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1. Introduction and Meaning of Economics
2. Branches of Economics
3. A. Basic Concepts of Micro Economics
3. B Concept of Macro-Economics
Q.1 What is science? Explain its types
Ans. Science is the systematic body of knowledge. There are two main types of sciences: Natural sciences and Social sciences. Natural sciences are also called exact sciences because of their empirical approach to the study. e.g. Mathematics, Physics, Chemistry. Social Science is called abstract or behavioural science because it is related to the study of some or the other aspect of human behaviour. e.g. Psychology is related to ‘mental’ aspect of human behaviour. Sociology is related to the study of ‘social’ aspect of man as a member of society.
Q.2 What is meant by Economics?
Ans. Economics is a social science. The origin of the term 'Economics' lies in the Greek word, 'Oikonomia' which means management of the household. Economics is referred to as the 'Queen of Social Sciences' by Paul Samuelson. Economics deals with the economic aspect of human behaviour. It deals with how human beings satisfy unlimited wants with limited means.
Q.3 Write about the key-points based on Kautilya’s views on Economics.
Ans. 1) Artha means 'Wealth' and Shastra means 'Science', so Kautilya’s Arthashastra implies the science of acquiring and managing wealth.
2) Crucial role of the state or government.
3) Focus on creation of wealth as the means to ensure welfare of the state.
4) Need for efficient administrative machinery for good governance.
5) Compilation of political ideas into Arthashastra.
Q.4. Write Adam Smith's Wealth-Oriented Definition of Economics.
Ans. Classical economist Adam Smith, also regarded as the "Father of Economics", has given the wealth-oriented definition of Economics. Out of his many literary contributions to Economics, he is most famous for his 1776 piece of work, "An Inquiry into the Nature and Causes of Wealth of Nations". Adam Smith defines Economics as "a science of wealth".
Q.5 What were the key-points of Adam Smith’s Definition?
Ans. Key-points of Adam Smith's definition :
1) Laissez faire i.e. non-intervention of the government.
2) Capital and wealth accumulation
3) Nature's law in economic affairs.
4) Division of labour as an aspect of growth theory.
Q.6 Give the Definition of Economics by Alfred Marshall.
Ans. It is a Welfare-Oriented Definition of Economics, in his book entitled "Principles of Economics", published in 1890. "Economics is a study of mankind in the ordinary business of life. It examines that part of individual and social action, which is closely connected with the attainment and use of material requisites of well-being". Key-points of Marshall's definition:
1) Study of an ordinary man.
2) Economics is a behavioural science.
3) Study of material welfare.
4) Economics is not simply a study of wealth.
Q.7. Definition of Economics by Lionel Robbins and key-points of his definition.
Ans. Robbins’ was a Scarcity-Oriented Definition, in his book entitled, "An Essay on the Nature and Significance of Economic Science", published in 1932. "Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses". Key-points of Robbins' definition :
1) Wants (ends) are unlimited.
2) Means are comparatively limited.
3) Wants are gradable on the basis of priority.
4) Means have alternative uses.
2. Branches of Economics
**Q.1 What is meant by Micro Economics?
Ans. Micro means small. Micro Economics deals with the behaviour of the individual variables such as a household, worker, firm, industry etc. According to Kenneth Boulding-"Micro Economics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries, particular commodities".
Q.2 What are the basic concepts of Micro Economics?
Ans. The basic concepts of Micro Economics are Wants, Goods and Services, Utility, Value, Wealth, Personal Income, Personal Disposable Income(PDI) and Economic activity.
3. A. Basic Concepts of Micro Economics
*Q.1.A What are the characteristics of wants ?
Ans. In economics, want denotes a feeling of 'lack of satisfaction'. Human wants have grown in number for two basic reasons : Desire for better living due to inventions and innovations. Rise in population. Characteristics of wants :
ii) Wants are recurring in nature: Several human wants occur again and again, while some might be only occasional.
Wants differ with age: Wants and their satisfaction differ as per the chronological age.
iv) Wants differ with gender: Men and women want different goods according to their needs.
v) Wants differ due to preferences : Individual habits, tastes and preferences matter a lot while deciding wants of the people.
vi) Wants differ with seasons: Wants keep on changing with seasons.
vii) Wants differ due to culture : Differences in culture influence wants that are related to food, dressing styles, etc.
*Q.1.B Explain classification of wants.
Ans. Economic and Noneconomic wants Individual Wants and Collective wants Necessities, comforts and luxuries. Economic wants are those where monetary transaction is involved. An individual has to pay the price for them, e.g. food, medicines etc. Non-economic wants are those which can be satisfied without making monetary payment for them, e.g. air, sunshine etc. Personal or individual wants refer to those wants which are satisfied at the individual level, e.g. a doctor using a stethoscope, a judge wearing his coat. Collective wants are social wants where there is collective satisfaction of wants, e.g. travelling by train. Necessities are the very basic needs of life, e.g. food, clothing, shelter, health and education. Comforts are those wants which make us life comfortable, e.g. washing machine, mixer, pressure cooker etc. Luxuries are those wants which are meant for pleasure and enjoyment, e.g. AC-car, well-furnished house etc.
**Q.2. Explain goods and services.
Ans. Anything that satisfies human wants is termed as a 'good'. It has material existence, e.g. chalk used by a teacher. Services also satisfy human wants but do not have any material existence, e.g. 'Teaching' offered by the teacher.
*Q.3 Explain the concept of Utility.
Ans. Capacity of a commodity to satisfy human wants or want satisfying power of a commodity is called utility.
**Q.4. Explain the concept of value
Ans. Value has two approaches in economics, i.e. 'value-in-use' and 'value in Exchange. Value-in-use: In simple words, it is usefulness of a commodity, e.g. no one has to pay price for sunshine but its immense worth for life can never be doubted. It is an example of a ‘free good’. Value-in-exchange: When the value is expressed in terms of money, it is called price of a commodity. A good which commands a price is termed as an 'economic good', e.g. TV, car etc. Water-Diamond Paradox of values : Some commodities have a high value-in-use but low exchange value, e.g. water whereas some commodities have low value-in-use but high exchange value due to its scarcity, e.g. diamond. Water-Diamond Paradox
**Q.5 Explain the features of wealth.
Ans. Wealth refers to “anything which has market value and can be exchanged for money.” To be regarded as 'wealth', a commodity must possess the following characteristics: i) Utility ii) Scarcity iii) Transferability iv) Externality
Q.6. What is Personal Income?
Ans. Earnings received by a person from all sources is called his personal income.
Q.7 What is Personal Disposable Income(PDI) ?
Ans. It is that part of personal income which is left over after payment of direct taxes such as income tax, wealth tax etc.
Q.8 What are the various types of income?
Ans. A) Fixed income: Income which remains stable over a period of time, e.g. rent, wages.
B) Fluctuating income: Income which is not fixed but keeps on changing, e.g. profit. It can be positive, negative or zero.
C) Money income: It is the income received in actual currency of the country. In other words, it is the income in cash, e.g. Rs. 5,000
D) Real income: It is the purchasing power of money income, e.g. commodities purchased out of money income.
E) Contractual income: This income is paid as per the terms and conditions of contract, e.g. rent, wages.
F) Residual income: Income which is left over after making payments to all factors of production is called residual income, e.g. profit.
G) Earned income: Income obtained after participating in the productive activity, e.g. rent, wages, interest, profit.
H) Unearned income : Income received from all sources without indulging in any productive activity, e.g. windfall gains, lottery prizes.
Q.9 Write about the classification of Economic activities
Ans. Economic activities can be classified into four types which include production, distribution, exchange and consumption.
Q.10. What is production?
Ans. Production is the creation of utility. There are four factors of production such as land, labour, capital and entrepreneur. Land Labour Capital Entrepreneur Any natural resource that is available on, above and below the surface of the earth is called ‘land’ in Economics, e.g. minerals which are found below the surface of the earth; soil, water on the surface of the earth; air, sunshine, wind is above the surface of the earth. Land Labour is a human factor of production. Any physical or mental effort undergone during the process of production to earn the reward of 'wages' is called ‘labour’, e.g. carpenter, accountant, engineer etc. Capital is a produced means for further production. It is a man-made factor of production which earns the reward in the form of ‘interest’, e.g. machinery, technology, factory building etc. Entrepreneur is the organizer who is a real captain of the industry. He is a special kind of labour who gets the work done to earn the reward of ‘profit’ in the process of production. earns ‘rent’ in productive activity.
Q.11. What is distribution?
Ans. Factors of production claim their rewards of rent, wages, interest and profit through the process of distribution.
Q.12. What is exchange?
Ans.’ Exchange’ refers to sale and purchase of goods and services. In economics, exchange is necessarily a monetary transaction.
Q.13 What is consumption?
Ans. It is making use of goods and services to satisfy human wants.
3. B Concept of Macro-Economics
Q.1 What is Macro-Economics?
Ans. Macro means large or aggregate or total. Macro-Economics is therefore the study of aggregates covering the entire economy such as total employment, national income, national output, total investment, total savings, total consumption, aggregate supply, aggregate demand, general price level etc. Kenneth Boulding's definition of Macro Economics: "Macro Economics deals not with individual quantities as such, but with the aggregates of these quantities, not with the individual incomes but with the national income, not with individual prices but with the general price level, not with individual output but with the national output".
**Q.2 What are the basic concepts of Macro Economics?
Ans. The basic concepts of Macro Economics are as follows:
1) National Income : This reveals the total economic performance of a nation. It is referred to as the total income of a country.
2) Saving : It is that part of the income which is set aside to satisfy the future needs by foregoing current consumption.
3) Investment: It refers to creation of capital assets through mobilisation of savings, e.g. machinery, equipment etc.
4) Trade Cycles: There are ups and downs in the overall economic activities. Ups and downs means fluctuations caused by inflation and depression respectively.
5) Economic Growth : Economic growth means an increase in the real national income of the country, over a long period of time.
6) Economic Development : Economic development implies economic growth plus progressive changes in certain important variables which determine well-being of the people, e.g. education, health etc.
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