Introduction to Economics | RAS Economics
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Introduction to Economics | RAS Economics

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Introduction to Economics | RAS Economics

Economics:

  • It can be defined as the science of logically oriented or rational human beings.
    • with unlimited wants, and 
    • limited resources
  •  The limited resources available with an individual forces him to make a choice among its unlimited wants and choose the one he prioritizes the most.
  • Economics is a behavioural, or social science. It is the study of how people make choices.
  • The best alternative that we choose and the others that we forgo, or give up, when we make a choice is called the Opportunity cost of that decision.
  • 2 divisions of of Economics are : Microecoomics and Macroeconomics

Microeconomics:

  • It deals with the functioning of an individual and industries and the behaviour of individual economic decision making units: business firms and households.
  • 2 Schools of Economics : Classical Economics and Keynesian Economics

Classical Economics:

  • According to this school, the government should not interfere in the economy (markets) and if any distortions arise in the economy, then they get automatically solved by the forces of demand and supply.

Keynesian Economics:

  • In 1929, the world was hit by a deep recession and these crisis are famously called the ‘Great Depression’.
  • During this time, the economy was unable to correct itself.
  • Then John M. Keynes said that the economy will not correct on its own. The government would have to intervene and help the economy to regain and move on the path of recovery.
  • Keynes is known as the father of modern economics.

Economic Policy:

  • Actions taken by the government to influence its economy are termed as economic policy.
  • A good economic policy should aim at :
  1. Efficiency, allocation of resources at least possible cost.
  2. Equity, more equal distribution of income and wealth.
  3. Growth, increase in total output of the economy. 
  4. Stability, a steady increase in national output with low inflation and full employment of resources.

Macroeconomics:

  • It is the study of aggregates.
  • Instead of trying to understand what determines the output at individual level, Macroeconomics examines the factors that determine national output, national product.

Microeconomics sees and examines the ‘trees’. Macroeconomics sees and analyzes the ‘forest’.

ECONOMIC GROWTH VS. ECONOMIC DEVELOPMENT

Introduction to Economics | RAS Economics

GROWTH

DEVELOPMENT

It is positive change in the real output of the country over a span of time

It involves a rise in the level of production in an economy along with the advancement of technology, improvement in living standards and so on.

Automatic process

Outcome of planned and result oriented activities

Enables increase in indicators like GDP, Per capita income etc.

Enables improvement in the life expectancy rate, infant mortality rate, literacy rate and poverty rates.

It is positive change in the real output of the country over a span of time

It involves a rise in the level of production in an economy along with the advancement of technology, rise in living standards and so on

It can be measured when there is a positive change in the national income.

It can be seen when there is an increase in real national income.

Short-term process taking into account yearly growth.

Long term process

Results in Quantitative change.

Result in both qualitative and quantitative change.

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