Commerce Class 11 HSC Board

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Subject : Economics

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 CHAPTER - 1 : BASIC CONCEPTS
IN ECONOMICS
1.Origin of economics,
2.Meaning of economics,
3.Definitions of economics,
4.Branches of economics,
5.Differences of growth and
development.
6.Question /answers.
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1.Origin of
economics,

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 Science

Natural
Social science
science
E.g.: E.g.: Psychology
Mathematics, ‘mental’,
Economics
Physics, Sociology
Chemistry... ‘social’...
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 laws are
universally
acceptable

e.g.
Mathematics, Natural validity can
Physics, science be tested
Chemistry.

exact
sciences
empirical

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 laws are
not
universal

e.g.
Psychology only
‘mental’ Social statements
aspect Scienc of general
Sociology human
‘social’ e tendencies
aspect

abstract or
behavioura
l science
Non
empirical
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 origin term
'Economics'
lies in the
Greek word,
'Oikonomia'

Econ
omics
Economics is means
management
a social of the
science. household

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 Science
Revision Natural science
• laws are universally acceptable
• validity can be tested
• exact sciences empirical
• E.g.: Mathematics, Physics, Chemistry...

Social science
• laws are not universal
• only statements of general human tendencies
• abstract or behavioural science Non empirical
• E.g.: Psychology ‘mental’, Sociology ‘social’...

Economics
• Economics is a social science.
• origin term 'Economics' lies in the Greek word,
'Oikonomia
• means management of the household
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2.Meaning of
economics,

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 Paul Economics is referred to
Samuelson as 'Queen of
says Social Sciences'

economic aspect of
human
behaviour
Economic Economics
Means deals with the how human beings
satisfy unlimited wants
with limited means.

Arthashastra implies the

Kautilya's Views science of acquiring and
on Economics : managing wealth.

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 Artha means 'Wealth'
and Shastra means
'Science'.

Arthashastra is a
Kautilya's Views treatise on Political
on Economics Economy in its
broadest sense.

Arthashastra implies
the science of
acquiring and
managing wealth
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 Crucial role of the state or
government

Focus on creation of wealth

as the means to ensure
welfare of the state.
Key-points based on
Kautilya's views
Need for efficient
administrative machinery
for good governance.

Compilation of political
ideas into Arthashastra.
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 Paul Anthony Samuelson (May 15, 1915
– December 13, 2009) was an
American economist. The first
American to win the Nobel Memorial
Prize in Economic Sciences, the Swedish
Royal Academies stated,
when awarding the prize in 1970, that he "has done more than any other
contemporary economist to raise the level of scientific analysis in economic
theory". Economic historian Randall
E. Parker has called him the "Father
of Modern Economics", and The
New York Times considered him to
be the "foremost academic economist
of the 20th century". 15
Kautilya or Vishnugupta or
Chanakya.

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 Meaning of Economics

Revision Paul Samuelson

*Economics is referred to as 'Queen of Social
Sciences'
*economic aspect of human behaviour
*how human beings satisfy unlimited wants with
limited means.
Kautilya's Views on Economics
*Artha means 'Wealth' and Shastra means 'Science'.
*Arthashastra implies the science of acquiring and
managing wealth.
*Arthashastra is a treatise on Political Economy in its
broadest sense.
Key-points based on Kautilya's views
*Crucial role of the state or government.
*Focus on creation of wealth as the means to ensure welfare
of the state.
*Need for efficient administrative machinery for good
governance.
*Compilation of political ideas into Arthashastra. 17
3. Definitions of
economics

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 * Lionel Robbins gave
* Prof. Alfred Marshall Neo- the most popular
* Adam Smith definition of economics
"Father of classical economist
*scarcity-oriented
Economics", * welfare-oriented definition of definition of Economics
Economics, *1932 Published book ,
* wealth-oriented
definition of *1890 Published book "Principles "An Essay on the Nature
of Economics" and Significance of
Economics.
Economic Science“
* 1776 piece of work, * Alfred Marshall defines ;
"Economics is a study of mankind * Lionel Robbins
"An Inquiry into the defines: "Economics is a
Nature and Causes of in the ordinary business of life. It science which studies
Wealth of Nations". examines that part of individual and human behaviour as a
social action, which is closely relationship between
*Adam Smith defines connected with the attainment and ends and scarce means
Economics “a use of material requisites of well- which have alternative
science of wealth". being". uses".

Definition of Economics 19
1) Laissez faire i.e.
non-intervention of 1) Study of an 1) Wants (ends)
the ordinary man. are unlimited.
government. 2) Economics is a 2) Means are
2) Capital and wealth behavioural comparatively
accumulation science. limited.
3) Nature's law in 3) Study of material 3) Wants are
economic affairs. welfare. gradable on the
4) Division of labour 4) Economics is not basis of priority.
as an aspect of simply a study of 4) Means have
growth wealth. alternative uses.
theory.
Key-points of definition 20
 Definition of economics
Revision Adam Smith defines Economics
• wealth-oriented definition of Economics.
• Economic is “a science of wealth".

Alfred Marshall defines ;

• welfare-oriented definition of Economics,
• 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".

Lionel Robbins defines:

• scarcity-oriented definition of Economics
• "Economics is a science which studies human
behaviour as a relationship between ends and
scarce means which have alternative uses".
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4. Branches of
economics,

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In 1933
• Sir Ragnar
Frisch

• Micro
coined Economics
the terms • Macro
Economics

derived
from the • 'Mikros'
Greek
words
• 'Makros'
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 Meaning of Micro and macro
Micro economics
Macro-Economics
Economics
Macro means large or
Micro means small. aggregate or total.

Micro Economics deals Macro-Economics is therefore the

with the behaviour of the study of aggregates covering the
individual variables such entire economy such as total
as a household, worker, employment, national income,
firm, industry etc. national output, total investment,
total savings, total consumption,
aggregate supply, aggregate
demand, general price level etc.
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 Kenneth Boulding's
Definitions
Micro Economics Macro-Economics

"Macro Economics deals not

with individual quantities as
"Micro Economics is the such, but with the aggregates
study of particular firms, of these quantities, not with
particular households, the individual incomes but
individual prices, wages, with the national income, not
incomes, individual with individual prices but with
industries, particular the general price level, not
commodities". with individual output but with
the national output".
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 Micro Macro-
Economics Economics
Want National Income

Concepts Goods and Services Saving

Basic

Utility Investment

Value Trade Cycles

Wealth Economic Growth

Economic
Personal Income
Development

Personal Disposable
Income (PDI)

Economic activity 26
Want can be referred to as a need. In economics, want denotes a
feeling of 'lack of satisfaction‘.
• Desire for better living due to inventions and innovations.
• Rise in population.

Characteristics of wants
• Wants are unlimited
• Wants are recurring in nature
• Wants differ with age
• Wants differ with gender
• Wants differ due to preferences
• Wants differ with seasons
• Wants differ due to culture

Classification of Wants
• Economic e.g. food, medicines etc. and Non-economic wants e.g.
air, sun shine etc.
• Individual Wants e.g. a doctor using a stethoscope, a judge
wearing his coat. and Collective wants e.g. travelling by train.
• Necessities, e.g. food, clothing, shelter, health and education.
Comforts e.g. washing machine, mixer, pressure cooker etc and
Luxuries e.g. AC-car, well-furnished house etc. 27
 • Anything that satisfies human wants is termed as a 'good'. e.g. chalk
used by a teacher.
• Services also satisfy human wants but do not have any material
Goods and existence, e.g. 'Teaching‘ offered by the teacher.
Services

• Capacity of a commodity to satisfy human wants or

• want satisfying power of a commodity is called utility.
Utility

• Value has two approaches in economics, i.e. 'value-in-use' and 'value

in exchange'.
• Paradox of values : Some commodities have a high value-in-use but
low exchange value, e.g. water whereas some commodities have low
Value value-in-use but high exchange value due to its scarcity, e.g. diamond

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 • 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 :A commodity must have the capacity to satisfy
human wants, e.g. furniture, refrigerator etc
• ii) Scarcity :A commodity must be scarce in supply in
relation to its demand if it is to be included in the term
‘Wealth’, e.g. All economic goods for which price is paid.
Wealth • iii) Transferability : A commodity should be transferable
from person to person as well as place to place. If the good
is material or tangible then only it is possible to transfer it
from place to place, e.g. vehicle, jewellery etc.
• iv) Externality: A good can be transferred only if it is
external to human body, e.g. bag, chair etc. +96

Personal • Earnings received by a person from all sources is

called his personal income.
Income

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 • It is that part of personal income which is left over after
payment of direct taxes such as income tax, wealth tax etc.
• Following are the various types of income.
Personal
Disposable • A) Fixed income; B) Fluctuating income ; C) Money income ;
Income (PDI) D) Real income; E) Contractual income; F) Residual income;
G) Earned income; H) Unearned income

• Production :
i) Land : ‘Land’ in Economics is a wide term.
ii) Labour : Labour is a human factor of production.
iii) Capital : Capital is a produced means for further
production. iv)
Entrepreneur : Entrepreneur is the organizer who is a real
Economic captain of the industry.
activity • b) Distribution : It is division of factor rewards among different
segments of the society.
• c) Exchange : It is give and take between various units in the
economy.
• d) Consumption : It is making use of goods and services to
satisfy human wants. 30
 National • Definition by National Income Committee : “A national estimate
measures the volume of commodities and services turned out
Income during a given period counted without duplication”.

• It is that part of the income which is set aside to satisfy the future
needs by foregoing current consumption.
Saving • In other words, saving is that part of income which is not spent
currently on consumption.

• It refers to creation of capital assets through mobilisation of

Investment savings, e.g.
• machinery, equipment etc.

• They are ups and downs in the overall economic activities.

Trade Cycles Ups and downs means fluctuations caused by inflation and
depression respectively.

Economic • The term economic growth has a 'quantitative' dimension. In

simple words, economic growth means an increase in the real
Growth national income of the country, over a long period of time.

• This is a wider concept which has a 'qualitative' dimension.

Economic development implies economic growth plus
Economic progressive changes in certain important variables which
Development determine well-being of the people, e.g. education, health etc.
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 5. Differences of
growth and developmen

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 Economic
Economic Growth
Development
1) Economic growth means an 1) Economic development indicates economic
growth plus progressive changes in certain
increase in the real national important variables which determine well-being
income of the country. of the people.

2) This concept is narrow and 2) This concept is broader and

quantitative. qualitative.

3) Economic development is not

3) Economic growth is possible
possible without economic
without economic development.
growth.

4) Economic growth is a 4) Economic development is a

unidimensional concept. multi- dimensional concept.

5) Economic growth is 5) Economic development is

spontaneous and reversible. deliberate and irreversible.

6) Economic growth is measured 6) Economic development is measured in terms

in terms of national income and of agricultural productivity, industrial
per capita income. productivity quality of human life etc. 33
6. Question /answers.

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