This document provides definitions of economics from various sources and discusses the economic problem and utility theory. It contains 6 definitions of economics from sources such as Paul Samuelson, the Dictionary.com, and Alfred Marshall. It then discusses the economic problem as dealing with scarce resources and unlimited wants. Finally, it covers the concepts of utility, marginal utility, and ways of measuring utility both directly and indirectly through revealed preference.

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Definition-01
The study of how a person or society meets its
unlimited needs and wants through the effective
allocation of resources.
--Paul Samuelson,1970
Section – A (Chapter – 1)
Definition of Economics- various definitions
Nature of Economic Problem
Production Possibility Curve
Economic laws & their Nature
© Sachin Pourush
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Definition – 02 Definition – 03
The study of how the forces of supply and demand The branch of knowledge concerned with the
allocate scarce resources. Subdivided into production, consumption, and transfer of wealth.
microeconomics, which examines the behaviour of --Wikipedia
firms, consumers and the role of government; and
macroeconomics, which looks at inflation,
unemployment, industrial production, and the role of
government.
-- Dictionary.com
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Definition – 04 Definition – 05
Economics is a social science that deals with the study Economics is the study of mankind in the ordinary
of how people can be influenced by the economic business of life; it examines that part of an individual
system around them. For example, if the price of and social action which is most closely connected to
certain commodity goes up, people will try to conserve the attainment of and the use of the material requisites
that commodity or buy something that costs less. of well-being.
-- Alfred Marshall
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Definition – 06 Economic Problem
Economics is a science that deals with the study of The economic problem, sometimes called the
fundamental economic problem, is one of the
human behaviour as a relationship between ends and fundamental economic theories in the operation of any
scarce means which have alternative uses. economy.
-- Lionel Robbins
There is scarcity (finite resources available are
insufficient to satisfy all human wants)
The problem then becomes how to determine what is
to be produced and how the factors of production
(such as capital and labour) are to be allocated
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Economic Problem… Syrup Economic Problem… Definition
Economics revolves around methods and possibilities of Economic problem is the problem relating to the
solving the economic problem, means, necessity of the choosing what, how and for whom to
How do we satisfy unlimited wants with limited resources? produce and how to achieve economic growth.
What to produce with these resources? -- Robert Awh
How much to produce with these resources?
How to achieve fuller utilization of resources?
How to achieve efficiency I production and distribution?
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Causes Influencing Economic Problem
Unlimited Wants
Individual & Collective desires creates ‘Demand ‘ and lets
natural resources be consumed
Choice
Due to the limited resources available, businesses must
determine what to produce first to satisfy demand Section – A (Chapter -2)
Concepts & Measurement of Utility
Law of Diminishing marginal utility
Law of equi-marginal utility
Constraint of Resource Availability
Every resource is not available in same amount or as the © Sachin Pourush
amount its needed
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Utility.. In its essence Marginal Utility… Meaning
latot eht ot gnirrefer mret cimonoce nA
ro doog a gnimusnoc morf deviecer noitcafsitas The additional satisfaction a consumer gains from
ecivres
consuming one more unit of a good or service.
RO
.noitcafsitas evitaler fo erusaem A
Term was given by Daniel Bernoulli.
A consumer's utility is hard to measure.
Although affected by:
consumption of various goods and services,
possession of wealth and
spending of leisure time.
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Measurement of Utility Quantifying utility
Utility is taken to be correlative to Desire or Want. It has been already
Different ways of measuring UTILITY: argued that desires cannot be measured directly, but only indirectly, by the
Quantifying utility outward phenomena to which they give rise: and that in those cases with
which economics is chiefly concerned the measure is found in the price
Cardinal and ordinal utility which a person is willing to pay for the fulfillment or satisfaction of his
It was recognized that utility could not be measured desire.
directly, although, ‘Revealed Preference’ can be drawn
It was recognized that utility could not be measured
directly, although, ‘Revealed Preference’ can be drawn
Thus, to measure actual behavior the underlying
relative utilities are revealed
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