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BEST NOTES On Introduction to Economics BY: Ashish Kumar Singh (8115945410)

Interactive Classes On ECONOMICS By: ASHISH Kr. SINGH {B.Com. (Hons.), MBA.}, 8115945410

INTRODUCTION TO ECONOMICS

ECONOMICS

Prof. Robbins Paul A. Samuelson

Economics is a SCIENCE which

studies HUMAN BEHAVIOUR as a

RELATIONSHIP b/w ENDS & SCARCE

MEANS Which have ALTERNATIVE

USES.

The study of HOW MEN &

SOCIETY CHOOSE , with or

without money , to EMPLOY

SCARCE Productive resources

which could have ALTERNATIVE

USES, to PRODUCE VARIOUS

COMMODITIES over time &

DISTRIBUTE them for

CONSUMPTION now & in Future

among various people & groups

of Society.

Most Satisfactory Def.

Modern & wider in Scope

MEANING of CENTRAL PROBLEMS

Problem of

CHOICE. EFFICIENT

utilization of

LIMITED Resources

SATISFY max. no.of WANTS.

Father of Economics: Adam Smith



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1) Definition Break up: P.P.C. shows various ALTERNATIVE

COMBINATIONS of G&S that an ECONOMY can Produce when ALL the resources are

FULLY & EFFICIENTLY EMPLOYED.

2)

ALLOCATION of Resources

WHAT Goods to

produce (Theory of

Price) & HOW MUCH to

Produce?

HOW to Produce?

Theory of Production

For WHOM to

Produce?

Theory of Distribution

Due to limited resources

need to select what & howmuch?

Decide such that both

Output & Output- Mix is

Optimum

TECHNIQUE of Prod. i.e.

LABOUR Intensive or CAPITAL Intensive .

Technique which maximizes

output & minimize cost

should be used.

How to DISTRIBUTE product

among various sections of SOCIETY

Total output flows to households

in form of Wages, Intt., Rent

Profit.

PRODUCTION POSSIBILITY CURVE/ OPPORTUNITY COST CURVE

ASSUMPTIONS

ONLY TWO

GOODS can

be produced

RESOURCES

available

GIVEN & FIXED

Resources NOT

SPECIFIC i.e. (can

be shifted from onegood to other)

Resources FULLY &

EFFICIENTLY

employed, (no wastage)

TECHNOLOGY is

GIVEN &

CONSTANT



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3) TABLE : ( To be Filled In Class)

Production Poss. Good X Good Y Marginal Opp. Cost

A 0 21 --B 1 20 1

C 2 18 2

D 3 15 3

E 4 11 4

F 5 6 5

G 6 0 6

Space for Diagram:

REASON

SHAPE & REASON for its SHAPE

DOWNWARD

SLOPING

CONCAVE to

point of ORIGIN

INVERSE RELATIONSHIP:

(Additional production of one

good would lead to SACRIFICE

of other)

Concave Shape impliesSLOPE of PPC INCREASES.

Difference in

PROPORTION of

factors used

Resources not

EQUALLY SUITED

for both Goods



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OPPORTUNITY COST : VALUE of NEXT BEST ALTERNATIVE SACRIFICED.

1) Concept of O.C. widely used.

2) WHENEVER resources have ALTERNATIVE USES , O.C.

concept arises.

Marginal Opportunity Cost / Marginal Rate of Transformation:

To Produce ONE MORE unit of Good X, How many Units of Good Y We need to SACRIFICE.

Marginal Opp. Cost =) Change in Goods SACRIFICED

Change in Goods PRODUCED

Production Possibility Curve & Central Problems;

1) Allocation of resources:

a. What to Produce & How Much: All Points on PPC

are efficient & attainable . Thus depending on the Nation’s policy, one can chooseany point on Curve.

b. How to Produce: All Points on curve imply most

efficient technology is employed.

c. For Whom to Produce: FAILS to Explain (If rich getting

more goods, unequal distribution of wealth & if poor getting more, equitable distribution of income).

2) Full Utilisation of Resources: All Points on PPC

shows full Utilisation of resources. Point inside the curve shows underutilisation.

3) Economic Efficiency: All Points on PPC are

economically Efficient. Any point beyond the boundary is Unattainable.



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4) Economic Growth (V. Imp.): i.e. Producing More of

BOTH Goods or ANY of them.

a. PPC will shift to Right when :

i. New stock of Resources Discovered.

ii. Advancement in Technology

b. PPC will shift to Left when :

i. Resources Destroyed by natural calamity

ii. Use of Outdated Technology

iii. Massive Unemployment

NOTE: PPC illustrates three concepts, SCARCITY, CHOICE, and OPPORTUNITY COST.

1) The Market Economy :

a. POLITICAL Economic System based on PRIVATE property & Private PROFIT.

b. Prices determined by forces of Demand & Supply

c. Also called Capitalist Economy or Laissez-faire

FEATURES:

a) Private Ownership of Property : All Factors Owned managed by Pvt. Sector.

ECONOMY – Meaning & Types

The MARKET

Economy

The CENTRALLY

planned Economy

The MIXED

Economy



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b) Freedom of Entreprises: Individual free to Choose any job they like & save & invest in any

form they like.

c) Profit Motive of production: Profit Max. Is main MOTIVE, Most efficient use of Resources.

d) Existence of Competition: Competition Exists, leading to Efficiency & optimacy .

e) Consumers are Supreme: Consumer Preferences Guides Prod.

f) Very Unequal Distribution of Income: There is a Right to Inheritance.

g) Absence of Role of Gov.: No Interference by Gov.

h) Price Mechanism guides production Decisions :

i. i .e. Price determined by Mkt. Forces of Demand & Supply.

ii. These prices are EQUILIBRIUM Prices.

iii. No Intervention by Gov.

iv. Concept of Invisible Hand, Society Well being.

Features of price Mechanism:

a) Operates mainly through prices & profits.

b) Price serves as a signal, for Producers to decide What to Produce. & Consumers

to decide What to Consume .

c) If Changes in DD. & SS. Exist Automatic changes with the market to adjust with

it.

The Centrally Planned Economy/Socialist Economy /Command Economy:

Based on Gov. Control & Social welfare motive.

a) Public Ownership of Resources

b) No Freedom of Enterprise

c) Motive SOCIAL WELFARE

d) PLANNING MECHANISM guides prod.

e)

No COMPETITION



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f) Absence of Consumers Sovereignty.

g) Restriction of Freedom of Occupation.

h) Inequalities of INCOME greatly Reduced

i) Complete Role of Government.

The Mixed Economy: With Elements of Both Above.

FEATURES:

a) Ownership of property by Both Sectors.

b) Freedom in Pvt. But No Freedom in Public.

c) Profit motiv e: Pvt. Sector, Welfare motiv e: public sector .

d) Price mechanism in Pvt. Sector, In Public Govt. decides.

e) Competition Exists in Pvt. Sector Only.

f) Consumers Sovereignty Exists.

g) Freedom of Occupation Exists.

h) Considerable Inequality of Income Exists.

i) Full Role in Pub. Sector, & limited role in Pvt. Sector

Economics Analysis

POSITIVE Economic: Deals with

WHAT is an Economic Problem &

HOW is it ACTUALLY SOLVED.

Based on Cause & effect.

Deals with Actual Situation.

Can be verified with actual data.

Economist: Adam Smith & followers

Eg: Pop. Of India is very High.

NORMATIVE Economics: Deals with

WHAT OUGHT to be an Economic

Problem & HOW it SHOULD be Solved

Based on ETHICS.

Deals with IDEALISTIC Situation.

Cannot be verified with Actual data.

Economist: Marshall, Pigou Etc.

Eg: Rich people should be taxed more



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Economy : A FRAMEWORK within which all ECONOMIC activities are described . System which

provides living to its people.

V. Imp.

Micro Economics: Macro Economics

That branch of economics deals with Deals with study of Aggregate behavior

Study of an Individual behavior e.g. : Buyer , i.e Economy as a whole eg : Total pop. Govt

Seller, Budget

Tools are Individual DD. & SS. Aggregate DD & SS.

Deals with Problem of Allocation of Resources Problem of Fuller Utilisation of Resources.

Also known as Price Theory Theory of Income & Employment.

Subject matter is Price determination & Determination of Income & Employment.

Resource Allocation.

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