BIJU P M PGT ECONOMICS KV 2 KOCHI
BIJU P M PGT ECONOMICS KV 2, KOCHI Introduction 1
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Origin of Economics The science of economics was born with the publication of Adam smith ‘ An inquiry into the nature and cause of wealth of Nations in the year 1776. Adam smith is known as the father of Economics. towards the end of the 19 th century there was a definite change from the use of word ‘Political Economy to ‘Economics’. What Economics is all about The word ‘economics’ is derived from two Greek words Oikou(house) and nomos (to manage). Thus the word economics was used to mean –home Management with limited funds available in the most economical manner possible. 5
The concept of economics has been changing during different stages of developing economics as subject. Let us discuss these stages : 1. Wealth concept : Adam smith, J. B. Say& walker. 2. Welfare concept : Marshall was the pioneer of welfare concept. 3. Scarcity concept : By -Lionel Robbins. 4. Development Concept : by Professor Samuelson 6
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Introduction of Microeconomics Lionel Robbins –defines economics as a science of scarcity. In his book Nature and significance of economic science states, “ Economics is the science which studies human behaviour as a relationship between end and scarce means which have alternative uses. ” Micro Economics Meaning : The concept of ‘Micro’ in English language is derived from Greek word ‘Micros’ which means Small. Therefore micro economics is the study of individual units like individual household, pricing of a firm, wages of a worker, profit of an entreneur and so on. Definition : According to K. E. Boulding – “micro economics is the study of particular firm, particular household, individual price, wages , income, individual industries, particular commodities. 10
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Positive and Normative Economics • Health care can be improved with more tax funding • Pollution control is effective through a system of fines • Society ought to provide homes for all • Any strategy aimed at reducing factory closures in deprived areas would be helpful • Positive Statements: – Capable of being verified or refuted by resorting to fact or further investigation • Normative Statements: – Contains a value judgement which cannot be verified by resort to investigation or research
Difference Positive and Normative Economics Positive Economics Normative Economics 1 It expressed What is ( or how an economic problem facing a society is actually solved. (What is , What was, What , would be) It expressed What should be. Always a matter of debate. 2 It is based on cause and effect of facts. It is based on ethics. 3 It can be verified with actual data. It can not be verified with actual data. 4 It deals with realistic situation. It deals with Idealistic situation. 5 It deals with how an economic problem is solved. It deals with how an economic problem should be solved. 6 Economists of positive school are – Adam smith, and his followers. Economists of Normative school are – Marshall, Pigou, Hicks. 7 Examples: Prices have been rising in India. air is the mixture of gases. Rich people should be taxed more. India should not take loan from foreign country. 8 Chemistry Ethics. 34
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After reading this chapter, you will have learned: • To distinguish economics from other fields of study and to distinguish microeconomics from macroeconomics. • To recognize three fundamental problems of microeconomics―what, how, and for whom to produce goods and services. • The alternative mechanisms for solving the problems of resource allocation. • How economists build models by making assumptions about human behavior. • The definition of a number of basic economic concepts, such as an economic agent, a market, an equilibrium, and Pareto efficiency. • What distinguishes positive economics from normative economics. 36
The Scope of Microeconomics What Is Economics? • Resources — The land, labor, raw materials, and machinery used to produce goods and services. • Scarcity — The fundamental economic problem that available resources are insufficient to satisfy human desires for goods and services. • Microeconomics — The study of the behavior of individual economic decision-makers, such as households, businesses, and governments. • Market — The coming together of buyers and sellers with the potential of exchanging goods or services. • Macroeconomics — The study of the overall level of economic activity in an entire economy, such as the level of output, unemployment, inflation, and growth. 37
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