[BUGS BUNNY]

Hello everyone
A landmark moment for me cos this is the first time I am starting a thread in a section other than chit-chat
Getting to the point, prof_calculus is an Eco prof in real life and has graciously agreed to start Eco topic discussions for our GD/PI prep. I am posting the first topic on his behalf just to start things off. He will be available to answer your specific queries as well. From here onwards he will handle the thread but lemme point out some ground rules for this thread.

1) Please keep the discussion limited to the topic as in No Spamming Extensions to the topic given are always welcome
2) Please do not post thank yous, or this is a great thread etc etc. You can thank prof_calculus' post instead whenever he posts.
3) Help us make this thread get off to a rollicking start by actively participating instead of passively observing

The first topic is a sort of an introduction to Economics. Let the discussions begin

Basic Economics for GDPI:
1.What is Economics?
Economics is the branch of knowledge that deals with use of scarce resource to satisfy unlimited human wants. We have to understand that human wants are unlimited in the sense that no amount of wealth and resources can fulfill all wants of a person. On the other hand resources are obviously limited. The basic subject matter of economics is to use these resources and produce goods and services that are capable of satisfying human wants to the maximum extent possible.
Samuelson and Nordhaus phrase it in following words:
“Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.”

So it is a science related with optimization of use of resources for the fulfillment of human wants.
It must be noted that ‘economics is neutral among ends. It is concerned only with the use of scarce means’ (Robbins)
It means that the subject field includes the use of limited resources only, having alternative uses, to satisfy human wants. It does not include the notions of ‘good’ and ‘bad’. Anything that satisfies a human want (even tobacco, alcohol etc) and has limited availability comes under the subject field of economics. On the other hand, free air, though crucial for our existence in not a subject matter of economics, since it is not scarce.

Some goods are economic goods at one place or time, and non economic goods at other time. Water for example, is not an economic good for that living beside a river, but it is an economic good to those who are required to pay for it.
Economic goods are also known as commodities.

2. What is the subject matter of economics?
Many people think that economics is predominantly related to stock market. The truth is that stock market economics covers only a small portion of the scope of economics.
(A) From the definition of economics given above we can derive the subject matter easily. The definition implies that resources can be put to alternative uses, to produce different commodities. Among these possible alternative uses, a society needs to decide the first question – “What to produce?”
When everyone wants everything in unlimited quantity, a decision has to be taken about the priorities of production. These priorities are determined by the priority on the population in terms of their consuming preference. So our first basic question is related to the decision about the consumption, and hence it is related with Consumer Behaviour.
(B) After making the decision about what to produce among various possible groups of commodities, another question that comes to surface is – “How to produce?” The question arises from the fact that there might be more than one way to make a commodity. Decisions are to be taken about the production method among different available options


Production Possibility Curve:





Production Possibility curve above displays the possibilities of two commodities Food and Computers.
If the country chooses to produce only Computer, its level of production is displayed on X -axis; similarly in case if all resources are exclusively put to produce Food, the level of production as visible on Y- axis. The curve displays the different combination of product Computer and Food that the country can produce.
The PP curve shifts outward in the long run due to two reasons: First, there might be increase in availability of resources or,
Second, there might be improvement in technology, thereby increase in the efficiency of production

An economy should strive to produce at a level which lies on the PP curve, and not under it. This fundamental question in discussed in The Theory of Product

3. For whom to Produce:
Production is usually a collective effort of economic resources.
Land, Labour, Capital and Entrepreneurship are considered as the basic factors of production. Land fetches rent, while labour gets wages. Capital is rewarded with interest, and the residue goes to entrepreneur as profit.
Due to collective effort of more than one factors of production, the distribution of revenue received by sale proceed has to be distributed among them in accordance with their efforts in the process. Theory of Distribution deals with the third fundamental question of economics i.e. for whom to produce?

The way these questions are answered in economy decides its basic nature. In case these questions are tackled by market forces of demand and supply, it creates a Capitalist Economy, and when the fundamental priorities as well as balance among factors of production is determined by respective Governments, it results in a Socialist Economy.

[prof_calculus]

Thanks a lot Bugs,

I am ready to take it over, but kindly stay there to help me.

The rework on graph has made it really better.

Thanks gain

pc

[prof_calculus]

Eco-Funda-2

A simple approach to characteristics of economic systems:

A system in which factors of production are owned and controlled by individuals is a Capitalist system, and conversely, a system in which factors of productions are owned and controlled by public (i.e. The Government) is a Socialist economic system.

No country is either perfectly capitalist or socialist, But some or close to one or the other system.

[TintinAndSnowy]

Professor Calculus ... I didn't know you are an expert in economics also ... atleast you should have told Tintin

Jokes apart, thanks to you and bugs to start this thread. Is it possible for you to list down the very basic topics of economics, and then we can discuss on those topics.
The reason for that is, I am a complete newbie as far as economics is concerned, and there is a high probability that they will give eco-based GD topics or ask questions in the PI. So, it would be great if we can understand the basics or atleast know what are eco-basics, before going to the advanced topics.

I hope I am not sounding ridiculous

Thanks

[BUGS BUNNY]

Originally Posted by TintinAndSnowy

Professor Calculus ... I didn't know you are an expert in economics also ... atleast you should have told Tintin

Jokes apart, thanks to you and bugs to start this thread. Is it possible for you to list down the very basic topics of economics, and then we can discuss on those topics.
The reason for that is, I am a complete newbie as far as economics is concerned, and there is a high probability that they will give eco-based GD topics or ask questions in the PI. So, it would be great if we can understand the basics or atleast know what are eco-basics, before going to the advanced topics.

I hope I am not sounding ridiculous

Thanks

No you are not sounding ridiculous...you have company in me
As far as listing down the topics goes...its upon prof..whether he has the time to decide upon all the topics in advance. I was talking to prof and we planned to make this a daily feature for at least two weeks and then carry on depending upon the response.
Since you are a n00b hope the first post was useful for you.
@prof...Lookin forward to tomorrow's post

P.S. Tintin as a n00b you could suggest the topics you want gyaan on so that prof could elaborate on them

-
Bugs

[raveesh.singh]

any more fundas professor....... waiting to be expert of ur fundas

[raveesh.singh]

any more fundas professor....... waiting to be expert of ur fundas

[TintinAndSnowy]

Originally Posted by BUGS BUNNY

Since you are a n00b hope the first post was useful for you.
Bugs

The first post was very helpful. It gave me an idea what economics deals with .

Originally Posted by BUGS BUNNY

P.S. Tintin as a n00b you could suggest the topics you want gyaan on so that prof could elaborate on them
Bugs

Well ... got a few doubts in the Production Possibility discussed in the first post (btw, is it same as production possiblity frontier?).

My doubts:

(1) What I understood from the graph is that it shows the best way we can utilize the resources. Now are these resources mean the labour or the materials that the country has?
(2) Why the graph is a convex and not a straight line. What I mean to say is that if it's a straight line, then we will have x+y = constant. Which is the case with resources also, coz always we will get resources for food + resource for computers = constant.
(3) Won't the resource vary with time ... I mean the resource can increase/ reduce with time, so, is this graph dependent on time?

Thanks,

[prof_calculus]

Originally Posted by TintinAndSnowy

Professor Calculus ... I didn't know you are an expert in economics also ... atleast you should have told Tintin

Jokes apart, thanks to you and bugs to start this thread. Is it possible for you to list down the very basic topics of economics, and then we can discuss on those topics.
The reason for that is, I am a complete newbie as far as economics is concerned, and there is a high probability that they will give eco-based GD topics or ask questions in the PI. So, it would be great if we can understand the basics or atleast know what are eco-basics, before going to the advanced topics.

I hope I am not sounding ridiculous

Thanks

Hi Tintin,
you left alone poor Cuthbert, and I started learning economics to help great people in PG-land. You may name it the New Calculus Affair.

As Bugs has mentioned, you NOT ridiculous, but rather a great help.

I will be more than happy if you help me find out the useful topics for further posts.

About your doubts, I have just seen them. I will sure try to help on them in my next post.

Thanks

[prof_calculus]

@TintinAndSnowy

About your doubts:

My doubts:

(1) What I understood from the graph is that it shows the best way we can utilize the resources. Now are these resources mean the labour or the materials that the country has?

It means both. Please see the graph again. We take a numerical example based on it.
We may presume that the country in question may produce 1000 units of food if it devotes all its resources on food only.
On the other hand, the country may produce 50 computers if it stops the production of food and devotes all its resources on the production of computers. If the country wants to produce some food also, it will have to reallocate some resources from production of computers to the production of food. It means that the number of computers will now have to be less than 50.

If the country produces 900 units of food, with no production of computers, it obviously means that it is NOT utilizing its resources fully, and its production level is “Inside the PP curve: The productivity inefficiency points.”
Both points A and B show points of full potential.
(Please Note: PP curve is the same as Production Possibility Frontier)

(2) Why the graph is a convex and not a straight line. What I mean to say is that if it's a straight line, then we will have x+y = constant. Which is the case with resources also, coz always we will get resources for food + resource for computers = constant.

The resources are the same in all situations, but their productivity differs. Productivity decreases with the increase in production.
When we come to the point A from X, we will get AF (large) units of computers for XF (small) units’ fall in food production. But the productivity of resources in production of computers decreases gradually. When we are at B, we can get only YC (small) units of production of computers for BC (large).
When we increase the production of a commodity, its marginal productivity falls, and when we decrease the production, the marginal productivity of resources engaged in it rises.
Box-2
Marginal productivity of a resource is measured by “Increase in total production for a unit increase in resource”. It is the estimated productivity of the last used unit of resource.

(3) Won't the resource vary with time ... I mean the resource can increase/ reduce with time, so, is this graph dependent on time?

You have perhaps missed the lines above-

The PP curve shifts outward in the long-run due to two reasons: First, there might be increase in availability of resources or,
Second, there might be improvement in technology, thereby increase in the efficiency of production.

Hope it is sufficient to answer you query. If you still have doubts, please let me know. I will try my best.

Thanks for asking.
pc