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Archive for the ‘Economic’ Category

If the price of one commodity (x) changes a new set of combinations (x, y) is created between the changing tangents of the budget line and indifference curves forming the ‘price-consumption curve’ for the commodity (x) – assuming constant income and prices of the other commodity (y). The price-consumption curve shows how much of a commodity (x) is purchased if its price changes – assuming constant income and constant prices for the other good (y).

Income consumption curve is the locus of equilibrium points, at various levels of consumer’s income, when price of goods, consumers taste & habits etc. remains constant.

AB, CD, EF are 3 budget line. I1, I2, I3 are 3 indifference curve.

At the preliminary stage budget line AB and IC is I1 and equilibrium point is R. As income increases budget line shifted new line is CD, new IC is I2 and equilibrium is S. If income further increase budget line will be EF, IC is I3 and new equilibrium is T. If we add the equilibrium points at different. Income level we get a curve and it is the ICC curve.

Economic issues have occupied people’s minds throughout theages. Aristotle and Plato in ancient Greece wrote about problems of wealth,property, and trade. Both were prejudiced against ommerce, feeling that to live by trade was undesirable. The Romans borrowed their economic ideas from the Greeks and showed the same contempt for trade. During the middle Ages the economic ideas of the Roman Catholic Church were expressed in the canon law, which condemned usury (the taking of interest for money loaned) and regarded commerce as inferior to agriculture.

Economics as a subject of modern study, distinguishable from moral philosophy and politics, dates from the work, Inquiry into the Nature and Causes of the Wealth of Nations (1776), by the Scottish philosopher and economist Adam Smith. Mercantilism and physiocracy were precursors of the classical economics of Smith and his 19th-century successors.

Economics, social science concerned with the production, distribution, exchange, and consumption of goods and services. Economists focus on the way in which individuals, groups, business enterprises, and governments seek to achieve efficiently any economic objective they select. Other fields of study also contribute to this knowledge: Psychology and ethics try to explain how objectives are formed; history records changes in human objectives; sociology interprets human behavior in social contexts.

Standard economics can be divided into two major fields.

• The first, price theory or microeconomics, explains how the interplay of supply and demand in competitive markets creates a multitude of individual prices, wage rates, profit margins, and rental changes. Microeconomics assumes that people behave rationally. Consumers try to spend their income in ways that give them as much pleasure as possible. As economists say, they maximize utility. For their part, entrepreneurs seek as much profit as they can extract from their operations.
• The second field, macroeconomics, deals with modern explanations of national income and employment. Macroeconomics dates from the book, The General Theory of Employment, Interest, and Money (1935), by the British economist John Maynard Keynes. His explanation of prosperity and depression centers on the total or aggregate demand for goods and services by consumers, business investors, and governments. Because, according to Keynes, inadequate aggregate demand increases unemployment, the indicated cure is either more investment by businesses or more spending and consequently larger budget deficits by government.

Definition of Economics given by Adam Smith

Adam smith wrote a book in 1776 whose title was “Wealth of Nations”. In his book he discussed the word ‘wealth’ through its four aspects: production of wealth, exchange of wealth, distribution of wealth and consumption of wealth. There fore it can be said according to Adam Smith:

• Economics is a science of wealth.

Wealth means goods and services transacted with the help of money. Lets discuss four aspects of wealth; first one is production of wealth it shows as to how goods and services are produced. Goods and services are produced by the combination of four factors of production i.e. land, labour, capital and organization.

Second aspect is exchange of wealth there are many procedures of goods and services in a society. Every procedure produces goods and services more than his personal requirement. The exchange of wealth enables everyone in the society to satisfy his multiple wants. Third aspect is distribution of wealth, which means the distribution of goods and services among different sections or individuals of a society. As known by explanation of exchange of wealth that procedures of goods and services exchange the surplus wealth with each other through out the year. The last and forth aspect is consumption of wealth that is using up the utility of goods and services for the satisfaction of wants is called the consumption of wealth.

Definition of Economics given by Marshall

Alfred Marshall’s Principles of Economics was the most influential textbook in economics. Marshall defined economics as

• Econimics is 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 wellbeing. Thus it is on one side a study of wealth; and on the other, and more important side, a part of the study of man.”

Many other books of the period included in their definitions something about the “study of exchange and production.” Definitions of this sort emphasize that the topics with which economics is most closely identified concern those processes involved in meeting man’s material needs. Economists today do not use these definitions because the boundaries of economics have expanded since Marshall. Economists do more than study exchange and production, though exchange remains at the heart of economics.

Definition of Economics given by Robbins

Most contemporary definitions of economics involve the notions of choice and scarcity. Perhaps the earliest of these is by Lionell Robbins in 1935:

• “Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”

Virtually all textbooks have definitions that are derived from this definition. Though the exact wording differs from author to author, the standard definition is something like this:

• Economics is the social science which examines how people choose to use limited or scarce resources in attempting to satisfy their unlimited wants.

The two main branches of economics are Microeconomics and Macroeconomics.

Microeconomics looks at the behavior of individuals, homes, businesses or even groups of these. Microeconomics looks at prices of things and of services. It wants to help people decide how to divide society’s resources. To do this, microeconomics wants to understand how decisions are made and how these small decisions affect bigger things. Macroeconomics looks at the all the economy. It tries to explain the causes of numbers like national income, employment rates, and inflation. Connecting the two branches has been important and the general idea since the early 1980s. A good macroeconomic theory is based on microeconomics, meaning one can explain macroeconomic events using microeconomics for individuals.

MACROECONOMICS

Like most definitions in economics, there are various competing definitions of the term Macroeconomics and Microeconomics.

 The simplest answer to the question “What is Macroeconomics?” can be found at WordReference.com. They state that “Macroeconomics is the branch of economics concerned with aggregates, such as national income, consumption, and investment “.

The Economist’s Dictionary of Economics defines Macroeconomics as “The study of whole economic systems aggregating over the functioning of individual economic units. It is primarily concerned with variables which follow systematic and predictable paths of behavior and can be analyzed independently of the decisions of the many agents who determine their level. More specifically, it is a study of national economies and the determination of national income.”

 The website Tutor2U.net answers the question “What is Macroeconomics” with the following response: “Macroeconomics considers the performance of the economy as a whole. Many macroeconomic issues appear in the press and on the evening news on a daily basis. When we study macroeconomics we are looking at topics such as economic growth; inflation; changes in employment and unemployment, our trade performance with other countries (i.e. the balance of payments) the relative success or failure of government economic policies and the decisions made by the Bank of England.”

 Wikipedia.org states that “Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. Macroeconomics can be used to analyze how best to influence policy goals such as economic growth, price stability, full employment and the attainment of a sustainable balance of payments. ”

Introduction to Macroeconomics:

Macroeconomics, branch of economics concerned with the aggregate, or overall, economy. Macroeconomics deals with economic factors such as total national output and income, unemployment, balance of payments, and the rate of inflation. It is distinct from microeconomics, which is the study of the composition of output such as the supply and demand for individual goods and services, the way they are traded in markets, and the pattern of their relative prices.

 At the basis of macroeconomics is an understanding of what constitutes national output, or national income, and the related concept of Gross National Product (GNP). The GNP is the total value of goods and services produced in an economy during a given period of time, usually a year. The measure of what a country’s economic activity produces in the end is called final demand. The main determinants of final demand are consumption (personal expenditure on items such as food, clothing, appliances, and cars), investment (spending by businesses on items such as new facilities and equipment), government spending, and net exports (exports minus imports).

Macroeconomic theory is largely concerned with what determines the size of GNP, its stability, and its relationship to variables such as unemployment and inflation. The size of a country’s potential GNP at any moment in time depends on its factors of production—labor and capital—and its technology. Over time the country’s labor force, capital stock, and technology will change, and the determination of long-run changes in a country’s productive potential is the subject matter of one branch of macroeconomic theory known as growth theory.

The study of macroeconomics is relatively new, generally beginning with the ideas of British economist John Maynard Keynes

  in the 1930s. Keynes’s ideas revolutionized thinking in several areas of macroeconomics, including unemployment, money supply, and inflation.

MICROECONOMICS

Perhaps the simplest answer to the question “What is Microeconomics?” can be found at WestValley.edu. They state that “Microeconomics deals with the decision making and market results of consumers and firms”.

 Wikipedia.org states that “Microeconomics is the study of the economic behavior of individual consumers, firms, and industries and the distribution of total production and income among them.It considers individuals both as suppliers of labor and capital and as the ultimate consumers of the final product.”

 The Economist’s Dictionary of Economics defines Microeconomics as “The study of economics at the level of individual consumers, groups of consumers, or firms… The general concern of microeconomics is the efficient allocation of scarce resources between alternative uses but more specifically it involves the determination of price through the optimizing behavior of economic agents, with consumers maximizing utility and firms maximizing profit.”

 Apart from all the above definitions I’ll state as the following:

Microeconomics is the branch of economics that deals with small units, including individual companies and small groups of consumers. Economics is concerned with the allocation of scarce means among competing ends. People have a variety of objectives, ranging from the satisfaction of such minimum needs as food, clothing, and shelter, to more complex objectives of all kinds, material, aesthetic, and spiritual. However, the means available to satisfy these objectives at any point in time are limited by the available supply of factors of production (labor, capital, and raw materials) and the existing technology.
Microeconomics is the study of how these resources are allocated to the satisfaction of competing objectives. It contrasts with macroeconomics, which is concerned with the extent to which the available resources are fully utilized, or increase over time, and related issues. It is not always possible to make a distinction between microeconomics and macroeconomics. For example, the difference between conflicting schools of thought in macroeconomics is sometimes traced to differences in assumptions related to microeconomics.