IMPORTANCE OF ECONOMICS

By – Vaibhav Vaidya (MLW Sem -1)

At DHRD , VNSGU

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WHAT IS ECONOMICS???• Economics is the study of the production and consumption of

goods and the transfer of wealth to produce and obtain those goods.

• Its also a study of how individuals and societies make decisions about ways to use scarce resources to fulfill wants and needs.

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The Study of Economics

• Macroeconomics– The big picture: growth,

employment, etc.– Choices made by large

groups (like countries)

• Microeconomics– How do individuals make

economic decisions

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Scarcity- Scarcity is fewer resources than are

needed to fill human wants and needs. These resources can be resources that come from the land, labor resources or capital resources. Scarcity is considered a basic economic problem. Eg:- a student can not study two subjects at a time. why? because lack of time, that is scarcity.

Supply and Demand –The market system is driven by supply and demand. Eg- Monsoon season

Most important economic concepts

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Costs and Benefit - In any situation, people are likely to make the choice that has the most benefit to them, with the least cost, or, put another way, the choice that provides more in benefits than it costs. Eg- mobile

Opportunity Cost - When you take an opportunity, say choosing to accept a job offer, you’re giving up the other things you could’ve done with your time, like spending eight hours a day writing the next great Indian Novel. In simple words the loss of other alternatives when one alternative is chosen.

Marginal utility –The additional satisfaction a consumer gains from consuming one more unit of a good or service. The extra satisfaction is an economic term called marginal utility. There are several types of marginal utility, including zero, positive, negative, increasing, and diminishing marginal utility.

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The Diamond Water Paradox (Paradox Value) - This concept looks at the fact that water is more useful to humans considering the whole, you know, survival thing, but diamonds are worth more in the market. A diamond could be sold for a large amount of money, while water is given away for free. For example, a common paradox at odds with diminishing marginal utility is the diamond-water paradox in which water, which is necessary to life, is far less expensive than diamonds, which have almost no practical value. According to diminishing marginal utility, the more diamonds we have, the fewer we should want.

Money Supply :- Money supply is the entire stock of currency and other liquid instruments in a country's economy as of a particular time. The money supply can include cash, coins and balances held in checking and savings accounts.

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Incentives - An incentive is kind of like a bribe, but we’ll call it a good bribe. It’s basically anything that motivates us to do a certain thing or buy a certain product. Economists will tell you that incentives are everything. They’re given to employees to encourage them to work hard (like bonuses and personal development) and given to consumers to give them a reason to buy (like discount cards). During hard economics times, they are particularly useful as they can keep businesses alive…

Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). It’s expressed normally as an annual percentage of the total amount borrowed, and often changes as the money supply expands and shrinks. © -vvaidya

Inflation - When you think back on what you used to be able to buy for a Rs 100 and what you can get now, you’re getting a glimpse of inflation. Inflation is the increase in the overall prices of products and services in the economy. 

The Unemployment Rate - If you pay attention to the news, you can’t go a day without hearing someone talk about the unemployment rate. The unemployment rate is a measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labor force.

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WHAT IS MAIN STREAM ECONOMICS ? Economics originating in the late

1900's using mainstream mathematical models to analyse economic development and an assumption that individuals are rational and that their behaviour is governed by a desire for their personal benefit .

It’s a combination ofneoclassical methods and a Keynesian approach to macro economics.Determination of goods,outputs, and incomedistributions in markets

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AUSTRIAN ECONOMICS

Methodology -The Austrian school uses logic of a priori thinking - something that a person can think on his/her own without relying on the outside world –n o to find make use of data and mathematical models like neo classical n main stream economics

What determines the price? Prices are determined by subjective factors like an individual's preference to buy or not to buy a particular good, whereas the classical school of economics holds that it depends on demand and supply

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What determines interest rates?

The Austrian school rejects the classical view of capital which says that interest rates are determined by supply and demand of capital. Austrian school holds that interest rates are determined by subjective decision of individuals to spend money now or in future. In other words, interest rates are determined by the time preference of borrowers and lenders.

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SAVING AND INVESTMENT

Ramesh SureshSalary 5 Lakhs per year Salary 2.5 Lakhs per

yearExpense is 4 lakhs per year

Expense is 70000 per year

Savings from salary is 10% in form saving a/c

Savings from salary is 60% in bonds,fd ,real estate ,etc

Gets hike in salary after every 3 years

Gets hike in salary after every 4 years

Hike is 15% of last salary

Hike is 5% of Salary

Gets retire after 25 years

Gets retire after 25 years

No more extra income only pension

Enjoys with extra income + pension

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ROBERT KIYOSAKI

FINANCIAL LITERACY

What are the assets and liabilities ?

-House -Car-Mobile-Clothes -Mlw – Ma hrm ?

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CASH FLOW

Poor Class --------Income----Expenditure

Middle Class -----Income----Expenditure------liabilities

Rich Class --------Income----Assets-----Income------liabilities

More Income-----More liabilities (Buying a new car,phone,etc)

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Thank You Any doubts ?Want to get this slide ?

Its available on http://www.slideshare.net/VaibhavVaidya3/

Sources of data :- 1- https://en.wikipedia.org/wiki/Main_Page

2-http://www.investopedia.com/3-http://www.youngupstarts.com/4-https://mises.org5-http://study.com/