BBA (2024-28)

Principles of Economics
(POE)

Lecture 1
 Principles of Economics - Syllabus
• Unit I: Introduction
• Definition of Economics - Classification of Economics macroeconomics vs. microeconomics; Normative vs. Positive Economics; The concept
of Partial Equilibrium and General Equilibrium Analysis; Fundamental Problems of an economy- Economic theory, and its relationship
with decision sciences and functional areas of management-The nature of business decisions
• Unit II: Demand and supply
• Law of Demand- Movement Along the demand curve- Shift in the Demand curve- Exceptions to law of demand; Law of Supply-
Movement Along the Supply curve- Shift in Supply; Determination of Equilibrium-price and output; Market Intervention- Price ceiling and
Price floor; The concept of elasticity of demand - Degrees of Elasticity of Demand- Price Elasticity of Demand, Income Elasticity of
Demand ,Cross- price Elasticity of Demand, Promotional Elasticity of Demand; Significance of the concept of elasticity of demand in business
decision making- Importance of theory of demand in relation to Electronic commerce; meaning, concept and measurement of utility-
cardinal and ordinal utility
• Unit III: Production, Cost and Market structures
• Meaning of production function-Organizing production – Short run Production function (Law of variable Proportions), Long run
production function (Returns to scale), Isoquants-features of Isoquants; Isocost line- Least cost combination; Different cost concepts (eg.,
economic and accounting cost, historical cost/sunk cost); Nature of costs- Short-run and long-run cost functions, Plant size and economies
of scale and scope, The relationships between total, average, and marginal cost and their relevance in economics and business.
Market-meaning, types-Perfect, monopoly, monopolistic, oligopoly; price and output determination in each market.
• Unit IV: National Income
• Concepts of National income, Three Methods of Measuring GDP (Product method, Income Method, Expenditure Method), Real GDP Vs
Nominal GDP, Difficulties and Importance of Measuring National Income and Economic Welfare, India’s National Accounts.
• Unit V: Money, Banking and Inflation
• Money- meaning, functions, Demand for Money-determinants; Supply of money- measures, Origin of Banking, Functions of a Central Bank
and Commercial Banks, Credit creation by Commercial banks, High-powered money and Money Multiplier, RBI credit control; Inflation-types,
measures and consequences, Anti-Inflation Policies; Monetary Policy, and Fiscal Policy-role, types and instruments.
• Unit VI: Business Cycle and Open Economy
• Business Cycle-features, phases, direction and timing, and theories; International trade- reasons, absolute and comparative advantage
theories, protectionism, exchange rate -types of systems, exchange rate determination, WTO.
Course Objectives

• To acquire conceptual and theoretical knowledge of microeconomics

• to understand the working of a firm and its operating environment
• Acquire knowledge of economic environment of a nation and the role
of government in the economy.
• To develop a basic understanding of macroeconomic stability and its
importance to develop an ability to understand macroeconomic
policies and their likely impact
Learning Outcomes
At the end of the course, the student will be able to:

• Evaluate economic behavior, response to incentives, utility, satisfying and

maximizing traits in consumers
• Understand and appreciate the production dynamics – including cost,
revenue and profit considerations
• Evaluate and compare the various types of market structures and use them
when planning price policy in industry
• Identify the process of how the nation’s output of goods and services is
measured through the national income.
• Understand the preliminary concepts associated with the determination and
measurement of aggregate macroeconomic variable like savings,
investment, GDP, money, inflation, and the balance of payments.
Assessments and Evaluations

Evaluations Weightage
Date
20%(including 5% class On completion of II units of
Pre-midterm assessments syllabus
participation(CP*)

Mid-term examination 20%

20%(including 5% class On completion of VI units of

Post-midterm assessments syllabus
participation(CP*)

End Semester Comprehensive

40% (2 hour examination)
Examinations

* When assessing CP, greater emphasis will be placed on the thorough preparation of class
notes.
 Instructions to Students:
• Students must report to the respective sessions on time. Late comers will not be permitted to join the
class after the scheduled time. If late, the attendance for that session will be marked as ‘absent’.
• Read the Case Study / material well prior to the class discussion. He/she is also expected to read the
chapter indicated in the course plan as the faculty directs.
• In the class discussion student is expected to participate actively and contribute to individual and group
learning. Evaluation is based on active participation.
• Evaluation is a continuous process at IBS. Absence from these evaluations will mean non-awarding of
marks in that particular component.
• Wherever applicable, group assignments require each student to contribute to the group effort. This
enhances group effectiveness and leads to greater appreciation of working in groups.
• Students are expected to show high regard and appreciation for in class discipline and desist from using
mobile phones.
• Each faculty has been given a scheduled consultation hour. Utilize this time to meet the faculty and
clarify doubts if any, seek explanations and get mentored if needed.
• Attendance is compulsory in all sessions. However refer to guidelines in your academic handbook
for exceptions.
• The school uniform must be worn every school day.
 Introduction to Economics

• The Term ‘Economics’ is derived from the ancient Greek word

oikonomia—meaning the ‘management of a family’ or a household.
• Economics is a branch of social science focused on the production,
distribution and consumption of goods and services
• We can have a better idea about the nature and scope of economics
by studying some of the important definitions of economics.
• Definition of Economics:
• Wealth definition- Adam Smith
• Welfare definition – Alfred Marshall
• Scarcity definition – Lionel Robbin
 Wealth definition- Adam Smith

• Adam Smith (1723–1790): the father of economics

• Adam Smith defined economics as 'an inquiry into the nature and causes of the
wealth of nations'.

• He emphasis on wealth as a subject-matter of economics

• To him, wealth may be defined as those goods and services which command value-
in- exchange (goods which are relatively scarce and have money value)
• ‘An Inquiry into the Nature and Causes of the Wealth of Nations or, more
popularly known as ‘Wealth of Nations’—published in 1776.

• Criticism: This definition is too narrow as it does not consider the major problems
faced by a society or an individual: human welfare, scarcity and choice
 Welfare definition – Alfred Marshall

• Alfred Marshall in his book ‘Principles of Economics’ published in 1890 placed

emphasis on human activities or human welfare rather than on wealth
• Marshall defines economics as “Political Economy or Economics is a study of
mankind in the ordinary business of life; it examines that part of individual and
social action which is most closely connected with the attainment and with the use
of the material requisites of well-being.”
• Criticism
• Marshall’s definition aimed at measuring human welfare in terms of money.
But ‘welfare’ is not amenable to measure­ment, since ‘welfare’ is an abstract,
subjective concept. Truly speaking, money can never be a measure of welfare.
• Marshall’s definition ignores the fundamental problem of an economy: scarcity
and choice
 Scarcity definition – Lionel Robbin
• The most accepted definition of economics was given by Lionel
Robbins in 1932 in his book ‘An Essay on the Nature and Significance
of Economic Science’.
• According to Robbins, neither wealth nor human welfare should be
considered as the subject-matter of economics.
• His definition runs in terms of scarcity: “Economics is the science
which studies human behaviour as a relationship between ends and
scarce means which have alternative uses.”
– Unlimited wants: Human wants are unlimited.
– Scarce means/resource: scarcity of resources is the fundamental economic
problem to any society.
– Resources have alternative uses
– Scarcity of resources gives rise to many ‘choice’ problems.
– Resources are scarce
 Micro v/s Macroeconomics
Microeconomics Macroeconomics

It is the study of individual economic units of an It is the study of economy as a whole and its
economy. aggregates.

It deals with Individual Income, Individual prices, It deals with aggregates like national Income, general
Individual output, etc. price level, national output, etc.

Its central problem is price determination and Its central problem is determination of level of
allocation of resources. Income and employment.

Its main tools are demand and supply of a Its main tools are aggregate demand and aggregate
particular commodity/factor. supply of the economy as a whole.

It helps to solve the central problem of ‘what, It helps to solve the central problem of full
how and for whom’ to produce. employment of resources in the economy.

It discusses how equilibrium of a consumer, a It is concerned with the determination of equilibrium

producer or an Industry Is attained. level of Income and employment of the economy.

Examples are: Individual Income, Individual Examples are: National Income, national savings,
savings, price determination of a commodity, general price level, aggregate demand, aggregate
individual firm’s output, consumer’s equilibrium. supply, poverty, unemployment, etc.