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Basics of economics

This PPT includes the basic concepts of economics. its meaning, scope and nature of economics, types of economic systems and basic problems of an economy.

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ECONOMICS
 Economics is a subject matter which studies
different economic activities as directed
towards maximisation of satisfaction and
maximisation of profit at individual level,
market and country as a whole.
 Economic Activity is an activity performed
by different individuals to earn their living
and it is related to the use of scarce
resources for satisfaction of human wants.
MICROECONOMICS: is the study of decisions made by
people and businesses (at individual and small level)
regarding the allocation of resources and prices of
goods and services. It focuses on issues like
consumer behaviour, individual demand, individual
labour markets, and the theory of firms, utility
analysis, etc. (PRICE THEORY)
MACROECONOMICS: on the other hand, studies the
behaviour of a country and how its policies affect the
economy as a whole. It focuses on the ‘aggregate’
variables, such as aggregate demand, income
concept, national output and inflation. (INCOME
THEORY)
Some Basic Terms
 PRODUCTION: it refers to the conversion of input/ raw material
into output, to earn living.
 CONSUMPTION: it refers to using goods and services for
satisfaction of human beings.
 EXCHANGE: it refers to sale and purchase of goods and services.
 DISTRIBUTION: it refers to the way total output, income or
wealth is distributed among individuals.
 INVESTMENT: it is the expenditure made by a person/producer
on the purchase of such assets which help to generate income in
future.
 SAVINGS: it is the part of income which is left after making all
the expenditures.
Scope
and
Nature
of
Economics
1. ECONOMICS- A SCIENCE OR AN ART
 SCIENCE: a systematized body of knowledge that
traces the relationship between cause and effect.
Science includes facts, measurements, theories,
calculations and laws.
 ART: Art is to do, to use scarce resources in very
efficient and effective manner. Art offers practical
guidance in the solution of economic problems.
 SOCIAL SCIENCE: Interdependence of people.
Labourers working in a production unit producing
commodities to be sold over the world.

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Basics of economics

  • 2.  Economics is a subject matter which studies different economic activities as directed towards maximisation of satisfaction and maximisation of profit at individual level, market and country as a whole.  Economic Activity is an activity performed by different individuals to earn their living and it is related to the use of scarce resources for satisfaction of human wants.
  • 3. MICROECONOMICS: is the study of decisions made by people and businesses (at individual and small level) regarding the allocation of resources and prices of goods and services. It focuses on issues like consumer behaviour, individual demand, individual labour markets, and the theory of firms, utility analysis, etc. (PRICE THEORY) MACROECONOMICS: on the other hand, studies the behaviour of a country and how its policies affect the economy as a whole. It focuses on the ‘aggregate’ variables, such as aggregate demand, income concept, national output and inflation. (INCOME THEORY)
  • 4. Some Basic Terms  PRODUCTION: it refers to the conversion of input/ raw material into output, to earn living.  CONSUMPTION: it refers to using goods and services for satisfaction of human beings.  EXCHANGE: it refers to sale and purchase of goods and services.  DISTRIBUTION: it refers to the way total output, income or wealth is distributed among individuals.  INVESTMENT: it is the expenditure made by a person/producer on the purchase of such assets which help to generate income in future.  SAVINGS: it is the part of income which is left after making all the expenditures.
  • 6. 1. ECONOMICS- A SCIENCE OR AN ART  SCIENCE: a systematized body of knowledge that traces the relationship between cause and effect. Science includes facts, measurements, theories, calculations and laws.  ART: Art is to do, to use scarce resources in very efficient and effective manner. Art offers practical guidance in the solution of economic problems.  SOCIAL SCIENCE: Interdependence of people. Labourers working in a production unit producing commodities to be sold over the world.
  • 7. 2. POSITIVE AND NORMATIVE ECONOMICS  POSITIVE ECONOMICS: it describes “what it is”, it does not indicate what is good or what is bad for the society. It only tells about the facts and current situation.  NORMATIVE ECONOMICS: it describes “what it ought to be”, tells the difference between good and bad. It is based on scientific measurements. EXAMPLE: Positive Statement: 12% of the labour force in India was unemployed last year. Normative statement: 12% unemployment is too high.
  • 8. 3. METHODOLOGY OF ECONOMICS INDUCTIVE METHOD: Observation Pattern Hypothesis Theory  Particular to general  one to many DEDUCTIVE METHOD: Theory Hypothesis Observation Confirmation  General to particular  many to one
  • 9. 4. SUBJECT MATTER OF ECONOMICS TRADITIONAL APPROACH: it includes the following:  Consumption  Production  Exchange  Distribution: Land-Rent, Labour-Salary, Capital-Interest, management-Profit  Public finance, government revenue & expenditure MODERN APPROACH: it includes the following:  Micro Economics  Macro Economics
  • 12. CAPITALIST ECONOMY:  It works on principles of free enterprise system AKA Laissez Faire System  Most economic activities are undertaken by private sector business firms.  Businessman only produce profitable goods.  Businesses are very competitive.  They do not focus on lower class groups.  Consumers can be exploited by monopolies.
  • 13. SOCIALIST ECONOMY  Government exercises the comprehensive control.  AKA Command Economic System  Most of the economic activities are performed by the government.  Products are available at affordable prices.  Focus on most valuable resources.  It is hard to provide for everyone’s needs.  No innovations.
  • 14. MIXED ECONOMY  Combines capitalist and socialist.  Government + private ownership  Government only deals in a few areas like transportation, defence or sensitive industries.  Some set of rules and regulations are provided by government to run the private business.  Example: Indian Economy
  • 15. BASIC PROBLEMS OF AN ECONOMY Problems What to produce ? How to produce ? For whom to produce ?