Definitions

Introduction: As you being the study of economics (Eco.) perhaps the most important thing to realize is that Eco. Is not a collection of settled facts to be copied down and memorized? Mark twain once said that nothing is order that yesterdays newspaper and the same can be said of yesterdays Economics and Statistics. Indeed, the only prediction about the economy that can be confidently made is that there will continue to be large, and largely unpredictable, changes. If Eco. Is not a set of durable facts, that what is it? Fundamentally, it is a way of thinking about the world. Definition of Economics: Economics is the study of how people make choices under conditions of scarcity and of the result of those choices for scarcity. Even in rich societies for example: United States, scarcity is a fundamental fact of the life. There is never enough time, money or energy to do everything we want to do. According to Adam Smith (1723-1790) It is a science of wealth wealth means goods and services that can transfer with the help of money. He is the founder of economics and he described it in his book The Wealth of Nation. According to Dr.Alferd Marshall (1890) It is a study of mankind in the ordinary business of life, it examines that part of individual and social action which is closely connected with the attainment and with the use of material requisites of well-being According to Prof. Robins (1935) He says in his book Nature and Significance of Economics Science that Economics is the science which studies human behavior as a relationship between multiple ends and scarce (limited) means (income) which have alternative uses. Microeconomics: The study of individual choice under scarcity and its implications for the behavior of prices and quantities in individual markets. Macroeconomics: The study of the performance of national economics and the policies that government uses to try to improve that performance.

Important Concepts: Following are some important concepts of Economics. Rational person: Someone with well-defined goals who try his or her best of fulfill the goals. Economics Surplus: The difference between your benefit and your cost is known as Economic surplus. Example: Let suppose you have to go to a dinner party in an hour. But you realized that your shirt is not ironed .You think about it for a moment and decide to give it to the laundry at Rs.10. Than you think as economical point of view that why not it ironed by me and think about cost lets suppose the cost is Rs.4 the economics surplus is Rs.6. Opportunity Cost: The opportunity cost of an activity is the value of next best alternative that you must be leave to undertake the activity. OR it is that cost of production which is obtained after adding both explicit and implicit costs. Example: Suppose you are watching last 15 minutes of the cable T.V. movie and you have also ironed your shirt but you do not leave the movie and opportunity of iron shirt. The value of ironed shirt you sacrifice for the last 15 minutes movie is the opportunity cost. Marginal Cost: The marginal cost of an activity is the increase in the total cost as the result from carrying out one additional unit of the activity. OR change in TC due to change in output or quantity is called marginal cost. Equations: A mathematical expression that describes the relationship between two or more variables is called equation. Variable: A variable is that value whose magnitude can be changed. Constant or Parameter: A quantity that has a fix value. Fixed Cost: A cost that does not vary with the level of an activity. Variable Cost: A cost that vary with the level of an activity. Demand: By demand we mean, the quantity of any commodity which a consumer want to buy and have a purchasing power.

Supply: By supply we mean, the amount of any commodity that comes to the market for sale at a specific price. Factors that can bring change in supply are: 1.Cost of production 2.Wages 3.Inflation 4.Rate of Interest 5.Employment Marginal Utility: The additional utility gained from consuming one additional unit of a good. Demand curve: A curve or schedule that is showing the quantity of a good that buyers wish to buy at cash prices a fundamental property of demandcurve for a good is that it is down ward slopping with respect to the price of the good. Supply Curve: A graph that shows how much of a product a firm will supply at different price level. Excess Demand: The condition that exists when quantity demanded exceeds the quantity supplied at the current price is known as excess demand. Excess Supply: The condition that exists when quantity supplied exceeds the quantity demanded at the current price is known as excess supply. Synergy Effects: If we employing 100 input and getting 150 output due to good condition rather than of expecting 110,120,130 or 140. Substitutes Goods: Two goods X and Y are substitutes if the price of the X increases and in result the demand of Y increases and vice versa. Example: Pepsi & Coca Cola Complementary Goods: Two things X and Y are compliments when price of X increases and demand of Y decreases and vice versa known as complimentary goods. Example: Petrol & Cars

Normal Goods: If the quantity demanded of goods increases in income of the consumer then goods are known as normal goods. OR goods for which demand goes up. When the income is higher and for which demand goes down when income is low. Inferior Goods: If the quantity demanded of goods goes down when income of the consumer goes up than goods known as inferior goods. OR Goods for which demand tends to fall when income rises. Price Taker: A firm that has no influence over the price at which it sells it products. Factors of Production: An input used in the production of good or services is known as Factor of production. Explicit Costs: The actual payments a firm makes to its factors of production and other supplies. OR it is that cost of production in which money changes hands is called explicit cost. Implicit Costs: The entire firms opportunity costs of the resources supplied by the firms owner OR it is that cost of production in which money doesnt change hands is called implicit cost. Accounting Cost: Difference between a firms total revenue and its explicit costs. Economic Profit: The difference between a firms total revenue and the sum of its explicit and implicit costs also known as excess profit. Normal Profit: Normal Profit = Accounting Profit Economics Profit Graph: Visual representation of data is known as graph. Marginal: Change in dependent variable due to one unit change in an independent variable is known as marginal. Marginal Revenue: Change in total revenue associated with one unit change in output is known as marginal revenue. Marginal Cost: Change in total cost associated with one unit change in output is known as marginal cost.

Slope: Measure the steeper-ness of a line is called the slope. Slope=vertical changes/horizontal changes OR Change in price/change in quantity Tangent: A straight line that touches a curve only at one point is called a tangent. Derivatives: It is an instantaneous change in dependent variable due to one unit change in the independent variable is called derivatives. Breakeven Point: A point at which profit is zero is known as breakeven point OR a point at which cost equals to the revenue of the firm is known as breakeven point. Price: The amount that a commodity sells for per unit is known as price of that commodity. It reflects that what society is willing to pay. Firm: An organization that transfers resources (inputs) into products (outputs) is known as firm. Equilibrium: Perfect balance between demand and supply OR A point at which demand and supply curve cut each other is known as equilibrium. Optimization: As economics is a science of choice, the most common factors are alternatives among choices. In economics the goal of maximizing something is known as optimization. Sunk Cost: It is a cost of production that cannot be covered if present decision is changed. Total Revenue: TR is the amount the seller receives from the sale of a product in a particular time period. Index: Change in the price of a commodity for a certain time period is called index.

Price Index: A price level at which a consumer consuming a basket of goods is called consumer price index or CPI. Demand Function: Relationship between demand and factors which influencing its level is known as demand function. Supply Function: Relationship between supply and factors which influencing its levels is known as supply.