Mahendra K Patidar / PGDM BIF / 017 / 091604 86684

BASIC ECONOMICS: AN OVERVIEW

 Economics is originated from a Greek term ‘OIKONOMIKOS’, which means house

management.
 Every economic system, irrespective of its nature, is required to face three kind of economic
problems:
 What to produce and in what Quantities?
 How to produce?
 For whom to produce?
 Economics: “Economics is the science which studies human behavior as a relationship
between ends and scarce means which have alternative uses”.
 The term ‘Micro Economics’ and ‘Macro Economics’ were first coined and used by Ragnar
Frisch.
 ‘Micro Economics was popularized by Alfred Marshall
 ‘Macro Economics’ was popularized by JM Keynes.
 Micro Economics is also called ‘Price Theory’, because it explains pricing in factor market
and product market.
 Macro Economics is also called ‘Income and Employment Theory’.
 ‘Micro Economics’ concerned with the economic activities of economic units as consumers,
resource owners and business units. ---LeftWitch
 ‘Macro Economics’ studies national income not individual income, general price level
instead of individual prices and national output instead of individual output. ---KE Boulding
 Equilibrium refers to a situation in which economics agents satisfy with the existing
allocation of resources and do not want any further change.
 Law of Diminishing Marginal Utility: HH Gossen was the first economist to esplain the law
of diminishing marginal utility in 1854. In the words of Prof Boulding “As a consumer
increases the consumption of any one commodity, keeping constant the consumption of all
other commodities, the marginal utility of the variable commodity must eventually
(ultimately) decline”.
 Elasticity of Demand: The degree to which quantity demanded responds to change in price
is known as Elasticity of Demand.
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 Mahendra K Patidar / PGDM BIF / 017 / 091604 86684

 Gross National Product (GNP): It is the total value of all final goods and services produced in
the economy in one year.
 Gross Domestic Product (GDP): The market value of the total goods and services produces in
a country in one particular period usually in a year. If net foreign income deducted from
GNP, we get GDP.
 Net National Product (NNP) = GNP - Depreciation
 Net Domestic Product (NDP) = GDP - Depreciation
 Methods for measurement of National Income:
 Output Method
 Expenditure method
 Income Method

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