ECONOMIC ANALYSIS DBM121 A K JHA Introduction Economic Analysis Relevance of the course Why do you need to study it Unlimited needs and want Limited resources Multiplicity of needs and wants ID: 930577
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Slide1
Definition of Economics and Basic Assumptions
ECONOMIC ANALYSIS (DBM-121)
A K JHA
Slide2Introduction
Economic Analysis
Relevance of the course
Why do you need to study it?
Unlimited needs and want
Limited resources
Multiplicity of needs and wants
Alternative uses of resources
Decision making/ Choices
Slide3What is Economics?
Earlier, the term ‘
Economics
' was
used to for ‘
Political Economy’
.
The term Economy
is derived from
the Greek word
‘
oikonomia
’
means
management of household
.
Now the question is
what is economics?
There are several definitions.
Slide4Definitions of Economics
Adam Smith
(1776)
defined economics as an
inquiry into the nature and causes of the
wealth
of nations."
J.B
. Say
(1803)
defined
it as the science
of
production, distribution, and consumption of
wealth
.
Thomas Carlyle (1849)
stated it as 'the
dismal
science‘.
Alfred Marshall
(1890
), in
his textbook
Principles of Economics
extended the analysis
beyond
wealth
and from the
societal
to the
microeconomic
level.
Marshall explained
“Economics
is a study of man in the ordinary business of life
.”
It enquires how he gets his income and how he uses it.
As per this definition ,
it is on the one side, the study of wealth and
on
the other and more important side, a part of the study of
mankind.
Slide5Definitions of Economics contd..
According to Lionel
Robbins (1932
),
Economics
is a science which studies
human behaviour
as a relationship between
ends
and scarce
means
which have alternative uses
.
Broadly, on the basis of different concepts and definitions it can be concluded that economics includes the
study of:
the economy
the coordination process
the effects of scarcity
the science of choice
human
behavior
Human beings as to how they coordinate wants and desires, given the decision-making mechanisms, social customs, and political realities of society.
Slide6Basic Assumptions of Economics
Economic
rationality
Every decision maker in an economic
system behaves in a rational manner and attempts to maximize his gain/welfare.
Economic rationality presupposes that every person knows his interest and selects that course of action which gives him greatest amount of satisfaction
.
The assumption of economic rationality does not carry any moral or ethical implications.
Slide7Basic Assumptions of Economics
Ceteris
paribus i.e.
“
Other things being equal”.
This
is
the
most widely used assumption of economics.
This
assumption shows the limitations in the way of any economic generalization
.
The law of demand, for example, states that a large quantity of commodity or service will be demanded at a lower price, other things remain the same.
Slide8Basic Assumptions of Economics
Concept of equilibrium
equilibrium
denotes the state of rest
.
it
shows a position of no change or position of maximum gain
.
The economists assumes that economy has a natural tendency to reach equilibrium.
Slide9Basic Assumptions of Economics
Static economy
Economics studies the problem of allocation of resources between goods and services on the assumption that technology and resources are given in an economy
.
It implies that economy is producing maximum amount of national income with the given technology and resources.
In
other words economics studies a static economy with a given system of wants, resources and technology, although in real world situation nothing is static.