Introduction:
Introduction Economics is derived from two Greek words: Oikos: Household Nomos: Management Early economics was seen as a science that studied the principles of household management Economics existed in days of Chanakya who wrote ‘Arthashastra’ Present day economics came about in 18 th century
Introduction:
Introduction Adam Smith Father of economics An Enquiry into the Nature and Causes of Wealth of Nations, 1776 Defined economics as: ‘a study of how nations acquire wealth’ Two salient principles Principle of Laissez Faire Principle of Self – Interest
Introduction:
Introduction Marshall Criticised Smith’s definition of being one sided Introduced the concept of ‘welfare’ Defined economics as: ‘one side is a study of wealth and on the other and more important side, a part of the study of man.’ Robbins Criticised Marshall for not including ‘non- material’ welfare Defined economics as: ‘a science which studies behaviour as a relationship between ends and scarce means which have alternate uses.’
Economic Theory:
Economic Theory Explains the ‘why’ of an observed phenomenon Why is income increasing Why is unemployment rising Why is foreign exchange rate depreciating Explains: How an economy functions Predicts how an economy would behave in the future, given a particular scenario
Microeconomics:
Microeconomics Basic unit of study is small Household Producer Market Based on scarcity and choice of individual units Resource allocation between producers and consumers Central concepts: Price theory
Macroeconomics:
Macroeconomics Basic unit of study is large (entire economy) Eg: Inflation Eg: Unemployment Suggests policy measures that governments can adopt to correct observed economic variables Government could raise interest rates to lower investment in the economy Central concepts: Income and employment determination along with stabilization