INTRODUCTION TO ECONOMICS,THEORY OF DEMAND &

SUPPLY

Introduction to economics

• The word economics is derived from twogreek words oikos and nemein,

• Oikos means household and nemein meansmanagement so management of household isknown as economics.

Meaning of Economics

• However the definitions may be classified intothree categories for simplify and clarity asunder:

1. Wealth oriented definition, by adam smith.

2. Welfare oriented definition, by marshall.

3. Scarcity oriented definition, by robbins.

1) Wealth oriented definition

• Adem smith definedeconomics as a scienceof welth.

• In his book entitled aninquiry into the natureand causes of thewealth of nationspublished in 1776

2) Welfare oriented definition

• According to marshalleconomics is a study ofman’s actions in theordinary business oflife; it enquires how hegets his income andhow he used it.

3)Scarcity oriented definition

• In 1932 robbinsdefinitions as a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

Nature of economics

1. Is economics a science?

2. Is it an art?

3. Is it a positive science or normative science?

4. Is it micro or macro?

1) Economics is a science

• A branch of knowledge become systematic orscientific when relevant facts are collected,classified and analyzed and laws areestablished to explain the cause effectrelationship between these facts.

• Ex. Law of gravitational force.

2)Economics is an art

• Art is practical application of scientifictheories:-

• According to an italian economist luigi cossaart dose not explain theorems, it solvesgeneral problems.

• It is not concerned with laws, but only withrules that simplify practice.

• A science teaches as to know, an art teachersas to do.

3) Economics is an a positive & normative science

• According to prof. robins economics is apositive science which studies things as theyare and explain their causes & effects.

• Ex. Poverty in India is 26% prices are risingcontinuously.

4)Economics is micro and macro

• Micro economics is concerned with thedeterminations of price of a commodity in themarket under different conditions. How rent,wages, interest etc.

• Macro economics deals with aggregates ratherthen with individual units. it is concerned withentire economy.

Scope of economics

Scope of economics

Consumption

Distribution

Production Exchange

Public finance

1)Consumption

• Consumption refers to the use of wealth forthe satisfaction of wants and desires formaterial and non utility of an article and notthe article itself.

• The study of consumption includescharacteristics and classification of humanwants, law of Equi-marginal utility, law ofdemand consumers surplus and soon.

2) Production

• The study of production of wealth man ofcourse, cannot produce or create matter anymore than he can destroy it production,therefore, means creation and addition ofutilities, under production the main factors ofproductions, the laws of return, forms ofindustrial organization.

3)exchange

• Under the modern complex economicsorganization it is not possible for an individualto satisfy all his wants by his own efforts.

• Each individuals is ordinarily dependent onothers for the satisfactions of his wants.

4)Distribution

• The apportionment of the wealth producedamongst the different factors of productionsthat have contributed in its production isknown as distribution. Here, the share of thevarious factors of production in the from orrent, wages, interest and profit accruingrespectively to land; labor capital andenterprise will be taken into account.

5) Public finance

• The state today bears the responsibility notfor the enface of the country against externalaggression and the maintenance of law andorder at home, but also undertakes variousplans for economic and social development.For this, if requires increasing revenue.

• Public finance otherwise known as theeconomics of govt. studies how the govt.Obtains its revenue and how it spends it.

Microeconomics &macroeconomics

• Microeconomics

– The term micro economics has been derived fromthe Greek term micro which means small.

– Micro economics analyses the output and price ofindividual goods and services.

– In micro economics various components ofeconomy will be separately studied.

Microeconomics &macroeconomics

• Macroeconomics– The term macro is derived from Greek term

means large.

– Micro economics looks at the total nationaloutput of all goods and service added together, orthe total national income earn by everyone in theeconomy.

– In study the economic system as a whole such as,aggregate consumption, aggregate savings,aggregate investment, aggregate output etc.