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Class notes ECO101 Principles of Economics 2e
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TEST BANK -- PRINCIPLES OF ECONOMICS 2ND EDITION BY N. GREGORY MANKIW, OPENSTAX SECOND EDITION BY OPENSTAX. CHAPTER 1 - 34. ALL CHAPTERS INCLUDED
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Question Bank in line with Principles of Economics, Openstax,2e
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Official© Solutions Manual to Accompany Principles of Economics, Openstax,2e
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PRINCIPLES OFECONOMICS SEMESTER---I
INTRODUCTION
Introduction
The word economics originated from the Greek word oikonomikos which means house hold
management.
Many group of economist like Physiocrats, Mercantilist defined Economics, followed by
Aristotle and Kautilya.
Scientific modern explanation started with classical group of economist. Adam smith gave
wealth definition, Alfred Marshall gave ‘Welfare definition’ & Lionel Robbins gave ‘Scarcity’
definition followed by growth definition.
Economic Activities
“Economic activities are those human activities which are concerned with earning and
spending of money through exchange of goods & services “.
Definition:
“Economic activity is the activity which is concerned with the consumption, production,
exchange and distribution of all goods which possess utility scarcity, externality, transferability
and possessiveness”.
Cycle of Economic Activities
Wants are unlimited. Economic goods are scarce because of this people have to work hard
, make effort and satisfy their wants , this cycle of economic activity continues to boost
economic growth.
Objectives of ECO Activities
1. High standard of living and economic Growth: Economic activities aim to satisfy
man’s wants so that is standard of living is raised. Standard of living is the result of
, economic growth and equitable distribution of income, which can be achieved by more
and more economic activities.
2. Full Employment: Every country wants to achieve the goals of full employment and
to maintain it at high level. To achieve full employment of resources, it is essential that
production and consumption, both must increase.
3. Economic activities must be arranged to bring economic stability : It’s a situation
where there is no depression or inflation
Non Economic Activities:
These are those activities which are not undertaken for earning of wealth. Such
activities are inspired by patriotism, family welfare, social service, entertainment, health
consciousness, politics, religion, etc.
Distinction between Economic and Non Economic Activities
Basis of Differences Economic Activities Non Economic Activities
1. Difference of Objective
Are those whose objective is Are those concerned with
Production, consumption, love, entertainment,
religion Exchange and distribution of or affection,
patriotism, etc Wealth or economic goods.
2. Difference of Are those which can be Are those which cannot be
Measurement by Money measured by measuring rod measured in terms of
of money. money like love,
affection, Patriotism.
3. Difference of legal These are legal activities and These do not, confirm
to sanction enjoy sanction of law. law or violate the law.
4. Examples (a) A seller selling permitted (a) A thief stealing goods
goods at his shop. Is an illegal act.
(b) A teacher teaching in class (b)A teacher teaching her
son.
DEFINITION OF ECONOMICS
1. Wealth Definition
Adam Smith has defined economics as a science of wealth in his book – “An
enquiry into the nature and causes of wealth of nations."
Adam Smith has defined “Economics as an art of managing resources of people
and of government.”
J.S.Mill, “Economics investigates into the nature of wealth and the laws of
production and distribution.”
J.B.Say, “Economics is the study of laws which govern wealth.”
Main points of the definition:
(a) Economics is the study of wealth only.
, (b) Only scarce commodities constitute wealth, non material goods and services
and free good are not wealth.
(c) Economics studies the causes of wealth and how wealth can be increased
with increase in production by division of LABOUR.
(d) He mentions about economic man who is interested in accumulating only wealth
or economic goods.
(e) Economic goods are the good which is having following properties like
utility, scarcity, transferability, possessiveness and externality.
(f) He suggested labour is also wealth of nation and division of labour can be down
to increase wealth.
2. Welfare Definition
Marshall in his book “ principles of economics” defined, “Economics is on the
one side a study of wealth and on the other and more important side a part of the
study of man.”
According to Marshall, “Political economy or economics is the 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 with the use of material requisites of
well-being.”
A.C.Pigou,” The range of our enquiry becomes restricted to the part of social
welfare that can be bought directly or indirectly into relation and with the measuring rod
of money.”
Characteristics
1. Economics is the study of Economic activities which are concerned with the material
welfare of man
2. Economics study ordinary men and not extra ordinary men.
3. Economics studies the personal and social activities of man which are concerned with
material welfare.
4. According to Marshall, economics is a normative science.
5. Wealth is a means of achieving the objective of material welfare.
3. Scarcity Definition
According to Lionel Robbin’s , “Economics is the science which studies the human
behaviour as a relationship between ends scarce means which have alternative uses.”
Features
1. Ends mean wants. Wants are unlimited, when one want is satisfied another want crops up.
2. Means implies means of production, income, or resource .most of the means to satisfy
wants are scarce or limited.
3. Means have alternative uses instead of one use we can put it to two or more uses. Eg:
electricity
4. Wants are of different intensity, wants can be graded according to urgency.
, 5. Man has to make a choice between his wants; he has to decide whether want is to be
satisfied at present or in the future. By making a proper choice he can achieve
maximum satisfaction.
4. Growth Definition
Paul Samuelson , “ Economics is the study of how people and how people and society
end up with or without money to employ scarce productive resources that could have
alternative uses to produce commodities and distribute them for consumption, now or in
the future among person and groups in society. Economics analyses the cost and
benefits of improving the pattern of resource use.”
Features
1. Samuellson’s definition gave importance to time element, it throws light on the problem
of distribution of good among groups and persons for consumption now or in the
future.
2. The definition makes it clear that economic problem exist not only in a
monetary economy but also in barter economy.
3. He gave importance to economic growth.
Nature of Economics
Is Economics science or an art?
Is Economics a positive or normative science?
Economics as a Science:
A science is a systematic and comprehensive study of knowledge, which explains the
cause and effect relationship.
According to M.Poincare,”science is built of facts as a house id built up of stones, but an
accumulation of facts in no more a science than a heap of stones is a house.”
Features
1. A systematized study of a subject.
2. Establishes relationship between cause and effect of a fact.
3. Laws of science are universal.
Prof. Robbin’s, Pro. Briggs and Jordan all consider Economics to be a science. Robertson also
regarded Economics as a science because of letters ‘ics’ present in physics and dynamics.
Arguments in favour of economics as a science:
1. Systematized Study: Economics is systematically divided into consumption,
production, exchange, distribution and public finance.
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