Transcript Introduction to Economics 13 May 16 Dr Talule Sir

Introduction to Economics
Dr. Dnyandev C. Talule
Professor
Dept. of Economics, Shivaji University, Kolhapur
Professor of Economics
Yashwantrao Chavan Academy of Development
Administration
Email: [email protected]
INTRODUCTION TO ECONOMICS
• Economics refers to that branch of social science
which studies the production, distribution and
consumption of goods and services.
• Economics focuses on the behaviour and
interactions
of
economic
agents
and
how economies work.
• Adam Smith, is considered to be the Father of
Economics, who established the first modern
economic theory in 1776.
Microeconomics
• Microeconomics studies the behaviour of
basic elements in the economy, including
individual agents and markets, their
interactions,
and
the
outcomes
of
interactions.
• Individual agents may include, for example,
households, firms, buyers, and sellers.
Law of Demand
• The law of demand states that all other things
remaining the same (ceteris paribus), as the
price of a product increases (↑), quantity
demanded decreases (↓); similarly, as the
price of a product decreases (↓), quantity
demanded increases (↑).
• In other words, it can be said that the law of
demand establishes an inverse relationship
between the price of a good and its quantity.
Law of Demand cont…..
• E.g. Price of Slice bread loaf is Rs. 20/- and at
this price an individual buys 5 units of it
(buying 5 loafs of slice bread at Rs.20/- each).
• Now the price of slice bread loaf increases
from Rs. 20 to Rs. 25 (25-20=5, Rs. 5/increase in price per unit)
• The individual reduces his consumption of the
slice bread loaf to 4 units (5-4=1 unit
reduction in consumption).
Law of Demand Cont…..
• Now taking into account reduction in the
price.
• Current price of slice bread loaf is Rs. 25/• Now the price of slice bread loaf decreases
from Rs. 25 to Rs. 20 (25-20=5, Rs. 5/decrease in price per unit).
• The individual increases his consumption of
the slice bread loaf to 5 units (4+1=5, 1 unit
increase in consumption).
Law of Demand cont…..
• Hence, there is a negative relationship
between the quantity demanded of a good
and its price.
• The factors held constant in this relationship
are the prices of other goods and the
consumer's income.
• This is displayed through diagram in the
following slide.
Demand Curve
• Demand Curve refers to a curve that displays
the characteristics of Law of Demand.
• Due to the inverse relationship between price
and quantity of demand, the demand curve
slopes downward from left to right.
• This indicates the negative relationship
between price and quantity of the product.
Demand Curve
Demand Curve
• In the above diagram “DD1” is the demand
curve that slopes down from left to right.
• Quantity of goods (here Mango) is plotted on
the horizontal X-axis in numerical units.
• Price of the good (Mango) is plotted on the
vertical Y-axis also in numerical units.
Law of Supply
• The law of supply is a fundamental principle
of economic theory which states that, all
other things remaining the same, an increase
in price results in an increase in quantity
supplied and vice versa.
• In other words, there is a direct relationship
between price and quantity: quantities
respond in the same direction as price
changes.
Budget Line
• Budget line displays the money constraint of
an individual.
• It shows all the possible combinations of two
goods which can be purchased with given
income and prices.
• All combinations show same output but
different combinations of the two goods.
Indifference Curve
• An indifference curve is a graph
showing combination of two
goods that give the consumer
equal satisfaction and utility.
Production Possibility Frontier (PPF)
• The production possibility frontier (PPF) is a
curve
depicting
all
maximum
output possibilities for two goods, given a set
of inputs consisting of resources and other
factors. The PPF assumes that all inputs are
used efficiently.
Macroeconomics
• Macroeconomics analyses the entire economy
(meaning aggregate production, consumption,
savings, and investment) and issues affecting
it, including unemployment of resources
(labour, capital, and land), inflation, economic
growth, and the public policies that address
these issues (monetary, fiscal, and other
policies).
Per Capita Income
• Per
capita
income
or
average
income measures the average income
earned per person in a given area (city, region,
country, etc.) in a specified year.
• It is calculated by dividing the area's
total income by its total population.
National Income
• National income is the total value a country's
final output of all new goods and services
produced in one year.
• Real income is income of individuals or
nations after adjusting for inflation. It is
calculated by subtracting inflation from the
nominal income. (Samuelson – GDP deflator)
• Nominal income is income expressed in
money terms.
Gross Domestic Product (GDP)
• Gross domestic product (GDP) is defined as
"the value of all final goods and services
produced in a country in 1 year"
Gross National Product (GNP)
• Gross National Product (GNP) is defined as
"the market value of all goods and services
produced in one year by labour and property
supplied by the residents of a country."
Net National Product (NNP)
• Net national product (NNP) refers to gross
national product (GNP), i.e. the total market
value of all final goods and services produced
by the factors of production of a country or
other polity during a given time period, minus
depreciation.
Inflation
• Inflation is a sustained increase in the general
price level of goods and services in an economy
over a period of time. When the price level rises,
each unit of currency buys fewer goods and
services.
• Dosanomics (Balassa – Samuelson effect).
• The Balassa-Samuelson effect suggests that an
increase in wages in the tradable goods sector of
an emerging economy will also lead to higher
wages in the non-tradable (service) sector of the
economy.
International Trade
• International trade is the exchange of capital,
goods,
and
services
across international borders or territories,
which could involve the activities of the
government and individual. In most countries,
such trade represents a significant share of
gross domestic product (GDP).
Deficit
• Deficit refers to excess of expenditure over
revenue.
• Three types of Deficits
• 1) Revenue deficit = Total revenue expenditure
– Total revenue receipts.
• 2) Fiscal deficit = Total expenditure – Total
receipts excluding borrowings.
• 3) Primary deficit = Fiscal deficit – Interest
payments.