Introduction to Economics

Micro economy reveals how free enterprise 3 economy

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Unformatted text preview: free enterprise 3. economy works without central control. economy 4. Study of welfare economy. Cons. But it also suffers from certain limitations. limitations. 1. It cannot give idea of the functioning 1. economy as a whole. An individual might be flourishing whereas the economy as a whole may be languishing. whole 2. It assumes full employment which is a 2. rare phenomenon, inducing errors. rare Macroeconomics (Theory of Income and Employment) and In macroeconomics we study how aggregates In 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 Macroeconomics 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. harden. Pros. Pros. 1. It is helpful in understanding complicated functioning of 1. an economic system. an 2. It gives bird's eye view of economic world, not of an 2. individual. individual. 3. It regulates aggregate employment and national income. Cons. 1. Individual is ignored altogether. Increasing national 1. saving at the expense of an individual is not a wise policy. policy. 2. Macroeconomic analysis overlooks individual 2. 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 Modern they are good approximations and useful guide to the economic events and serve as a basis for formulation of economic policies, considering varying local conditions. “Given the conditions under which economic laws are true, the conclusion to which which they point are which inescapable.” “Ceteris paribus refers to the concept that law will hold Ceteris good if there are no changes there taking place in economic phenomenon. ” Basic assumptions in Economics Basic There are three broad types of assumptions. Rational behavior. Consumers, labors, and Rational entrepreneurs seeking maximum profit. entrepreneurs Unchanged tastes. Tastes of consumers remain Unchanged unaltered for fairly long periods of time. unaltered Competitive market. That there are large number of Competitive buyers and sellers and that nothing influences the price. price. Another thing that is assumed lies at the basis of Another economic analysis is economic Concept of Equilibrium. It is the point where Concept consumer and entrepreneur at consumer maximum possible satisfaction, at this point no change maximum in policy is required. in The End...
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