Hello everyone :D
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 :D
The first topic is a sort of an introduction to Economics. Let the discussions begin :D
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 productionAn 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.
