Economics Introduction

• Textbook for standard twelve economics. Prescribed by the Coordination Committee, approved on January 30, 2020, for the academic year 2020-21.

Competency Statement

• Explains Micro and Macro Economics subject matter and features.
• Explains the importance of the study of Micro and Macro Economics in practice.
• Defines Total utility and Marginal utility and Explains the Law of Diminishing Marginal Utility with the help of a table and diagram.
• Examines cardinal approach to the measurement of utility.
• Defines the concept of Demand and Explains the Law of Demand with the help of a demand schedule and a demand curve.
• Defines the concepts of Price, Income and Cross-elasticity of demand and analyses the various types of price elasticity of demand with illustrations.
• Applies quantitative skills to measure price elasticity of demand.
• Defines the concept of Supply and Explains the Law of Supply with the help of a supply schedule and a supply curve.
• Defines various Revenue and Cost concepts and derives their calculations.
• Defines Market, Perfect Competition, Monopoly, Oligopoly, and Monopolistic Competition and Explains the features of different market structures.
• Explains Equilibrium Price with the help of a suitable illustration.
• Defines Index Numbers and examines its features and Differentiates between Simple and Weighted Index Numbers.
• Explains the steps in the construction of Index Numbers and Applies quantitative skills to calculate Simple and Weighted Index Numbers.
• Examines the structure of Public Finance and Defines Public Revenue, Public Expenditure and Public Debt.
• Analyzes the Tax and Non-Tax Sources of Public Revenue.
• Defines National Income and Explains the concepts of GDP, GNP, NDP and NNP.
• Explains the Output, Income and Expenditure methods of computing National Income.
• Examines the causes of rising Public Expenditure in India.
• Defines Fiscal policy and Budget.
• Explains the meaning and classification of Financial Markets.
• Explains the structure of Money market and Capital market in India.
• Defines Central Bank and Commercial Bank and Explains the functions of Central Bank and Commercial Bank.
• Examines the role and problems of the Money market and Capital market in India and Explains the reforms introduced in the Money and Capital markets in India.
• Explains the role of Foreign Trade with reference to India.
• Explains the Composition and Direction of India's foreign trade and Defines the concepts of Balance of Payments and Balance of Trade.

Introduction to Micro and Macro Economics

• Microeconomics and macroeconomics are the two main branches of modern economics.
• Ragnar Frisch, a Norwegian economist, coined the terms 'micro' and 'macro' from the Greek words 'Mikros' (small) and 'Makros' (large) in 1933.

Historical Context:

• Microeconomic analysis developed first and can be traced back to classical economists like Adam Smith and David Ricardo.
• Neoclassical economist Alfred Marshall popularized microeconomics in his 1890 book, "Principles of Economics."
• Macroeconomics existed before microeconomics, with mercantilists in the 16th and 17th centuries advocating macro-based policies.
• Physiocrats in the 18th century and classical economists like Smith, Ricardo, and Mill discussed national income and wealth..
• Micro analysis dominated until the Great Depression of the 1930s.
• John Maynard Keynes published ""General Theory of Employment, Interest and Money"" in 1936, using a macroeconomic approach to analyze economic problems.

Meaning of Microeconomics

• Microeconomics deals with a small part of the national economy, studying individual units like consumers, producers, firms, and specific commodity prices.
• Definitions of Microeconomics:
  • Maurice Dobb: Microeconomics is a microscopic study of the economy.
  • A.P. Lerner: Microeconomics examines the economy through a microscope, observing individual cells (households, consumers, firms, producers) and their roles.

Scope of Microeconomics

• Theory of Product Pricing: Analyzes demand (individual consumer behavior) and supply (individual producer behavior) to determine commodity prices.
• Theory of Factor Pricing: Determines rewards (rent, wages, interest, profit) for factors of production (land, labor, capital, entrepreneur).
• Theory of Economic Welfare: Deals with efficiency in resource allocation to maximize satisfaction, involving:
• Efficiency in production: Producing the maximum amount of goods and services from available resources.
• Efficiency in Consumption: Distributing goods and services to maximize total societal satisfaction.
• Overall Economic Efficiency: Producing goods that are most desired by the people.

Features of Microeconomics

• Focuses on individual economic units like firms, prices, and households.
• Deals with price determination for goods, services, and production factors, hence known as price theory.
• Deals with partial equilibrium, analyzing individual units independently.
• Is Based on assumptions (Ceteris Paribus), perfect competition, laissez-faire policy, pure capitalism, full employment to simplify analyses.
• It uses the slicing method, splitting the economy into small units for detailed study.
• Employs marginalism, where 'marginal' signifies the change from one additional unit, influencing economic decisions.
• It analyzes market structures like perfect competition, monopoly, and oligopoly.
• Has a limited scope, focusing on individual units and not addressing nationwide issues like inflation or unemployment.

Importance of Microeconomics

• Explains price determination for products and production factors.
• Aids in understanding free market economies where decisions are made at individual levels without government intervention.
• Helps explain foreign trade aspects like tariff effects, exchange rates, and international trade gains.
• Assists in understanding complex economic situations through economic model building.
• It offers valuable economic contributions by developing concepts, terminologies, and analysis tools.
• Theories aid businesspeople in making crucial decisions related to cost, pricing, and profit maximization.
• Useful for governments in framing policies on taxation, expenditure, and pricing for efficient resource allocation and welfare.
• Explains how to achieve optimal resource utilization and allocation for welfare, studying how taxes affect social welfare.

Meaning of Macroeconomics

• Macroeconomics analyzes the economy as a whole, dealing with total employment, national income, output, investment, consumption, savings, general price levels, interest rates, inflation, trade cycles, and business fluctuations.
• Definitions of Macroeconomics
• J.L. Hansen: Studies relationships between large aggregates like employment volume, savings, investment, and national income.
• Carl Shapiro: Deals with the functioning of the economy as a whole.

Scope of Macroeconomics

• Theory of Income and Employment: Explains factors determining national income, employment levels, and fluctuations, including the study of consumption and investment functions plus business cycles.
• Inflation: Illustrate how the general price level is determined and what causes fluctuations, and explain issues created by inflation and deflation.
• Theory of Distribution: Deals with rent, wages, interest, and profit shares in the total national income.
• Theory of General Price Level and
• Theory of Growth and Development: Consists of theories of economic growth and development, explaining causes of underdevelopment and poverty, and suggesting acceleration strategies.

Features of Macroeconomics

• It studies the economy as a whole, using aggregate concepts like national income, output, employment, price level, and business cycles.
• It studies the concept of national income, measurement methods, and social accounting, explaining fluctuations leading to business cycles like inflation and deflation.
• It deals with behavior and functional relationships of large aggregates.
• Account for interdependence between aggregate economic variables.
• the lumping method
• Policy Oriented

Importance of Macroeconomics

• Analyses economic systems to understand behavior patterns within large, complex systems.
• Helps to analyze causes of and control economic fluctuations in income, output, and employment.
• Study of macroeconomics has brought forward the immense importance of the study of national income
• Understands underdevelopment problems and aims for economic growth and development.
• National Income estimates used to measure the performance of an economy
• To understand the working of the economy, macro economic variables are important.
• Economics helps to analyze the general level of employment and output

Micro vs Marco Economics

• Microeconomics:

  • Tools: Individual Demand and Supply
  • Scope: product pricing, factor pricing, production, consumption, economic welfare, etc.
  • Importance: Used for Model building, Business decisions, and Price determination

• Theory: Price Theory

• Examples: individual output, individual income

• Macroeconomics:

• Tools: Aggregate Demand and Supply

• Scope: national income, general price level, employment, money etc.

• Important: for economic fluctuations, economic development and study of national income

• Theory: Income and Employment Theory

• Examples: National output, National Income

Utility Analysis

Basic Concepts

• Want: Signals a feeling of lacking satisfaction.
• Wants: Are unlimited, recurring, and vary with age, gender, season, habits, and culture.
• Utility: A commodity's capacity to satisfy human wants, reflecting its want-satisfying power. Features of Utility:
• Relative Concept : changes relative to time and place
• Subjective Concept : psychology concept, differs from person to person
• Ethically Neutral Concept : does not have any ethical consideration
• Utility differs from usefulness : Utility is the capacity of a commodity to satisfy human wants
• Utility differs from pleasure : injection
• Utility differs from satisfaction : drinking glass of water
• Measurement of utility is hypothetical : cant measure an abstract concept, can be experienced either negative, zero or postitive
• Utility is multi-purpose : cam satisfy the want of more than one person.
• Utility depends intensity on the want : Depends on the intensity of a want.
• Utility depends intensity on the demand : Person will demand a commodity only if it gives utility to him

Types of Utility:

• Form Utility: Created by changing the structure of an existing material.
• Place Utility: Increases when a commodity's location changes.
• Service Utility: Arises from personal services rendered by professionals.
• Knowledge Utility: Develops when a consumer learns about a product.
• Possession Utility: Occurs when ownership of goods transfers.
• Time Utility: Increases by changing the time of utilization.

Concepts of Utility

• Total Utility (TU): Cumulative utility from consuming all units of a commodity.
• Marginal Utility (MU): Extra utility gained from an additional unit of consumption.

Relationship between Total Utility and Marginal Utility:

• Marginal utility (MU) derived from various units of a commodity and its total utility (TU) are interrelated

The Law of Diminishing Marginal Utility

• First proposed by Prof. Gossen but was discussed in detail by Prof. Alfred Marshall in his book ‘Principles of Economics' published in 1890.

Statement of the Law :

• According to Prof. Alfred Marshall, “Other things remaining constant, the additional benefit which a person derives from a given increase in his stock of a thing, diminishes with every increase in the stock that he already has.”

Assumptions of of the Law of Diminishing Marginal Utility

• Rationality : Consumer is assumed to be rational.
• Cardinal measurement : The law assumes that utility can be cardinally or numerically measured.
• Homogeneity : All units of a commodity consumed are exactly homogeneous
• Continuity : All units of commodity are consumed in quick succession without any lapse of time.
• Reasonability : All the units of a commodity consumed are of reasonable size.
• Constancy : All the related factors consumers tastes and habits remain constant.
• Divisibility : The law assumes that the commodity consumed by the consumer is divisible so that it can be acquired in small quantities.
• Single Want: A given commodity can satisfy a single want of a person.

Diagram Explanation

• In the diagram, units of commodity x are on X axis and marginal utility is measured on Y axis.

Exceptions of the Law of Diminishing Marginal Utility:

• Hobbies: Marginal utility increases with collection.
• Miser: More money brings more satisfaction.
• Addictions: Level of intoxication increases with liquor.
• Power: Lust for power increases with acquisition.
• Money increases with the stock of money increase
• It increases happiness at a higher price

Criticism of utility law

• Unrealistic assumptions of homogeneity, continuity,cardinality and rationality
• Cardinal measurement : cannot express utility so it can be added or compared
• Indivisible : do not apply to bulky goods
• Single want : only satisfaction of a single want
• Costant marginal utility of money: Law assumes money of any given unit

Significance of Utility Law

• Usefulness to consumers
• Useful to the government
• Basis of paradox with values
• Basis of the law of demand

Relationship between Marginal Utility and Price:

• It is essential to convert marginal utility in terms of money so that it can be compared with market price.
• Intra-marginal units(MUx>Px)
• Marginal unit(MUx=Px) consumer’s equilibrium extra marginal units (MUx<Px)

Demand Analysis

Meaning and Definition of Demand

• Desire backed by a willingness and the ability To pay
• According to Benham demand is any given price.
• The amount of an item, which is brought per unit of time of that price

Key featurees of Demand

• Concept of Demand is relative
• It is essential to reference the time with the price

Demand schedule

• Demand Scheduled a tabular representation of the functioning relationship price and qunatity demand

• Can be market or individuals schedule

• Individuals demand is defined as the quantity of the commoditt demand by the customer

• Individuals demand schedule as a tabular representatiohn showing different quantity of the commodity

• Can be helped to understand the individuals scheduled

• The Individual scheduled the is graphical representation of individuals is a graphical. Representation

Types of demand

-Direct

• It’s is a demand by for consumers and services
  • Indirect
  • Otherwise also known as desire the demand it refers to demand for goods.
  • Which are need for Futher production.
  • Joint Demand.
• It can be divided into multiple demand.
• Compete the demand
• it’s demand for this goods.
• which have for substitute of each other

Determination of demand

Price

• A commodity to extent.

Income

• the power .

Prices of substitute goals

• demand for jaggress will increase if there is more quantity

• prices or communities change

• nature of it

  • is avoidable to the corresponding to the price

• population size -greater demand for the size. Expectatioj -the present

  • is decreasing .

• Advertisement the prefernece to.

• Taste

  • Influence the commodity

• Levels of the

  • increasing increase the rise of goods from the

Law of Demand:

• Law of demand as introduced by prof Alfred Marshall in his book introduction of economics which was introduced in 1990
• High price equals the quantity of small demand equal to the. Quantity of large demand

Assumption

• constant income
• no change in the population site
• constant pricing for. other goals
• no expectation change in the price in the future. -no change. Taste
• no change in taxation policy
• Demand curve is explain this is with help the the following tables

Exceptions the law will

• Giffens Paradox the product will increase or not Prestige goods the product will increase
• Specuation the product will increase and decrease
• Price Ellusion
• The product will inceraese.
• Ignore the price
• Habitul goods Due to the habit

Understanding copyright, textbook reproduction guidelines, and key contributors. Exploring micro and macro economics, their origins, and focus areas within the broader economic landscape.