Naked Economics Unit 1 Study Guide

Unit-1 Total Marks- 4

Q 1. Give different definitions of Economics.

Ans. Wealth centered definition given by Adam Smith in his famous book-`` An Enquiry Into The Nature And Causes of Wealth of Nations``(1776):-`` Economics is the science of Wealth``.

Welfare centered Definition given by Alfred Marshall in his book `` Principles of Economics``(1890)- `` Economics is the subject which studies the economic activities of men but on the other side this is the study of the human behavior``.

Scarcity centered Definition was by Lionel Robbins in his essay (1932) :-``An Essay on The Nature and Significance of Economic Science``.- `` Economics is the subject which studies the relationship between unlimited needs and limited resources which have

What do you understand by Central Problems of an Economy? Ans. Every economy has to face some problems which are known as Central Problems of an Economy. These are as follow:-

1.Allocation of Resources: This problem can be further classified in three parts:

A. What to Produce? This is the problem of making choice about the goods. There are many typse of goods.

. Consumer Goods:- T hese goods are consumed by the consumers to get satisfaction. Examplea: Food, clothes, fruits etc.

Capital Goods:- These goods are used to produce other goods like machines, tools etc.

The problem is that which goods should be produced and in what quantity?

B. How to Produce:- This is the problem of choice of technique. Two Techniques are

Capital Intensive Technique: In this technique more machines are used in comparison of labour.

Labour Intensive Technique: In this technique more labour are used in comparison of machines.

The problem is that which technique should be used in production.

C. For Whom to Produce?: This is the problem of distribution. It can be understood from two ways:

a. Problem of Individual Distribution: Goods should be produced for the poor or for the rich? Poor people demand for necessary goods and rich people demand for

In other words there is inverse relationship between price and quantity demanded of a normal good.

2.Price of substitutes:- There is direct relationship between price of substitutes and demand of given good. Example: If price of tea rises demand coffee will increase and vice-versa.

3.Price of complements:- There is inverse relationship between price of complementary good and demand of given good. Example: If price of petrol rises demand of scooters contracts and vice-versa.

4.Income of the consumer: A. Normal good: Demand of a normal good increases with the increase in income of the consumer and vice-versa. Example: Fruits, Milk etc.

Inferior Goods:- Demand of a inferior good decreases with increase in income of the consumer. Like kerosene oil etc.

4.:-Taste Preferences: - If consumer has taste in favor of the good, he will demand more units & v-versa.

Question:- Explain law of demand with the help of table and diagram. Or Differentiate between extension and contraction of demand. Or what is meant by movement along the demand