3. Economics
Definition:-
Economics word derived from
two Greek words- ‘Oikos’ and
‘Nemein’.
‘Oikos’ means ‘household’
‘Nemein’ means ‘Management’
Management of household is
known as economics.
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4. Economics
Meaning of Economics:-
There are many definitions by different
economists at different time, which is differ from
each other.
There are classified into three categories as
under;
•Wealth oriented(Adam Smith,J.B.Say,J.S. Mill)
•Welfare oriented( Marshall, Pigou etc)
•Scarcity oriented(Robbins)
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5. Nature of Economics
There are four factors affecting to
nature of economics as per below;
•Economics is a Science.
•Economics is an Art.
•Economics is Positive & Normative
Science.
•Economics is Micro and Macro.
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6. Microeconomics
versus Macroeconomics
• Microeconomics
– The study of decision making undertaken by
individuals (or households) and by firms
– Like looking though a microscope to focus on
the smaller parts of the economy
• Decision of a worker to work overtime or not
• A family’s choice of having a baby
• An individual firm advertising
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7. Microeconomics
versus Macroeconomics
• Macroeconomics
– The study of the behavior of the economy as a
whole
– Deals with economy wide phenomena
• The national unemployment rate
• The rate of growth in the money supply
• The national government’s budget deficit
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12. Law of Demand
•The law of demand expresses the nature
of functional relationship b/w two
variables of the demand relation viz; the
price and the quantity demanded.
•It simply states that demand varies
inversely to change in price.
•So, D=f(P)
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14. Application of law of Demand: Policy
to Reduce Smoking
• Option #1: Raise prices of cigarettes by
levying a tax
• Option #2: Introduce a public awareness
program regarding ill effects of smoking
• Policy impact on substitutes
• Policy impact on complements
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15. Supply
• The analysis of the supply of produced goods
has two parts:
– An analysis of the supply of the factors of
production to households and firms.
– An analysis of why firms transform those
factors of production into usable goods and
services.
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16. The Law of Supply
• There is a direct relationship between price
and quantity supplied.
– Quantity supplied rises as price rises, other things
constant.
– Quantity supplied falls as price falls, other things
constant.
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17. The Supply Curve
• The supply curve is the graphic representation
of the law of supply.
• The supply curve slopes upward to the right.
• The slope tells us that the quantity supplied
varies directly – in the same direction – with
the price.
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18. S
A
Quantity supplied (per unit of time)
0
Price(perunit)
PA
QA
A Sample Supply Curve
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20. Shift Factors of Supply
• Other factors besides price affect how much
will be supplied:
– Prices of inputs used in the production of a good.
– Technology.
– Suppliers’ expectations.
– Taxes and subsidies.
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21. Factors that Shift Supply
Prices of Related
Goods and Services
Number
Of
Producers
Expectations
Of
Producers
Technology
And
Productivity
Resource
Prices
Supply
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22. Definition Of Price Elasticity Of Demand
• The change in the quantity demanded of a
product due to a change in its price is known
as Price elasticity of demand. Thus, the
sensitiveness or responsiveness of demand to
change in price is as called elasticity of
demand
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23. A Graphical Interpretation
of Price Elasticity
• For small changes in price
YΔY
QΔQ
elasticityIncome
Where Q is the original quantity and P is the original price
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24. Price Elasticity Regions along
a Straight-Line Demand Curve
Quantity
Price
b/2
a/2
a
b
1
1
1
Observation
Price elasticity varies at every point
along a straight-line demand curve
Inelastic
Elastic
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25. Income Elasticity of Demand
The income elasticity of demand is defined as
the percentage change in quantity divided by
the percentage change in income,
YΔY
QΔQ
elasticityIncome
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26. Effect Income elasticity
coefficient
Classification of
good
A proportionately
larger change in
the quantity
demanded
>1 Luxury good
A proportionately
smaller change in
the quantity
demanded
<1 Normal
A negative change
in the quantity
demanded
<0 Inferior good
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