Basic Concepts in Economics

Vocabulary flashcards covering basic concepts in economics, definitions, schools of thought, characteristics and classifications of wants, microeconomics, macroeconomics, factors of production, types of income, and economic growth versus development.

Natural Sciences

Sciences whose laws are universally acceptable and whose validity can be tested in a laboratory under controlled conditions, also known as exact sciences due to their empirical approach (e.g., Mathematics, Physics, Chemistry).

Social Science

An abstract or behavioural science related to the study of some aspect of human behaviour, whose laws are not universal but statements of general human tendencies (e.g., Psychology, Sociology).

Oikonomia

The Greek word meaning management of the household, from which the term 'Economics' originates.

Queen of Social Sciences

The phrase used by Paul Samuelson to refer to Economics.

Arthashastra

An ancient Indian political treatise authored by Kautilya during the Mourya period, implying the science of acquiring and managing wealth.

Kautilya

A statesman, philosopher, economist, and royal advisor during the Mourya period, also known as Chanakya or Vishnugupta, who authored the Arthashastra.

Adam Smith

A classical economist regarded as the 'Father of Economics', famous for his $1776$ work 'An Inquiry into the Nature and Causes of Wealth of Nations', who defined Economics as 'a science of wealth'.

Laissez-faire

A key point in Adam Smith's economic definition referring to non-intervention of the government.

Prof. Alfred Marshall

A neo-classical economist who authored 'Principles of Economics' in $1890$ and provided a welfare-oriented definition of Economics focusing on the study of mankind in the ordinary business of life.

Lionel Robbins

An economist who authored 'An Essay on the Nature and Significance of Economic Science' in $1932$ and provided the scarcity-oriented definition of Economics.

Classical School of Thought

An $18^{\text{th}}$-century school of economic thought represented by economists such as Adam Smith, David Ricardo, J. S. Mill, and T. R. Malthus.

Neo-classical School of Thought

A school of economic thought from the $19^{\text{th}}$ century and first half of the $20^{\text{th}}$ century, represented by economists such as Alfred Marshall, A. C. Pigou, and Irving Fisher.

Modern School of Thought

A school of economic thought from the $20^{\text{th}}$ century till date, represented by economists such as J. M. Keynes, Lionel Robbins, and Paul Samuelson.

Sir Ragnar Frisch

The economist who coined the terms Micro Economics and Macro Economics in $1933$, derived from the Greek words 'Mikros' and 'Makros'.

Micro Economics

A branch of economics dealing with the behaviour of individual variables such as a household, worker, firm, industry, or particular commodity.

Want

In economics, a feeling of 'lack of satisfaction' that enables an individual to satisfy their need.

Economic Wants

Wants where monetary transaction is involved and an individual has to pay a price, such as food or medicines.

Non-economic Wants

Wants that can be satisfied without making monetary payment, such as air or sunshine.

Individual Wants

Personal wants satisfied at the individual level, such as a doctor using a stethoscope or a judge wearing his coat.

Collective Wants

Social wants where there is collective satisfaction, such as travelling by train.

Necessities

Very basic needs of life, such as food, clothing, shelter, health, and education.

Comforts

Wants that make life comfortable, such as a washing machine, mixer, or pressure cooker.

Luxuries

Wants meant for pleasure and enjoyment, such as an AC-car or a well-furnished house.

Good

Anything that satisfies human wants and has material existence, such as chalk used by a teacher.

Services

Things that satisfy human wants but do not have material existence, such as teaching offered by a teacher.

Utility

The capacity of a commodity to satisfy human wants, or the want-satisfying power of a commodity.

Value-in-use

The usefulness or worth of a commodity (e.g., sunshine has high value-in-use and is a free good).

Value-in-exchange

The worth of a commodity or service expressed in terms of another commodity, or in terms of money as price.

Water-Diamond Paradox

An economic paradox where some commodities have high value-in-use but low exchange value (e.g., water), while others have low value-in-use but high exchange value due to scarcity (e.g., diamond).

Wealth

Anything which has market value and can be exchanged for money, possessing utility, scarcity, transferability, and externality.

Physical Transferability

The actual physical transfer of goods from one person to another and from one place to another, such as a vehicle.

Notional Transferability

The transfer of ownership rights of a good where physical transfer is not possible, such as land.

Personal Income

Earnings received by a person from all sources.

Personal Disposable Income (PDI)

The part of personal income left over after payment of direct taxes such as income tax or wealth tax.

Fixed Income

Income that remains stable over a period of time, such as rent or wages.

Fluctuating Income

Income that is not fixed but keeps changing, which can be positive, negative, or zero, such as profit.

Money Income

Income received in actual currency of the country (cash).

Real Income

The purchasing power of money income, represented by commodities purchased out of money income.

Contractual Income

Income paid as per the terms and conditions of a contract, such as rent or wages.

Residual Income

Income left over after making payments to all factors of production, such as profit.

Earned Income

Income obtained after participating in productive activity, such as rent, wages, interest, or profit.

Unearned Income

Income received from sources without indulging in any productive activity, such as windfall gains or lottery prizes.

Production

The creation of utility through four factors of production: land, labour, capital, and entrepreneur.

Land (Factor of Production)

A natural factor of production comprising any natural resource available on, above, and below the surface of the earth, earning rent in productive activity.

Labour

A human factor of production involving any physical or mental effort undergone during production to earn the reward of wages.

Capital

A produced means for further production; a man-made factor of production earning interest.

Entrepreneur

The organizer or captain of industry who gets work done to earn profit in the process of production.

Distribution

The division of factor rewards (rent, wages, interest, and profit) among different segments of society.

Exchange

The sale and purchase of goods and services, which in economics is necessarily a monetary transaction.

Consumption

The act of making use of goods and services to satisfy human wants.

Macro-Economics

The study of aggregates covering the entire economy, such as total employment, national income, national output, total investment, total savings, total consumption, aggregate supply, aggregate demand, and general price level.

National Income

The aggregate monetary value of all final goods and services produced in an economy during a year.

Saving

The part of income set aside to satisfy future needs by foregoing current consumption.

Investment

The creation of capital assets through mobilization of savings, such as machinery and equipment.

Trade Cycles

Business fluctuations consisting of ups (inflation) and downs (depression) in overall economic activities.

Inflation

A continuous rise in the general price level.

Depression

A continuous fall in overall prices and lowering down of economic activity in general.

Cyclical Unemployment

Unemployment created due to the impact of cyclical fluctuations in business.

Economic Growth

A narrow, quantitative, unidimensional, spontaneous, and reversible increase in the real national income of a country over a long period of time.

Economic Development

A broader, qualitative, multi-dimensional, deliberate, and irreversible concept that implies economic growth plus progressive changes in variables determining well-being (e.g., education, health).