Basic Concepts of Economics

Economics

Primary Wants

Primary wants refer to wants for those goods which are necessary for the very existence of human life and for the maintenance of normal efficiency.

Secondary Wants

They relate to wants for those goods which cater to comforts and luxuries of life.

Wants for comforts

These are the wants for those goods which are a source of comfort and happiness for people.

Wants for luxuries

Wants for luxuries refer to wants for those goods which are very expensive and which are meant to show the wealth and power of a person.

Consumption

The act of using goods and services to satisfy human wants is called consumption.

Sustainable Consumption

Sustainable consumption is the consumption of goods and services which meets the needs of people and improves the quality of life without having any adverse impact on the environment and needs of future generations.

Utility

Utility refers to the want-satisfying power of a commodity.

Total Utility

Total Utility refers to the entire amount of satisfaction obtained from consuming a given quantity of a commodity.

Marginal Utility

Marginal utility is the additional utility arising from the consumption of one more unit of a commodity.

Law of Diminishing Marginal Utility

The tendency of decrease in the marginal utility with successive increase in consumption of a commodity is known as ‘the law of diminishing marginal utility’ in economics.

Production

The act of making goods and services is called production.

Price

The price of a commodity is the unit or amount of money that has to be given to get this commodity.

Equilibrium price

Equilibrium price is the price at which quantity demanded equals quantity supplied.

General price level

General price level refers to the average level of prices of all goods and services produced in the economy.

Inflation

Inflation is generally defined as the process of persistent and appreciable rise in the general price level.

Demand-pull inflation

Inflation originating from the demand forces is called demand-pull inflation.

Cost-push inflation

Cost-push inflation refers to inflationary rise in prices which arise due to increase in costs.

Value

Value of a commodity refers to the valuation placed by a household.

Market

Market means a system or set-up in which the buyers and sellers of a commodity are able to interact and communicate with each other and strike a deal about the price and quantity

Money

Money is defined as anything which is generally accepted as a means of exchange and acts as a measure and store of value. It comprises currency and deposits (bank) money.

Exchange

Exchange is the act of trading the surplus goods people have to obtain the other things which they require.

Barter system

Barter system refers to the system of exchange where goods and services are exchanged directly for other goods and services.

Barter Economy

The economy based upon the barter exchange is known as the barter economy.

Money economy

The economy using money as a system of exchange for carrying out various types of economic transactions is known as the money economy.

Income

Income can be defined as the flow of goods and services or flow of money accruing to an individual or all the people in an economy over some specified time.

Factor income

Factor income is the income earned by an individual largely by selling his factor services to firms.

Per capita income

Per capita income of a country is the average income of the normal residents of a country in a particular year.

Saving

Saving refers to that part of the income which is not spent on comsumption.

Investment

Investment is defined as the act of using productive resources for the production of capital goods.

Depreciation

Investment required to keep the existing stock of capital intact by replacing what has been worn out, or otherwise used up in the process of production, is known as replacement investment or depreciation.

Wealth

Wealth refers to the stock of all those assets which are a source of income.

Individual or personal wealth

Individual or personal wealth refers to the stock of all those assets which are owned by a person.

National wealth

National wealth is the stock of all tangible (real) wealth that contributes to the production of goods and services.

Welfare

Wealth is taken to mean a sense of satisfaction and happiness, a sense of well-being among the people.

Economic Welfare

Pigou defines economic welfare as that part of social welfare that can be directly or indirectly measured in money terms.

Non- economic welfare

Welfare affected by factors which cannot be expressed in monetary terms is called 'non-economical welfare'.

Social Welfare

Social welfare is defined as the sum total of the happiness of all the individuals in the society.

Business Cycle

Business cycle is defined as the recurrent fluctuations in the aggregate economic activity in an economy.

Aggregate Demand

Aggregate demand may be defined as the total amount of goods which all the buyers of final goods in the economy desire to purchase.

Aggregate Supply

Aggregate supply refers to the total amount of output which all the firms or producers are willing to produce in an economy.

Households

Households are defined as persons or group of people living together who take economic decisions about the types of commodities to be purchased to satisfy the wants of their family.

Firms

A firm is defined as the entity which employs factors of production to produce commodities that it sells to other people.

Government

Government refers to a group of organisations which possess legal and political power and exercises some control over other sectors of the economy.

Stock variables

Stock variables are the variables which are expressed at a point of time.

Flow variables

Flow variables are the variables that are expressed per unit of time.