Introduction to Economics

Introduction to Economics

1. WHAT IS ECONOMICS?

   • Oikonomia
     • Oikos - household
     • Nomos - laws/management
     • greek
     • A social science which is concerned with the efficient use and proper utilisation of limited resources for the achievement of economic growth
       • (i) Kautilya, Arthashastra: eco & pol activities
       • (ii) Adam Smith, An Enquiry into the Nature and Causes of Wealth of Nation (1776): science of wealth
       • (iv) Alfred Marshall: study of mankind in the ordinary business of life
       • (iii) Lionel Robbins, Nature and Significance of Economics Science: study of human behaviour as a relationship between ends and scarce means which have alternative uses

2. WHAT IS AN ECONOMY?

   • A system which provides livelihood to the people by producing goods and services that enable them to earn their incomes
   • WHAT ARE THE TYPES OF ECONOMIES?
     • BASED ON
       • Means of Production
         • CAPITALIST
           • "Market Economy"
             • maximise profit
               • operated by market demand and supply forces w/o direct intervention of govt.
                 • no limit to private ownership
                   • UK, USA, Australia
         • SOCIALIST
           • "Planned Economy"
             • maxmise social welfare
               • operated by govt. w/ central planning authority
                 • private ownership under control of govt.
                   • China, Russia, Cuba
         • MIXED
           • "Dual Economy"
             • govt. aim: social welfare max. private aim: profit max.
               • operated by both govt. and private sector
                 • partly owned govt. & partly owned private
                   • India, Pakistan, Sri Lanka
         • AKA
           • OBJECTIVE
             • OPERATION
               • OWNERSHIP
                 • EXAMPLES
       • Economic Development
         • DEVELOPED
           • per capita income HIGH & standard of living HIGH
             • USA, Switzerland, Canada
         • DEVELOPING
           • per capita income & standard of living NOT V HIGH NOT V LOW
             • India, Pakistan, Sri Lanka
         • UNDERDEVELOPED
           • per capita income is V LOW & standard of living is V LOW
             • Nepal, Bangladesh, Bhutan

3. WHAT IS THE ECONOMIC PROBLEM?

   • PROBLEM OF CHOICE
     • CAUSES
       • UNLIMITED HUMAN WANTS
       • LIMITED/SCARCE RESOURCES
       • ALT. USES
       • URGENCY OF WANTS
     • ON THE BASIS OF
       • MICROECONOMICS
         • PROBLEM OF ALLOCATION OF RSS
           • WHAT TO PRODUCE AND HOW MUCH?
             • economy can't produce all and must decide: civil/military, consumer/capital
           • HOW TO PRODUCE?
             • which tech used: LABOUR INTENSIVE TECH/CAPITAL INTENSIVE TECH
               • LIT: India uses bc labour is cheap and abundant (handloom industries)
               • CIT: America uses bc capital is abundant (power loom industries)
           • FOR WHOM TO PRODUCE?
             • personal distribution based on income of individual
             • functional distribution among owners of diff factors of production in the form of wages, rent, interest, profit.
         • MACROECONOMICS
           • branch of eco. deals w/ aggregate economic units
             • determine aggregate output, national income and employment in economy
               • aggregate demand and aggregate supply
                 • general equilibrium analysis
                   • aggregate demand, aggregate supply and national income
           • FULLER UTILISATION OF RSS
             • ltd. rss to full satisfy maximum wants, production max & wastage min
           • ECONOMIC GROWTH
             • investment-resources available-capacity for production. Therefore: ++investment = ++rss utilised efficiently = growth in economy
         • branch of eco. deals w/ individual economic units
           • optimum utilisation of limited rss for maximum production
             • demand and supply
               • deals w/ partial equilibrium analysis
                 • individual demand and individual supply
       • MEANING
         • OBJECTIVE
           • DETERMINANTS
             • METHOD OF STUDY
               • EXAMPLE