3.
May,2025
Economy and Economics
Economics is science of human behavior.
Origin of economy is from two Greek words i.e. OIKAS(household) and NEMEIN(
management) together forming Management of households.
Define Economics = Economics is that branch of knowledge in which those activities of
human beings are studied which they undertake to get rare means to satisfy their
unlimited wants.
Wealth = Human wants are unlimited but the means to satisfy them are limited or
scarce. These means are called wealth.
Resource = Anything that satisfy human wants is a resource.
Characteristics of resource:-
1. Resources are scarce
2. Resources have alternative uses. (alterative means multiple)
Consumer wants max. satisfaction
Producer wants max. profit
Society wants max. social welfare
Q. Why do we need to study Economics ?
A. To achieve the objectives of:-
1. Max. satisfaction at the individual level.
2. Max. profit at the individual level.
3. Max. social welfare at the whole economic level.
Choice is the outcome of scarcity. It is the process of selection from available limited
alternatives. It emerges because resources are scarce and resources have alternative
uses or multiple uses.
Economic problem = Problem of choices or the problem of allocation (spending) of
scarce resources to different uses.
Causes of Economic problem:-
1. Unlimited human wants
2. Scarcity of Economic resources
3. Alternative uses of resources
T2. Microeconomics and Macroeconomics
Microeconomics
When the problem of choices( economic problems) are studied at the level of individual.
Origin, Greek word > mikros, means small.
Macroeconomics
When the problem of choices(economic problem) are studied at the level of the
country.
Origin> Greek word> mackros, means large.
Q. Difference between Microeconomics and Macroeconomics
Ans.
Basis Microeconomics Macroeconomics
1. Meaning Microeconomics studies economic Macroeconomics studies economic
relationships or economic problems at relations or economic problems at the
the level of individual. level of country as a whole.
2. Central issue Concerned with determination of Concerned with determination of
output and price for an individual firm aggregate(total) output and general price
or industry. level in the economy as a whole.
3. Central role Market forces (of supply and demand ) Govt. policies (monetary and fiscal
play the central role in the context of policies) play the centeral role in the
microeconomics problem. Eg:- product context of macroeconomics. Eg:- problem
pricing and factor pricing. of unemployement, poverty and inflation.
4. Alternative Also known as ‘ Theory of Price’. Also known as ‘ theory of Income and
names employement’.
T3. Positive and Normative Economics
1. Positive Economics
It deals with economics issues or economic behavior related to past; present; future.
It deals with such economic situations which can be studied by using facts and figures.
Characteristics of Positive Economics
1. It highlights the nature and extent of economic problem related to past; present ;
future’
2. These statement are based on facts and figures.
3. These statements are Verifiable Truths.
4. These statements do not reflect any value judgements or opinions.
2. Normative Economics
Normative economics is the economics of ‘what ought to be’. It deals with the opinion
of the economists related to economic issues.
For eg :- MGNREGA will one day bring an end to the probem of unemployement in the
country.
Eg 2 :- MGNREGA uses taxpayer’s money an should therefore ; be stopped.
In above two examples there are opinions of two different people and these two
statements are not verifiable for truths.
Characteristics of Normative economics:-
1. These statements involve value judgements.
2. These statements leads to controversies and debates.
3. These statements indicates opinions and are nit verifiable.
4. These statements reflects ‘what ought to be’.
T4. What is Economy?
Economy is a system by which people of an area earn their living.
Economic Activity = An individual himself is not capable of producing all goods and
services which he needs for satisfying of wants. He depends on others. This mutual
dependence is the essence of economic activity.
A simple economy is the one in which the degree of ‘ interdependence and exchange’ is
of moderate degree.
Basic Economic activities
1. Production
2. Exchange
3. Consumption
There are two types of economies:-
Simple economy Complex economy
Income level is low. Income level is high.
Interdependence is limited. Interdependence is high.
Degree of Exchange is Degree of exchange is very
moderate high.
Wants of people are Wants are multiple as well as
multiple but not so enormous.
enormous.
T5. Types of Economics
1. Market Economy
1. Another name ‘free economy’ and ‘capitalist economy’.
2. Role of Govt. is least
3. Run and owned by Private Sector.
4. Decides; What to produce? ; How to produce? ; For whom to produce?
5. Main motive is Profit maximization.
2. Contralled Economy
1. Another name ‘Socialst economy’ and ‘centrally Planned economy’
2. Run by Public sector or Govt.
3. Main motive is Social welfare.
3. Mixed Economy
1. Economy in which both Private and Public sectors are there.
2. India is the example of Mixed economy.
When the role of Govt. is more as compared to private sector in terms of production.
These types of countries are classified into Controlled economy. For eg:- China; north
Korea ; Russia etc.
Countries in which the role of govt. is low and the economy is controlled on the basis of
‘Demand and supply’ are classified into Market Economy.
Economy in which the role of govt. is moderate. Production of goods depends on
‘Market Forces’ as well as on the basis of social consideration are classified into Mixed
economy.
Q. Difference between Positive and Normative economics
Ans.
Positive Economics Normative Economics
It deals with economic issues It deals with opinions of the
related to past, present, economist.
future.
It answers What was ? , What It answers ‘what ought to be’
is? , What would be?
Facts and figures are Facts and Figures are not
verifiable. verifiable.
Do not involve value Involve value judgements.
judgements.
These may be true or false. These statements involve opinions
only.
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