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Economics-Notes-Important-Questions-Definitions.pdf
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http://www.allonlinefree.com/Easy Economics Notes
Basic Concepts in Economics
1) Production: Any economic activity
m
co
directed towards the satisfaction of
e.
human wants is known as production. The
production of goods reand services is
ef
necessary for the existence of an
in
economy. The level of production in any
nl
llo
economy is the best measure of its
.a
performance, living standards of its
w
people and the extent of technological
w
w
development and growth. It includes both
the manufacturing of material goods as
well as the provision of services. The
production of electrical and electronic
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,http://www.allonlinefree.com/
goods, automobiles etc and the work of
teachers, doctors, lawyers etc are all
production in the economic sense.
2) Consumption: The act of satisfying
m
one’s wants is called consumption. Goods
co
and services are produced only because
e.
human wants need to be satisfied. No one
re
ef
will produce if there is no consumption.
in
The quality and quantity of consumption
nl
reflects the levels of income and
llo
employment in an economy.
.a
w
3) Investment: Investment is the
w
w
addition made to the existing total stock
of capital. The amount to make
investment is coming from saving and
this saving is the unspent income. Income
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,http://www.allonlinefree.com/
comes from employment. An economy
can grow only if it saves something from
its present consumption and invests it
again in the production process. It adds to
m
the productive capacity of an economy.
co
4) Goods: Anything that can satisfy
e.
human wants is called goods in
re
ef
economics. While services also satisfy
in
human wants, the difference is that goods
nl
are tangible and visible but services are
llo
intangible and invisible. Goods can be of
.a
w
various types. They can be free goods or
w
economic goods, transferable, private or
w
public and so on.
Utility: The want satisfying capacity of a
commodity is called its utility or the
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, http://www.allonlinefree.com/
power of a commodity to satisfy human
wants is called utility. Utility is subjective
that is it does not lie in the good but is a
function of the consumer’s mind. Utility of
m
good changes with the change in
co
conditions and circumstances. There are
e.
three main forms of utility-form utility,
place utility and time utility. re
ef
in
Value: The commodity which has utility
nl
and possesses the condition of scarcity
llo
and transferability, then it has value. For
.a
w
example air has utility but it is abundant
w
and a free resource, it has no value in
w
economic sense. Likewise rotten eggs are
scarce and transferable but possess no
utility, they also don’t have value. A
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