Basic concepts of Economics includes those terms, the way it is to be understood and used in economics theories. It also explains the two, three and four sector model of circular flow of income and output. At the end of presentation there are practice multiple choice questions and titles of reference books.

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Science
PHYSICAL SCIENCE
• Medicine
• Chemistry
• Biology
• Physics
• Botany
• Zoology etc
SOCIAL SCIENCE
• Economics- “Queen of
Social Sciences”.
• Political Science
• Sociology
• Psychology
• Philosophy
• Management
• Ethics &… more
Body of
Knowledge
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MANAGEMENT
FINANCE
MARKETING
HUMAN
RESOURCE
OPERATIONS
&
SUPPLY
CHAIN
ECONOMICS AND BUSINESS ANALYTICS
TECHNOLOGY

5. Branches of Economics
• Micro Economics (Price Theory)
• Macro Economics
• Managerial Economics
• Economics of Growth & Development
• International Economics
• Agriculture Economics
• Rural Economics
• Econometrics
• Public Finance Economics
• Industrial Economics
• Labour Economics
• Public Utility Economics
• Behavioral Economics and so on… Prepared by Dr. Samita
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6. Cause & Effect Relationship
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9. Economics is managing
a Household
Monthly Expenditure:
Vegetables, Milk, Fruits,
Groceries,
Newspaper,
Petrol/Diesel,
Rent/Loan,
Electricity,
Mobile/Phone recharge /Bills,
Internet Recharge,
Restaurant Bills,
Repair & Maintenance
Education /Stationary Fees
Medical Bills
Annual Expected Expenditures:
Vacation Travels,
Buy a Vehicle,
Buy a Gadget,
Buy a white good
Buy a Inverter
Buy another flat/house
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“THE WISE MEN READS, BOTH BOOKS AND LIFE”
“Oikous” “Nemein”
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Economics
MICROECONOMICS
Which deals in small,
individuals, particular,
specific area.
Example-
• Consumer
• Producer
• Firm
• Industry
MACROECONOMIC
Which deals in total,
aggregates, whole area.
Example-
• National Income
• Population
• Poverty
• Unemployment
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CHANAKYA
• He was a Professor
at Takshashila
University
• Pioneer of the field
of Economics
“Arthashastra” and
“Neetishastra”
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ADAM SMITH
• “Father of Modern
Economics”
• “Wealth of the
Nations” (1776)
• Classical School of
Economics
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ALFRED MARSHAL
• 1901-1925 period is
called “Age of
Marshall”
• Cambridge University
“Marshal library of
Economics”
• Neo-Classical School
of Economics
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JOHN MAYNARD KEYNES
• Keynesian Economics
• Government
Intervention to face
the adverse effects of
business cycles
• (1932) “The General
Theory of
Employment, Interest
and Money”
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LIONEL ROBBINS
• In 1932 wrote a
book titled “An
Essay on the Nature
and Significance of
Economic Science”
• London School of
Economics
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Scarcity Definition
According to Lionel Robbins,
“Economics is a science which studies
human behavior as a relationship
between ends and scarce means which
has alternative uses” .
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Scarcity Definition
• Ends – Human wants, which are
unlimited
• Scarce Means – Resources (Land, Labor,
Capital, Organization), which are limited
in supply.
• Alternative Uses – Prioritize the wants
(‘Doctrine of Choice’)
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Three Choice Problems of an Economy
Unlimited Human
Wants
Limited Resources
Scarcity
What to
Produce?
How to
Produce?
For whom
To Produce?
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21. Economics is Positive and Normative
Positive Approach:
•
“What it is?”
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Normative
Approach:
• What it should be?
• What ought to be?

22. Economics Language
• 1st April to 31st March
• Goods, Product, Services
• Utility
• Consumption
• Production
• Plant
• Firm
• Industry
• Market
• Price
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23. Goods and Services
…anything which has the capacity to satisfy
Human wants.
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GOODS
The production and
consumption of
goods has a gap i.e.,
goods are storable
SERVICES
The production and
consumption of
services is a
simultaneous
process i.e.,
services cannot
be stored.

24. Goods
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Free Goods Economic Goods
Consumer Goods Producer Goods
Perishable Goods Durable Goods

25. Consumer Goods
…goods which satisfy the wants of the
consumer directly
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Producer Goods
…goods which are used in further
production process.

26. Utility
…when a commodity or service has
capacity or power to satisfy a human
want.
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27. Utility
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Satisfaction Usefulness Pleasure
Relative
Team
No ethical
Significance
Realized
Satisfaction
Expected
Satisfaction

28. Types of Utility
• Place Utility
• Form Utility
• Time Utility
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Wheat Flour Bread

29. Production
…is creation of utility or
value.
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Transforming semi-
finished goods into
finished goods
Converting Raw materials
(Inputs) into Finished
goods (Outputs)
Other subjects

30. How production creates utility or
value?
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Wood in
the forest
Purchased by
carpenter
Carpenter makes a
table
Table sold when a
consumer demands?
Place Utility Form Utility
Time Utility

31. Creates utility or value
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Cotton Cloth Garment
Value Added Value Added
Value Added Tax

32. Consumption
…destruction of utility or
value
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PRODUCTION
(Supply)
CONSUMPTION
(Demand)
EXCHANGE

34. Plant
…is a technical unit, where the
production/ manufacturing
process takes place.
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35. Firm
…is an economic or decision
making unit.
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36. Industry
...group of firms producing
same product
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Industry of Mobile Handsets

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Group of Industries

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Industry
Firm
Plant

39. Factors of Production
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Land Labor Capital Entrepreneur
Human Resources
Natural
Resources

40. Land
• …anything above and beneath the earth
is considered as land in economics.
• For example, rivers, mountains, plains
etc are included in the definition of
land.
• The reward for land is “Rent”
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41. Labour
• ….all types of mental and physical exertion
done by an individual to earn income.
Unskilled
Skilled
Professional
Administrator etc
…all are included in the definition of Labour
• The reward for Labour is “Wages and
Salaries”
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42. Capital
It is the man-made factor of production.
Capital is classified as—
• Money capital: Pure money and Near Money
• Near Money: Shares, Stocks, Mutual funds
etc
• Real Capital: Assets of business. Like plant,
building, machinery etc
• The reward for capital is “Interest”.
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43. Entrepreneur
• One who brings all the factors of production
together to produce goods and services.
• One who performs the following functions—
Initiating
Organizing
Directing and supervising
Control
Risk-taking
Innovation
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44. Factors of Production
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Land Labor Capital Entrepreneur
Rent Wages and
Salaries
Interest Profits
Theories of Production
Theories of Distribution

45. Market
…is a situation/ medium where buyers and
sellers come in contact with each other to
purchase and sell commodities/services at a
particular price, at a point of time.
•Short-run market
•Long-run market
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46. Price
• Value of a good/ service calculated
in terms of money.
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When Price
Levels Increase
Purchasing power of
money goes down
Government
announces Dearness
Allowance
Real Income remains
Stable

47. Reference Books Basic Concepts
• ‘Elementary Economic Theory’– by K. K.
Dewett and J. D. Verma
• ‘Principles of Economics’ – KPM Sundaram
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48. Circular Flow of Income and
Output
•Two Sector Model
•Three Sector Model
•Four Sector Model
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HOUSEHOLD
SECTOR
FIRMS
Land, Labour, Capital, Organisation
Rent, Wages, Interest, Profits
Supply of Goods and Services
Payment for Goods and Services
Factor Market
Goods Market
Real Flow

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GOVERNMENT
SECTOR
HOUSEHOLD
SECTOR
FIRMS
FINANCIAL
SECTOR
Savings Investment
Direct Taxes
Infrastructure
Facilities Infrastructure
&
Subsidies
Direct and indirect
Taxes
Land, Labour, Capital, Organization
Rent, Wages, Interest, Profits
Supply of Goods and Services
Payment for Goods and Services

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GOVERNMENT
SECTOR
HOUSEHOLD
SECTOR
FIRMS
EXTERNAL
SECTOR
FINANCIAL
SECTOR
Savings Investment
Direct Taxes
Infrastructure
Facilities Infrastructure
&
Subsidies
Direct and indirect
Taxes
Manpower
Remittances
Payment (Imports)
Receipts
(Exports)
Land, Labour, Capital, Organization
Rent, Wages, Interest, Profits
Supply of Goods and Services
Payment for Goods and Services

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Aggregate Demand= C+I+G+X-M
C + I + G + X = S + T + M
(Injections) (Leakages)
(GDP) Gross Domestic Product= C+I+G+X-M
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53. Reference Books for Circular flow
1. ‘Macroeconomics: Theory and
Application’ – by D. N. Dwivedi
2. ‘Macroeconomic Theory’ – by M. L.
Jhingan, 17th Editon
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54. Practice Multiple Choice Questions
4/27/2021 Prepared by Dr. Samita Mahapatra

55. Quiz Question-1
The welfare definition of economics was given
by:
a. Adam Smith
b. Alfred Marshal
c. Lionel Robbins
d. J. M. Keynes
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56. The Wealth Definition of economics was given
by:
a. Adam Smith
b. Alfred Marshal
c. Lionel Robbins
d. J. M. Keynes
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Quiz Question-2

57. Which of the following statements is a positive
statement?
a. Bankers' bonuses should be taxed.
b. The Eurozone ought to allow member countries in
difficulty to stop using the euro and use currencies
of their own instead.
c. One of the largest industries in the UK is the
financial services industry.
d. The UK government ought to split up some of the
largest UK banks to promote more competition in
the banking industry.
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Quiz Question-3

58. The scarcity definition of economics was given
by:
a. Adam Smith
b. Alfred Marshal
c. Lionel Robbins
d. J. M. Keynes
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Quiz Question-4

59. Which of the following is the money flow that
corresponds to the real flow of resources?
a. Income
b. Consumption
c. Factors of Production
d. Goods & Services
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Quiz Question-5

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