Unformatted text preview: free enterprise
economy works without central control.
4. Study of welfare economy. Cons. But it also suffers from certain
1. It cannot give idea of the functioning
economy as a whole. An individual might
be flourishing whereas the economy as a
whole may be languishing.
2. It assumes full employment which is a
rare phenomenon, inducing errors.
rare Macroeconomics (Theory of Income
and In macroeconomics we study how aggregates
and averages of entire national/international
economy as a whole are determined and what
causes them to fluctuate, how it grows.
causes Macroeconomics in not merely adding or
multiplying what happens to individuals, it is far
more complicated then that. For example, In
times of depression, savings in times of
depression by an individual might be beneficial
to him but for economy as a whole it will be
harden. It is also referred to as Growth Theory.
1. It is helpful in understanding complicated functioning of
an economic system.
2. It gives bird's eye view of economic world, not of an
3. It regulates aggregate employment and national income.
1. Individual is ignored altogether. Increasing national
saving at the expense of an individual is not a wise
2. Macroeconomic analysis overlooks individual
differences. For example, average price level might be
stable but food price hike will strangle the poor.
stable Applicability of Economic Laws.
Applicability Modern economic opinion is inclines to the view that
they are good approximations and useful guide to the
economic events and serve as a basis for formulation
of economic policies, considering varying local
“Given the conditions under
which economic laws are true, the conclusion to
which they point are
“Ceteris paribus refers to the concept that law will hold
good if there are no changes
taking place in economic phenomenon. ” Basic assumptions in Economics
There are three broad types of assumptions. Rational behavior. Consumers, labors, and
entrepreneurs seeking maximum profit.
entrepreneurs Unchanged tastes. Tastes of consumers remain
unaltered for fairly long periods of time.
unaltered Competitive market. That there are large number of
buyers and sellers and that nothing influences the
price. Another thing that is assumed lies at the basis of
economic analysis is
economic Concept of Equilibrium. It is the point where
consumer and entrepreneur at
consumer maximum possible satisfaction, at this point no change
in policy is required.
in The End...
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