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  1. 1. 3/21/2012 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 12:18:18Definition – 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. -- 12:18:18 12:18:18Definition – 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 12:18:18 12:18:18 1
  2. 2. 3/21/2012Definition – 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 12:18:18 12:18:18Economic 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? 12:18:18 12:18:18Causes 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 12:18:18 2
  3. 3. 3/21/2012Utility.. 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 consumers utility is hard to measure. Although affected by: consumption of various goods and services, possession of wealth and spending of leisure time. 12:18:18 12:18:18Measurement 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 12:18:18 12:18:18 3