CHAPTER 1- INTRODUCTION TO ECONOMICS
Assumed 3 decision makers- consumers (households) – that sell land, labour, capital &
and firms- that pay rent, wages, interest and profits (rewards for above factors of
) firms then use the factors to produce G/S in return for payment from consumer. Govt imposes taxes on individuals and (income tax) and firms (corporate tax) to provide infrastructure and other services to community
Econon’s 2 basic assumptions are – human wants are limitless and the resources available are limited. Satisfying unlimited wants with limited resources is the basic problem. Apart from free goods- air, sunshine etc
Needs- food, clothing, shelter, medicine, education, travel. Wants- specific satisfiers of these needs. The ‘ collector mentality’ is assumed in humans. Eg- ostentatious goods- goods bought for symbolic value- luxury cares, expensive wrist watches etc. firms also create wants in consumers.
Consumer has to decide how to spend his limited income to max his satisfaction, firms with limited capital to max profits and govt with limited tax revenue to max society’s welfare or votes
A definition of economics- “it is a study of how individuals and societies chose to employ scarce resources to obtain max benefit” or ‘economise’- make the most of what is available
But limited/scarce resources (economic goods) can produce only limited qty of goods and satisfy a limited no of wants so large number of wants unsatisfied
Resources are not just scarce but can be used for alternative uses. What goods to buy,entrep- where to invest limited capital etc
Opportunity cost/real cost
- cost or value of the next best alternative foregone in making a choice .
Measured not in terms of money paid but amount of alternative commodity that must be given up. Eg1kg grapes given up to buy 1kg apples, value of revenue lost in country X to produce in...
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