Dept. of Management, KITSW
 INTRODUCTION TO ECONOMICS
The motive behind people engaged in activities is
 To earn money

 To spent money for satisfaction of their wants

The above two activities are called as economic activities.

Meaning of ECONOMICS:
 Economics explains about how to utilize our limited resources in the
most satisfying manner.
 Since it is not possible to satisfy all wants with limited resources ,
every individual must decide some way of selecting the wants which
can be satisfied.
 This is known as economic problem.

 Wants, Efforts, Satisfaction are the subject matter of economics.

 Consumption, Production, Exchange and Distribution are the main

elements of Economics.
Wealth Definition of Economics:

Adam Smith: Defined economics as a “science of wealth” . He defined economics as

the science of wealth i.e. studies the production and consumption of wealth.

Features of wealth definition:

1.The main objective of human activity is the acquisition of wealth
2. Wealth refers to goods produced

3. Man is treated as selfish whose objective is to accumulate more and more wealth

Criticism:
It is criticized by Ruskin and others,
4. Economics must discuss ordinary man’s activities and not those of the economic
man.
5. Marshall criticized that wealth is only a means to an end, but not an end itself.
6. The definition covers only materialistic human activities and not the immaterialist
activities like the services of teachers and doctors
Welfare Definition of Economics:

Alfred Marshal Defined economics as a “the study of mankind in the

ordinary business of life, it examines that part of individual and social
actions which is mostly connected with the attainment and with the use
of material requisites of well being.

Important features of welfare definition:

1.The economics must be a science even though it deals with ever
changing forces of human nature.
2. Economics studies only economic aspects of human life and it has no
concern with political, social and religious aspects of life.
3. Economics gives importance to man and his welfare and recognizes
wealth as means for the promotion of human welfare.
Welfare Definition of Economics:

Criticism:
It is criticized by L.Robbins
1. Economics should be treated as a human science and not a social
science
2. The definition does not consider ‘scarcity of resources’.

3. Economic problems arises due to limited resources which are to be

used to satisfy unlimited wants.
4. Welfare is a subjective concept and changes according to time, place
and person.
5. Marshall includes only those activities which promote human welfare,
but there are certain goods produced and consumed which do not
promote human welfare.
Scarcity Definition of Economics:
L.Robbins: Defined economics as a “science which studies human
behaviour as a relationship between ends and scarce means which
have alternative uses’.
Features of Scarcity definition:
1. Human wants are unlimited. The fulfillment of one want gives
rise to a number of new wants.
2. The limited means of a person cannot satisfy all his wants and
may lead to economic problems.
3. Resources are not only scarce but also have multiple uses
4.Man has to choose between different wants. Therefore, the
problem of choice arises.
Scarcity Definition of Economics:
Criticism:
It is criticized by Marshall, Wooton and others
1. Definition does not distinguish between ‘ends’ and ‘means’,
because ‘means’ are more source of enjoyment and the ‘end’ is
nothing but satisfaction
2.Economics is neutral between ends. Thus economics is
considered not only means but also with ends.
3.This definition cannot be applicable to a dynamic society where
changes take place and the problems of scarcity of resources can be
overcome over a period of time.
Growth Definition of Economics:
Prof Paul A Samuelson, economist and noble prize winner: Defined economics
as a “the study how people 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 or in the future among various people and groups in the
society.
Features of growth definition:
1.This definition emphasizes that resources are not only limited but also have
several uses.
2. This definition is dynamic in nature as it considers both the present and future
consumption, production and distribution
3. has a broad view of economics as it deals with the problem of choice in a
dynamic society
4.Emphasis the scarcity of resources and shifts to income, output and
employment and later to the problem of economic growth.
Scope of Economics:
‘Scope’ means the sphere of study.
The scope of economic is discussed with the following issues:

(a)The subject-matter of Economics

(b)Economics is a Social Science

(c) Economics is a Science or an Art?

(d) Is it Positive Science or a Normative Science ?

 The subject-matter of Economics:

 Consumption: Deals with satisfaction of wants.

 Production: producing things or creating utilizes or making an
effort to satisfy our wants.
 Exchange: Deals with money, credit and banking
 Distribution: sharing of all that is produced in the country
among workers, landlords, capitalists and organizers.
 Economics is a social science which studies human behaviour
as a relationship between numerous wants and scarce means
having alternative uses.
 Provides understanding of real-life situations.
Economics - a Social Science:
It studies about
 Man behaviour in organized society

 How he exchange his goods for those of others

 Influencing them by his actions and being influenced by them in

turn.

 He depends on society and vice versa.

 Economics thus a social science and not one dealing with

individual isolated human being.
Economics is a Science or an Art?
Economics as a science.
o Science is a systematized body of knowledge.
o Science lays down general principles which help to explain the

things and knowledge of economics.

Economics is also an Art.
o An ‘art’ lays down precepts of formulate to guide people who

want to achieve a certain aim.

o The aim might be the removal of poverty from a country
o Economics deals with practical problems and provide solutions.
o It is not a mere theory, it has great practical use.

Hence economics is both a science or art.

Positive Science or Normative Science:
As a Positive science:
 A positive science explains the ‘why’ and ‘therefore’ of things
i.e., their causes and effects.
 Economics is only a positive science and explains ‘why things
are as they are’.
 As a normative science:
 A normative science on the other hand, discusses the tightness or
wrongness of things.
 It is neutral as regards as ends.
 Others think that it is a normative science and tells us as ‘the
things ought to be’
 MICRO AND MACRO ECONOMICS
INTRODUCTION:
o The fundamental issues that have an impact on the economy and its

growth are
 demand and supply of goods,
 individual consumers , producers,
 productive resources,
 utilization of resources,
 national income,
 economy growth rates,
 economic stability etc.

The modern economic theory has been classified as two main branches:
1. Micro economics
2. Macro economics
MICRO ECONOMICS :
o Micro economics is the study of individual decisions, particular firm, particular
household and particular commodities.
o Thus micro economics is the theory of small segments of the society.
o It also called as ‘Price theory’ because it explains how the firms in different markets
determine price and output.
o The three major fields covered by micro economics.

Scope of micro economics

Theory of economic
Product pricing Factor pricing
welfare

Theory of
Theory of Theory of
Production
Demand Distribution
& costs

W Int Pr
Re
ag er ofi
nt
es est t
Issues concerned with Micro Economics:
How individual customer determine the distribution of their total spending
among many products and services to maximize his satisfaction?
 Determinants of the prices of individual goods

 Determination of income of particular factors of production like land,

labour, capital, and entrepreneurship
 Study of different competitive situations such as perfect competition,
monopoly, and monopolistic competition and also price and output
determination.
Importance of Micro Economics:
1.Allocation of productive resources among thousands of products and
services
2. Helps Govt. to frame to suitable policies to promote economic efficiency
for efficient use of scarce resources to achieve economic growth and stability.
3. Examines the conditions of the economic welfare an suggest waste to bring
about maximum social welfare
MACRO ECONOMICS
 It is the study of economy as a whole deals with larger issues also called aggregative
economics
 Its studies the aggregates like national income, total employment, total consumption,
total savings, total investments, general price levels, banking and economic growth
 The problems faced by the economists like poverty, unemployment causes of business
cycles fiscal policies, economic development are studied as a part of macro economics

Scope of macro economics

Theory of Income Theory of General price level Theory of

& Employment distribution of inflation economics growth

Theory Theory
of of
consu invest
mption ment

Theory of
business
cycle
Importance of Macro Economics:

1. To study and evaluate the overall functioning of the economy in

order to distribute the national income among the different sections
of the society
2. Helps the government in formulating and executing the policies
for achieving the maximum social benefits
3. Helps to understand the problems of poverty, employment,
inflation, business cycles and to provide solutions
4.Studies the nature of these problems, causes and behaviour
5. Also suggest how developing countries can use their resources
effectively to ensure maximum growth
Difference between Micro and Macro economics:

Micro Economics Macro Economics

The word Micro derived from Greek word The word Macro derived from Greek word
‘mikros’ means small “makros’ means large

Deals with study of individual units of the It studies the economy as a whole
economy

It is also called as Price Theory It is also known as Income and Employment

Theory

It explains price determination in both It deals with national income, total

commodity and factor markets employment, aggregate savings and
investment, general price levels and economic
growth

It is based on price mechanism which depends It is based on aggregate demand and aggregate
on demand and supply supply
 Laws of Economics:
According to Marshall – Economic Laws or statement of economic tendencies are those
social laws which related to branches of conduct in which the strength of the motives
chiefly concerned can be measured by money, price.

Nature of Economic Laws:

 The government laws are obligatory. They indicate how we should act in order to satisfy
public opinion or our conscience
 These will be stated with precision and have universal validity

 But economic laws unlike all these and it is not indicated by the word MUST

 They are indicated by other things remains same or ought to be.

 Lack of Exactitude
 Hypothetical or Conditional
 Statement of Tendency
Methods of Economics:
The term method is referred to the techniques and procedures used by economists for
both construction and verification of economic principles. These are classified into
(1)Deductive Method

(2) Inductive Method

Deductive Method:
 It is also known as Abstract Method, based on abstract reasoning and not on actual
facts
 It draws certain conclusions from certain fundamental assumptions established and
passed on from one generation to another generation
The logic proceeds from general to particular

Steps involved :
1.Selecting the problem

2.Formulating the assumptions

3. Formulating the hypothesis

4. Verifying the hypothesis

Inductive Method:
 It is also called as Realistic Method or Empirical Method

 It refers to a process where facts are collected cum arranged and then general
conclusion are drawn
 It proceeds from particular to general

Steps involved :
1.Selecting the problem

2.Collection of data

3. Observations

4. Generalization
Factors of Production
Meaning:
The process of producing goods or services has to pass through many stages to reach the
consumers
 The production process has four factors such as Land, Labour, Capital and Entrepreneurial
ability. These are called as factors of production
 Production is the transformation of inputs to outputs to any particular time period

 The production is defined as the creation of utility or the creation of wants satisfying goods or
services
LAND:
Land is defined as everything in the universe that is not created by. It includes more than the mere
surface of the earth, air, sunlight, water and minerals are all classified as land and all are matter of
natural forces are opportunities that are not created by people. It is also called as prime factor of
production.
 Marshall - The material and the forces which nature gives free for man’s aid i.e. water, air, light
and rain.
Components of Land:
On surface: soil, agricultural land
Below surface: minerals, resources, rocks, ground water
Above surface: climate, rain, space, monetary, etc…
Characteristics of Land:
1. Free gift of nature 2. primary factor of production
3. Perfectly inelastic supply 4. Grading ability
5. A passive factor 6. Derived Demand
7. No social cost 8. Indestructible factor
9. Perfectly immovable 10. Site or Location value
11. Rent as reward
LABOUR:
The human exertion in production is called Labour.
Labour is an ability to work it includes both physical and mental work
 Marshall – Labour has any exertion of mind or body undergone partly or wholly with a view to
some good other than pleasure derive directly from the work is called Labour.
Characteristics of Labour:
1. Inseparable from Labourer 2. It is perishable factor
3. Cost of labour 4. Active factor of production
5. Heterogeneous factor 6. Imperfect mobility
7. Inelastic general supply 8. Human capital
9. Trade Unionism 10. Derived demand
Division of Labour:
 It involves dividing the given activity among the workers in such a way the worker is allotted
certain activity or a limited segment of an activity.

Types of Division of Labour:
1.Simple division of labour / Functional division of Labour - means division of society into major
occupations Ex. Carpenters, Weavers, etc.
2. Complex division of labour means the production carries number of processes and sub processes
each should carried out by separate group of people
3.Territorial division of labour / Localization of industries refers to certain localities, cities or
towns specializing in the production of some commodity
Advantages:
4.Helps to increase the efficiency and leads to higher productivity
5. Doing the same work increases the ability and experience which can lead to innovations

6. It is the process of placing right people at right place

7. Leads to time savings

8. Leads to large scale production

Disadvantages:
9.Leads to monotony
10. Possibility of labour turnover due to reduced interest

11. Unskilled and low ability labour cannot move to other jobs
CAPITAL:
Capital means amount invested by businessman in the business. In economics the capital is part of
wealth which is used for production. Capital is having features like scarcity, utility, externality and
transferability.
Capital is related to three terms wealth, money and income
Characteristics of Capital:
1.Manmade factor

2.Productive factor

3. Elastic supply

4. Durable

5. Easy mobility

6. Derived demand

7. Capital formation

Stages in Capital formation:

1. Creation of savings
a) Voluntary savings
b) Forced savings \
c) Government borrowings
2. Mobilization of savings
ENTREPRENEURSHIP:
The term Entrepreneur has been derived from a French word ‘Entrepreneur’ meaning to undertake
certain activities. Entrepreneur has to bear risk and uncertainties. For facing uncertainties he may
get profit or loss and this is a risk bearing functions.
Functions of an Entrepreneur:
-Ability to organize

- Mobilizing the resources

- Risk bearer

- Fully responsibility

- Decision maker

- Professional approach

- Negotiation skills