Basics of economics

1. ECONOMICS

2. • Economics- Meaning, Definitions, Subject matter of
economics, Traditional approach- Consumption,
Production, Exchange and Distribution
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3. • Economics is popularly known as the “Queen of
Social Sciences”.
• It studies economic activities of a man living in a
society.
• Economic activities are those activities which are
concerned with the efficient use of scarce means that
can satisfy the wants of man.
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4. • After the basic needs viz., food, shelter and clothing have
been satisfied, the priorities shift towards other wants.
• Human wants are unlimited in the sense that as soon as
one want is satisfied another crops up.
• Most of the means for satisfying these wants are limited,
because their supply is less than demand.
• These means have alternative uses; there emerges a
problem of choice.
• Resources being scarce in nature ought to be utilized
productively within the available means to derive
maximum satisfaction.
• The knowledge of economics guides us in making
effective decisions.
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5. • The subject matter of economics is concerned with
the wants, effort and satisfaction. In other words,
it deals with the decision regarding the
commodities and services to be produced in the
economy, how to produce them most economically
and how to provide for the growth of the economy.
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6. Subject matter of Economics
• Economics has a subject matter of its own.
• Economics tells how a man utilizes his limited resources for
the satisfaction of unlimited wants.
• Man has limited amount of time and money. He should spend
time and money in such a way that he derives maximum
satisfaction.
• A man wants food, clothing and shelter. To get these things he
must have money.
• For getting money he must make an effort. Effort leads to
satisfaction.
• The wants, efforts and satisfaction sums up the subject
matter of Economics initially in a primitive society where the
connection between wants, effort and satisfaction is direct.
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7. • The subject matter when examined further reveals the
participation of two different economic agents’ viz.,
consumers and producers in the economic activity.
• Consumers, given their income levels would attempt to
satisfy their wants which have been short listed based on
the degree of urgency from unlimited wants.
• In this process the consumers fulfill the goal of
maximization of satisfaction by consuming the goods and
services that can be purchased given the limitation of
money.
• The other participant in the economic activity are the
producers. They employ all the necessary factors of
production(inputs) and bring out goods required by the
consumers.
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8. DIVISIONS OF ECONOMICS
• The subject matter of economics can be explained under two
approaches, viz., Traditional approach and Modern approach.
A.Traditional approach
• Traditionally the subject matter of economics can be studied
under four divisions. These are consumption, production,
exchange and distribution
1.Consumption
• It means the use of wealth to satisfy human wants. It also
means the destruction of utility. All the goods that are
produced are consumed immediately or sometime in future.
Through the consumption activity we use utilities, hence
consumption represents using up of utilities.
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9. 2.Production
• It is an activity that helps to create utility. It simply means the
addition of utilities. Hence production is defined as the
creator of utilities. Through the process of production one set
of goods is transformed into the other. In the production
process inputs or resources are transformed into products.
3.Exchange
• The word exchange of goods implies transfer of goods from
one person to the other. Exchange of goods takes place among
groups of individuals, countries, markets, regions and so on.
4.Distribution
• It refers to the sharing of wealth produced by the community
among the agents of production. Proper distribution of wealth
and resources leads to the growth and economic welfare of the
people in the nation.
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10. B.Modern Approach
• Modern approach treats microeconomics and macroeconomics
as the two basic divisions of economics.
1.Microeconomics or price theory
• The term a “microeconomics” has been derived from the
Greek word “Micros” meaning small. In other words micro
means a millionth part.
• It is otherwise known as Price theory.
• It focuses on the price determination.
• Microeconomics fundamentally deals with economic
behaviour of individual economic units such as consumers,
resource owners and business firms. Microeconomic covers
theory of consumer behaviour, theory of value (Product
pricing and factor pricing) and the theory of economic
welfare. Microeconomics is somewhat abstract because it
cannot include all the economic activities of real world.
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11. Macroeconomics or Theory Of Income And Employment
• The term macroeconomics has been derived from the Greek
word “MAKROS” meaning large. Macroeconomics otherwise
is called income theory. It treats the economic system as a
whole rather than treating the individual economic unit of
which it is composed.
• Macroeconomics is concerned with the value of the overall
flow of goods and the value of the overall flow of resources.
Thus it covers the theory of income and employment,
theory of money and prices, banking, theory of economic
growth macro theory of distribution, general equilibrium
analysis, policy formulation and analysis, etc.
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12. The English term 'Economics' is
derived from the Greek word 'Oikonomia’.
Its meaning is 'household management’.
Economics was first read in ancient Greece.
Aristotle, the Greek Philosopher
termed Economics as a science of
'household management'.

13. Definition AUTHOR Year Book
Wealth Adam smith 1776 Wealth of Nations
Welfare Alfred Marshall 1890 Principles of Economics
Scarcity Lionel Charles
Robbins
1932 An Essay in the nature and
significance of Economic Science
Growth and
Development
Paul Samuelson 1970 Foundations of Economic Analysis

14. Wealth definition
''The Father of Economics''
Adam smith
defined economics
as an enquiry into
nature and causes
of wealth of nation

15. Welfare definition
He defined
economics as 'a
study of mankind in
the ordinary
business of life'.

16. Scarcity definition
Human wants are unlimited but resources or means to satisfy
them are limited

17. Growth and development Definition
• “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”