INTRODUCTION TO ECONOMICS (NOTES)

1. Resources are scarce therefore the human population have to make effective decisions to
satisfy their needs and wants.
2. Needs are things without which humans won't survive and wants are the luxuries that one
wants.
3. DEFINITIONS IN ECONOMICS FROM DIFFERENT ECONOMISTS: -
i. Economics is a science of wealth is propounded by Adam Smith, also the father of
economics.
ii. He described the free market as tendency of invisible hand to regulate competition,
supply, demand and self-interest.
iii. He also said difficult jobs have more wages to attract workers to these positions.
iv. Alfred Marshall, welfare definition which expanded to larger study of humanity.
v. Specifically, Marshall's view is that economics studies all the actions that people
take in order to achieve economic welfare. In the words of Marshall, "man
earns money to get material welfare."
vi. Leonel Robbin - branch that analyses how humans satisfy their unlimited needs with
limited resources that have different uses.
vii. When a man decides to use a resource for the production of a certain good or
service, he assumes the cost of not being able to use it for the production of a
different product. This is called opportunity cost.
viii. Paul Anthony Samuelson Economics is the study of how men and society
choose, with or without the use of money, to employ scarce productive resources
which could have alternative uses, to produce various commodities over time and
distribute them for consumption now and in the future amongst various people
and groups of society”.
4. DIFFERENCE BETWEEN MACRO AND MICROECONOMICS
COMPARISON MICROECONOMICS MACROECONOMICS
Meaning The branch of The branch of
economics that economics that
studies the behaviour studies the behaviour
of an individual of the whole economy,
consumer, firm, family (both national and
is known as international) is known
Microeconomics. as Macroeconomics.
Deals with Individual economic Aggregate economic
variables variables
Business Applied to operational Environment and
Application or internal issues external issues
 Scope Covers various issues Covers various issues
like demand, supply, like, national income,
product pricing, factor general price level,
pricing, production, distribution,
consumption, employment, money
economic welfare, etc.
etc.
Importance Helpful in determining Maintains stability in
the prices of a the general price level
product along with the and resolves the major
prices of factors of problems of the
production (land, economy like inflation,
labour, capital, deflation,
entrepreneur etc.) unemployment and
within the economy. poverty as a whole.
5. TYPES OF ECONOMY

6. CAPITALIST ECONOMY
Small group of people who control large amounts of money or capital, make most important
economic decisions.
Contrasting to socialist economy wherein more power resided in the hands of political system.
 Capitalist form of income aims to maximize profits unlike any political aim behind it.
7. MIXED ECONOMY
Ownership of the means of production in mostly private hands but incorporates elements
such as subsidies for agriculture, regulation manufacturing, and partial or full public ownership
of some industries.
8. POSITIVE AND NORMATIVE ECONOMICS

NORMATIVE ECONOMICS
POSITIVE ECONOMICS

Meaning A branch of economics based on data A branch of economics based on values, opinions
and facts is positive economics. and judgement is normative economics.

Nature Descriptive Prescriptive

What it does? Analyses cause and effect relationship. Passes value judgement.

Perspective Objective Subjective

Study of What actually is What ought to be

Testing Statements can be tested using scientific Statements cannot be tested.

methods.

Economic It clearly describes economic issue. It provides solution for the economic issue, based
issues on value.

9. APPLYING ECONOMICS IN DAILY LIFE

i. Low income revenue, free parking spots are a good illusionary set of ideas for the fact when we
think about the greater impacts it will do to the people we then get the sense behind it why is it
implemented.
ii. Behavioral economics and bias give us about the nature of humans as irrational decision
makers.
iii. Government borrowing to finance pensions for an ageing population can lead t rise in gov
debt. But at the same time borrowing during recession can help the economy recover.
iv. The law of diminishing marginal utility explains that as a person consumes an item or a
product, the satisfaction or utility that they derive from the product wanes as they consume
more and more of that product. Eg:- chocolate cake
v. Economics we try to consider the impact of our actions on other people.
vi. Balancing act of public and private goods to optimize social welfare there is a need for
government intervention through taxes and direct public provision.
vii. Macroeconomics has direct relation to inflation and unemployment.