BBA N 103

Principles of
ECONOMICS

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 UNIT I
• Definition, Nature, Scope
&Limitations of
Economics,Economics:an art or
Science, Relevance of Economics in
Business Management.
Utility
analysis,Marginal Theories of Utilities
and Equi-Marginal theory of utility.

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 UNIT II
• Demand- Meaning, Objectives,
Theory & Demand Analysis . Demand
Schedule , Demand Curve and
Nature of Curves, Laws of Demand.
• Elasticity of Demand, Types &
Measurement . Indifference curve
analysis,
• Consumer Equilibrium & Consumer
Surplus Price , Income and
substitution effect. 3
 UNIT III
• Production- Meaning and Analysis
Production function.
• Law of production, Law of increasing
return & Law of constant return .
Equal Product curves and Producer
equilibrium

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 UNIT IV
• Market analysis- Nature of market ,
types & their characteristics .Pricing
under different market structures:
 Perfect MONOPOLY
 OLIGOPOLY
 MONOPOLISTIC COMPETITION
 Price discrimination under monopoly
competition
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 UNIT V
• Theories of factor pricing , factor
pricing v/s product pricing . Theories
of rent , theories of interest , theories
of wages , theories of profit, Concept
of profit maximization.

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 Suggested Books:
 Adhijkari M Management
Economics
 Gupta G.S. Managerial
Economics
 Lal S.M. Principles of
Economics
 D.N Diwedi Principles of
Economics

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 What Economics is About
• Man is a social being . He has to satisfy his
unlimited wants . Every man living in
society has to do some work .The basic
motive behind these activities is to earn
money to fulfill his unlimited wants.
• Economic Activity- It deals with efficient use
of scarce means & satisfy human wants .
• Non-economic Activity- Activities
undertaken out of love ,affection & social
responsibility.
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 What Economics is About
• Economic activities are the part of subject
matter of economics where as Non
economic activities do not fall under the
purview of economics.
• Thus, Economics is the social science that
studies economics activities .It is that
branch of knowledge which studies those
human activities which deals with
consumption , production , exchange and
distribution of scare means of wealth.
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 Why Study Economics
• A good understanding of this subject
will not only help us learn economics
as an academic discipline but would
also help us understand the world
and reality that we are in. Specifically
a study of this course will help us:
• 1. Appreciate events in economic
history and understand how the
present day system of economics
came to be. 10
 Why Study Economics
• 2. Learn the ways in which
economics explains the activities of
man through its tools , models ,
principles and standards.
• 3. Make use of production and
consumption concepts in business
endeavors or simply in
understanding people’s economic
behavior.
• 4.Manage financial and economic 11
 Why Study Economics
• 5.Understand government function ,s
in economics and choose leaders
who are economically sensible.
• 6.Understand what is happening in
the economy of the world and know
how nationwide and worldwide
economic policies and event affect us
all.

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 WEALTH Definition
• Adam Smith ,the founder of the classical school
of economic, in his famous book “An Enquiry
into the Nature and Causes of Wealth of Nation”
defined economics as “the science of wealth”
• Economics is concerned with “ an enquiry into
the nature and causes of wealth of nation” and
it is related to the law of production ,
exchange , distribution and consumption of
wealth.
--Adam
Smith

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Features of Adam Merits-
Smith ‘s  It separates economics from
Definition politics and thereby makes it an
independent subject and science.
1.Study of  This definition seeks to
Wealth examine the material goods which
2.Only Material are scarce.
Criticism-
Commodities
 Totally Materialistic Definition
3.Causes of  Ambiguous
Wealth  Concept of Economic Man
4.Much Stress on  Secondary Place to Man
Wealth
5.Economic Man

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 WELFARE Definition
• It was first of all propounded by Alfred Marshall
and supported by A.C. Pigou and Cannon.
• Dr Marshall , in his famous book ‘Principles of
Economics’, defined economics thus:
“Economics is a study of mankind in the ordinary
business of life , it examines that part of
individual and social action which is most closely
connected with the attainment and use of
material requisites of well being .Thus , it is on
one side a study of wealth; on the other and
more important side, a part of the study of man”.

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 • Merits-
 It means with welfare
Features of
 Proper relationship of welfare and
Welfare Definition
wealth
1.Study of  More scientific
Mankind
2.Study of Criticism-
 Impracticable
Ordinary Man  Term ‘ welfare’ is vague
3. Study of Real  Limited scope
Man  Only materialistic aspect

4. Promotion of
Welfare

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 SCARCITY Definition
• Lionel Robbins formulated a new
definition in his book ‘Essay on the
Nature and Significance of Economic
Science’ published in the year 1932.
• “ Economics is a science which
studies human behavior as a
relationship between ends and
scarce means which have alternative
uses.”
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 • Merits-
Features of  Wider Definition
Welfare Definition
 Free from all confusion
1.Multiplicity of  Study of human behavior
ends or  More logical explanation
Unlimited Criticism
wants -
 Too wide definition
2.Scarcity of  Economic problem does not always
means arise from scarcity
 Impractical
3.Alternative  Not applicable to rich countries
use of means  Not applicable in socialist countries
4.Economic  Static definition
problem

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 GROWTH –ORIENTED
Definition
• “ Economics is the study of how people and
society end up choosing with or without the
use of money, to employ scarce productive
resources that could have alternative uses
to produce various commodities over time
and distributing them for consumption ,now
or in future ,among various persons and
group in society. It analyses costs and
benefit of improving patterns of resource
allocation.” ------ Prof. Samuelson

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 • Merits-
Features of Growth
 Realistic explanation of economic
–Oriented
Definition problems
 Practical
1.Economic  Dynamic
resources  Not Neutral as regards ends
2. Efficient
allocation of
resources
3. Full
utilization of
resources
4.Increase in
productivity

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Two Branches of Economics
 Microeconomics
A branch of economics which is
concerned with the behavior of
individual entities such as markets ,
firms and households.
 Macroeconomics
A branch of economics which is
concerned with the overall behavior
and performance of the economy as
whole. 21
 Scope of Microeconomics
Microeconomics studies—
 Buying decisions of the individual
 Consumer ‘s satisfaction
 Buying and selling decisions of the
firm
 The determination of prices and in
markets
 The quantity ,quality and variety of
products
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 Scope of Macroeconomics
Macroeconomics studies—
• Economic growth
• Unemployment and inflation
• Aggregate demand and aggregate
supply
• Economic policies-fiscal /monetary
• International trade –exports and
imports
• Money Supply 23
 Subject matter of
Economics
• Commodity Pricing-Prices of individual
commodities are determined by market forces
of demand and supply . So micro economic
makes demand analysis and supply analysis.
• Factor Pricing-Land ,labor ,capital and
entrepreneur all factors contribute in
production process . So they get reward in the
form of rent , wages ,interest ,profit etc .Micro
deals with determination of such rewards ,so it
is called as price theory or value theory.

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 Subject matter of
Economics
• Welfare theory- Micro deals with
optimum allocation of available
resources and maximization of social
welfare .It provide answers for ‘What
to produce?’ ,’When to
produce?’ ,’how to produce?’ , ‘For
whom it is to be produced?’. In short,
Micro guides for utilizing scarce
resources of economy to maximize
public welfare. 25
Features of Microeconomics
1. Nature of analysis- the behavior of
individual consumer and producer is
analyzed. It is the study of subject
matter from particular to general.
2. Slicing method- Micro divides the
economy in various small units and
every unit is analyzed in details
3. Scope- it involves product pricing,
factor pricing and theory of welfare.
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Features of Microeconomics
4. Application- Both theoretically and
practically,
micro is useful in formulating various
policies, resource allocation , public
finance , international trade etc
5. Nature of Assumption – Assumption of
Ceteris Paribus is always made in every
micro economic theory . It means theory is
applicable only when ‘other things being
same’.
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 Uses/Importance/
Advantages
1.Individual Behavior Analysis- studies
behavior of individual consumer or
producer in a particular situation.
2. Resource allocation- Resources are scarce.
Micro helps in proper allocation and
utilization of resources to produce various
types of goods and services.
3. Price mechanization- Micro decide prices of
various goods and services on the basis of
‘Demand-Supply’ analysis.
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 Uses/Importance/
Advantages
4. Economic policy- It helps in formulating
various economic policies and economic plans
to promote all round economic development.
5. Public finance- It helps the government in
fixing the tax rate and the type of tax as well
as the amount of tax to be charged to buyer
and seller .
6. Social welfare- It not only analyses economic
conditions but also studies the social needs
under different market conditions like
monopoly , oligopoly etc.
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 Disadvantages/limitations of
Microeconomics
1. Unrealistic assumptions- Micro is based on
such assumptions , especially in case of full
employment assumption which does not exist
practically. Even behavior of one individual
can not be generalized as the behavior of all.
2. Inadequate Data- Micro is based on the
information dealing with individual behavior,
individual customers. Hence , it is difficult to
get correct information. So because of
incorrect data micro economics may provide
inaccurate results.

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 Disadvantages/limitations of
Microeconomics
3. Ceteris Paribus- It assumes that all
others things being equal but
actually it is not so.

THANK YOU

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