Introduction to Economics
Definitions of Economics
1. Science of Wealth
“Economics is a science which enquires in to the nature and causes of wealth of nations.”
– Adam Smith
2. Science of Material Well Being
“Economics is a study of mankind in the ordinary business of life. It examines that part of
individual and social action which is most closely connected with the attainment and
with the use of the material requisites of well-being. Thus, it is on the one side a study of
wealth and on the other and more important side a part of the study of the man.” –
3. Science of Dynamic Growth & Development
“Economics is the study of how man 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.” –
Prof. Paul A. Samuelson
4. Science of Choice Making
“Economics is the science which studies human behavior as a relationship between ends
and scarce means which have alternative uses.” – Robbins “The range of our inquiry
become restricted to that part of social welfare that can be brought directly or indirectly
into relation with the measuring rod of money.” – A. C. Pigon
Micro and Macro Economics
1.Micro Economics – “study of economic behavior of an individual, firm or industry in
the national economy”
2.Macro Economics – “study of overall economic phenomena as a whole rather than its
Central Economic Problem
i.What to Produce?
ii.How to Produce ?
iii.For whom to Produce ?
iv.What provision should be made for Economic Growth ?
How different economies solve their economic problems?
3.The Mixed Economy
Unit 1:- Law of Demand
What is Demand ?
When the person desiring is willing and able to pay for his desire, the desire is changed
Demand refers to the quantity of a good or service that consumers are willing and able to
purchase at various prices during a period of time.
1. Determinants of Demand
1. Price of the commodity
2. Price of related commodities
3. Level of Income of household
4. Tastes and preferences of consumers
5. Other Factors
2. Demand Schedule:
The table showing the data of price and quantity demanded of a commodity.
3. Market Demand Schedule:
When we add up the various quantities demanded by the number of consumers in the
the table we get is called “Market Demand Schedule
Demand Curve: The curve obtained by plotting demand schedule on a graph paper
4. Rationale for the law of demand
i) Substitution Effect
ii) Income Effect
Increase in no. of consumers
5. Exception to for the law of demand
i) Conspicuous Goods
ii) Giffen Goods
iii) Conspicuous Necessities
iii) Future expectations about prices
iv) Irrational Consumers
iv) Changes in one of the determinants of demand
Elasticity of Demand
What is Elasticity of Demand ?
It is the responsiveness of the quantity demanded of a good to changes in one of the
variables on which demand depends.
These variables are: Price of the commodity, Price of the related commodities, Income
the consumers & Various other factors
1 . Price Elasticity: It expresses the response of quantity demanded of a good to a
change in its price, given
the other determinants being same
2 . Income Elasticity: It expresses the response of quantity demanded of a good to a
income of theconsumer
3 . Cross Elasticity: It expresses the response of quantity demanded of a good to a
change in price of another good
Point Elasticity: This method tells us how to measure elasticity of demand at any
point on a demand curve.
Arc Elasticity: When price elasticity is to befound between the two prices, the concept
of arc elasticity is used
Interpretation of values of elasticity of demand
The numerical value of elasticity of demand can assume any value from 0 to infinity
Numerical Value of elasticity Verbal Description Terminology