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CHAPTER: 1
INTRODUCTION
CONSUMPTION
CAPITAL
PRODUCTION FORMATION
ECONOMY
WHY STUDY ECONOMICS?
The main reason for study of economics can be simplified to a
single word - SCARCITY
SCARCITY
Scarcity refers to the limitation of supply in relation to demand
for a commodity.
Economics is concerned with selection of resources under
conditions of scarcity
RESOURCES
FACTORS OF PRODUCTION - FOP
ECONOMIZING OF RESOURCES
Refers to making optimum use of the available resources.
ECONOMIC PROBLEM
It is a problem of CHOICE involving satisfaction of unlimited
wants out of limited resources having alternative uses.
REASONS FOR ECONOMIC PROBLEM
1. SCARCITY OF RESOURCES: Resources are limited in
relation to their demand and economy cannot produce all
what people want.
REASONS FOR ECONOMIC PROBLEM
2. UNLIMITED HUMAN WANTS: Human wants are never
ending, i.e. they can never be fully satisfied. As soon as one
want is satisfied, another new want emerges.
REASONS FOR ECONOMIC PROBLEM
3. ALTERNATIVE USES: Resources are not only scarce, but
they can also be put to various uses. It makes choice among
resources more important.
ECONOMICS
Economics is a social science which studies the way a society
chooses to use its limited resources, which have alternative
uses, to produce goods and services and to distribute them
among different groups of people.
MICRO AND MACRO ECONOMICS
MICRO MACRO
Basis Microeconomics Macroeconomics
Meaning Microeconomics deals with the Macroeconomics is the study of
behaviour of individual the economy as a whole.
economic units.
Tools Demand and Supply Aggregate Demand and Aggregate
Supply
Objective To determine the price of a To determine the income and
commodity or factors of employment level of the economy.
production.
Other It is also known as ‘Price theor It is also known as ‘Income and
Name y’. Employment Theory’
Reason:-
Increasing MOC operates because productivity and
efficiency of factors of production decrease as they
are shifted from one use to another.
MARGINAL RATE OF TRANSFORMATION
MRT is the ratio of number of units of a commodity
sacrificed to gain an additional unit of another
commodity.
MRT = Units Sacrificed
Units Gained
MRT increased because it is assumed that no
resources is equally efficient in production of all
goods.
CHARACTERISTICS OF PPF
1. PPF SLOPES DOWNWARDS: More of one goods can be
produced by only by taking resources away from the
production of another good.
2. PPF is CONCAVE SHAPE: Because of increasing MRT. MRT
increases because it is assumed that no resource is
equally efficient in production of all goods.
ATTAINABLE AND UNATTAINABLE COMBINATIONS
CHANGE IN PPC
1. SHIFT IN PPC: When there is change in productive
capacity with respect of both the goods.
2. ROTATION OF PPC: When there is change in productive
capacity with respect to only one good.
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