📘 Chapter 1: Introduction (Macroeconomics)

1. What is Economics?

• Economics is the study of how people and society choose to use scarce resources that have alternative uses, to produce goods and services and to distribute them among different individuals and groups.

• Branches:

  1. Microeconomics – study of individual economic units (consumer, firm, market).

  2. Macroeconomics – study of the economy as a whole (national income, employment, inflation, growth).

2. Microeconomics vs Macroeconomics

3. Central Problems of an Economy

Every economy faces scarcity of resources, which gives rise to three central problems:

1. What to produce and in what quantities?

   • Choice between consumer goods vs capital goods, necessities vs luxuries.

2. How to produce?

   • Choice of production technique:

     • Labour-intensive (using more labour, less capital).

     • Capital-intensive (using more machinery, less labour).

3. For whom to produce?

   • Distribution of goods among different sections: rich vs poor.

4. Economic Systems

Different systems solve central problems differently:

1. Capitalist Economy (Market Economy):

   • Decisions made by private individuals.

   • Profit motive dominates.

   • Prices determined by demand & supply.

   • Example: USA.

2. Socialist Economy (Planned Economy):

   • Decisions made by government.

   • Goal: social welfare.

   • Example: former USSR.

3. Mixed Economy:

   • Combination of both.

   • Private + Government participation.

   • Example: India.

5. Positive and Normative Economics

• Positive Economics: Deals with what is. Descriptive, factual.

  • Example: “India’s GDP grew by 7% last year.”

• Normative Economics: Deals with what ought to be. Based on value judgments.

  • Example: “The government should reduce inequality.”

6. Planned vs Unplanned Economies

• Planned Economy: Resources allocated according to a central plan.

• Unplanned Economy (Market): Allocation through free market forces.

7. Macroeconomics – Scope & Importance

• Studies economy-wide phenomena like:

  • National income accounting.

  • Employment & unemployment.

  • Money & banking.

  • Inflation & deflation.

  • Economic growth & development.

Importance:

1. Helps in economic policy formulation.

2. Useful for controlling inflation/unemployment.

3. Basis for development planning.

4. Helps understand international trade & globalization.

8. Economics as a Social Science

• Economics studies human behaviour in relation to scarce resources.

• It is a science (systematic, logical analysis) and a social science (deals with human beings, not natural objects).

9. Limitations of Macroeconomics

• Cannot study individual welfare precisely.

• Averages may be misleading (per capita income doesn’t show inequality).

• Assumptions like ceteris paribus (other things being equal) not realistic.

🔑 Key Terms

• Scarcity, Choice, Microeconomics, Macroeconomics, Positive Economics, Normative Economics, Capitalism, Socialism, Mixed Economy.