INDIAN ECONOMICS

PGDM 2DINKER VAID

Definition of Economics Starts From ScarcityAll economic questions arise because we are unable to satisfy all our wants.Our inability to satisfy all our wants is called scarcity.Economics is the social science that studies the choices that we make as we cope with scarcity and the institutions that have evolved to influence and reconcile our choices.

A Definition of Economics

Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.

Economics is the study of how scarce resources are allocated among conflicting demands.

Economics: A Social Science

Economists cannot easily do experiments.To isolate the effect of interest, economists use the logical device called ceteris paribus, or “other things being equal.”Economists try to isolate cause-and-effect relationship by changing only one variable at a time, holding all other relevant factors unchanged.

Economics: A Social Science

Economists cannot easily do experiments.To isolate the effect of interest, economists use the logical device called ceteris paribus, or “other things being equal.”Economists try to isolate cause-and-effect relationship by changing only one variable at a time, holding all other relevant factors unchanged.

THE TYPESMicroeconomicsMicroeconomics is the study of choices made by individuals and businesses, the way these choices interact, and the influence that governments exert on them.MacroeconomicsMacroeconomics is the study of the effects on the national and global economy of the choices that individuals, businesses, and governments make.

The Scope of Economics

EXAMPLES OF MICROECONOMIC & MACROECONOMIC CONCERNS

Microeconomics

Production

Production/Output inIndividual Industries andBusinesses

How much steelHow many officesHow many cars

Prices

Price of IndividualGoods and Services

Price of medical carePrice of gasolineFood pricesApartment rents

Income

Distribution of Incomeand Wealth

Wages in the auto industryMinimum wagesExecutive salariesPoverty

Employment

Employment byIndividual Businesses &Industries

Jobs in the steel industryNumber of employees in a firmNumber of accountants

Macroeconomics

NationalProduction/Output

Total Industrial OutputGross Domestic ProductGrowth of Output

Aggregate Price Level

Consumer pricesProducer PricesRate of Inflation

National Income

Total wages and salariesTotal corporate profits

Employment andUnemployment in theEconomy

Total number of jobsUnemployment rate

1. To Learn a Way of Thinking...

Three Fundamental Concepts of Economic Thinking

Opportunity CostMarginalismInformation, Incentives, and Market

Coordinations

Opportunity CostsThe opportunity cost of something is

that which we give up when we make that choice or decision.

The implication is that all decisions involve trade-offs.

“There’s no such thing as a free lunch!!”

Margins and IncentivesPeople make choices at the margin, which means that they evaluate the consequences of making incremental changes in the use of their resources.The benefit from pursuing an incremental increase in an activity is its marginal benefit.The opportunity cost of pursuing an incremental increase in an activity is its marginal cost.

2. Understanding Society

Present and past economic decisions have an enormous influence on the character of life in a society.

The state of our physical environment, the level of material well-being, and the nature and number of jobs are all products of the economic system.

Three Big Microeconomic

Questions Goods and services are the objects that people value and produce to satisfy wants…

Microeconomics seeks to understand what determines:-1. WHAT goods and services are produced?2. HOW goods and services are produced?3.FOR whom goods and services are produced?

Three Big Microeconomic

QuestionsHow are Goods and Services Produced?Factors of production are the resources that businesses use to produce goods and services.They are grouped into four categories:

Land Labour Capital Entrepreneurship

Three Big Microeconomic

QuestionsThe “gifts of nature” that we use to produce goods and services are land.The work time and effort that people devote to producing goods and services is labour.The quality of labour depends on human capital, which is the knowledge and skill that people obtain from education, on-the-job training, and work experience.

Three Big Microeconomic

Questions

The tools, instruments, machines, buildings, and other constructions that are used to produce goods and services are called capital.The human resource that organizes land, labour, and capital is entrepreneurship.

Three Big Microeconomic

QuestionsFor Whom are Goods and Services Produced?Who gets the goods and services depends on the incomes that people earn. Land earns rent. Labour earns wages. Capital earns interest. Entrepreneurship earns profit.

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