Title      : BEC- 11 Economic Theory
Subject      : Economics
copyright © 2018   : Karnataka State Open University
Author      : KSOU
Publisher      : Karnataka State Open University
Chapters/Pages      : 24/244
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Nature and Scope of Economics Total views (1279)  
Economics is one of the most important and prestigious disciplines. It is considered as the 'Queen of Social Sciences'. The term Economics is derived from two Greek words as namely, 'Oikos' and 'Nemein'. Oikos means household and Nemein means management.Thus Economics was considered a science of household management. So, in olden days Economics was about taking decisions and using available resour ......
Pages: 12
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Micro and Macro Economics Total views (1279)  
The study of economics has been divided into micro economics and macro economics. 'Micro' means small and 'Macro' denotes large. These terms were introduced by Prof. Ragner Frisch of Oslo University during the 1920's and since then these terms have gained popularity.
Pages: 9
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Deductive and Inductive Methods Total views (1261)  
Methodology refers to the logical process of discerning the truth relating to its contents and establishing cause and effect relationship, thereby to evolve scientific generalisations. There are two logical methods namely Deductive and Inductive method. To establish the cause of economic events, economists generally use both these methods of reasoning.
Pages: 6
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Tools of Economic Analysis Total views (1258)  
Today application of mathematics is very essential for the study of Economics. Without the application of mathematics we cannot understand the modern Economics. Mathematics is useful to find solutions to complex economic problems.
Pages: 9
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Production Possibility curve Total views (1250)  
Prof. Samuelson has introduced 'Production Possibility Curve' which tries to explain graphically the alternative production possibilities in an economy with limited resources. The productive resources in an economy can be used for the production of various alternative goods. The economy has to decide which goods to be produced more and which goods should be produced less depending upon the situati ......
Pages: 6
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Economic Model Building Total views (1243)  
The main function of economists is to observe, analyse economic facts and to formulate economic theories. Economic theory explains the cause and effect relationship between two or more observed facts. To build economic model these are essential. Observation of economic facts or events. Collection and Analysis of data. Prediction of an economic event. Cause and effect relationship between two or m ......
Pages: 10
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The Law of Diminishing Marginal Utility Total views (270)  
This law based on the daily experience of all human beings in the society. It is the common tendency that as we have more and more of a particular commodity its marginal utility goes down. This law is formulated on the basis of this principle.
Pages: 11
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The Law of Equi-marginal Utility Total views (269)  
From the law of Diminishing Marginal Utility, We all know if consumer goes on spend more and more on a particular commodity, its marginal utility diminishes. Therefore in order to maximize his satisfaction consumer has spend his income on various goods. This law is called by various names.
Pages: 7
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Consumers Surplus Total views (268)  
The concept of consumer's surplus is developed on the basis of utility analysis. consumers are prepared to pay more price for the commodities than its actual price. The difference between the price prepared to pay and the actual price constitutes consumer's surplus.
Pages: 7
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Indifference Curve Analysis Total views (273)  
Utility analysis is defective. Therefore It cannot measure the consumers behaviour effectively. In order to remove the defects of utility analysis J.R. Hicks and R.G.D. Allen developed an Indifference curve analysis.
Pages: 17
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The Law Demand and Elasticity of Demand Total views (274)  
Demand and supply are two economic forces which occupy an important place in the economic analysis. The Law of Demand explains the inverse relationship between price and quantity demanded. Economists developed the concept of Elasticity of Demand to explain the responsiveness of demand to a change in price.
Pages: 21
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The Laws of Supply and Elasticity of Supply Total views (277)  
Demand and supply are two economic forces which play an important role in the economic analysis. The law of supply explains the direct relationship between price and quantity supplied. The concept of elasticity of supply is developed by economists to measure the responsiveness of supply to a change in price.
Pages: 8
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Production Function and Law of Variable Proportions Total views (287)  
Production is the result of combined efforts of the various factors of production namely land, labour, capital and organization. In the production process a firm combines various inputs in different quantities and proportions to produce different levels of outputs. The technological physical relationship between inputs and outputs is referred as production function.
Pages: 8
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Cost and Revenue Analysis Total views (287)  
Cost of production refers to all those costs which are incurred in producing a commodity. Revenue refers to the amount received by the firm when it sells it's output. Both cost and Revenue analysis are very important in Economic analysis. The aim of the firm is the maximization of profit. The knowledge of cost and Revenue are very essential to the firm to achieve it's objective of maximization of ......
Pages: 15
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Pricing Under Perfect Competition Total views (287)  
Perfect competition is an imaginary concept of classical economists. They assumed perfect competition prevails in the real world. Therefore they formulated economic theories on the assumption of perfect competition. But perfect competition never prevails in the real world. It has more significance in Economic Analysis. A Perfect competition is a market form in which a number of sellers deal with ......
Pages: 8
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Pricing Under Monopoly, Monopolistic Competition And Oligopoly Total views (287)  
Perfect competition never prevails in the real world. The real world market is Imperfectly competitive Market. Monopoly, Monopolistic competition and oligopoly are the various forms of imperfect competition. Monopoly is a market of single seller. Monopolistic competition is the intermediary situation between perfect competition and perfect Monopoly. Oligopoly is a market situation where a few sell ......
Pages: 20
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Marginal Productivity Theory of Distribution Total views (295)  
The product pricing is also called the theory of distribution. It is also known as the Resource Market. National Income is the money value of all goods and services produced during a given time. Factors used in the production of National Income are called factors of production. Land, labour, capital and organisation are the factors of production. Theory of distribution explains how the national i ......
Pages: 5
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Ricardian theory of rent, liquidity Preference theory of interest and Theories of profit Total views (291)  
David Ricardo explained in his theory of rent, how land gets the rent. John Maynard Keynes developed the liquidity preference theory of interest. Keynes in his theory explains why capital gets its reward interest. Economists formulated several theories as to discuss how organiser gets the profit. All these theories are discussed in this unit.
Pages: 13
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Classical Theory of Employment Total views (292)  
There are two employment theories. They are Classical Theory of Employment and Keynesian Theory of Employment. Classical Theory of Employment is based on Say's Law of Market. It assumes there will be full employment in the economy. Pigou suggested the wage cut policy to solve unemployment problem. The term classical economists was first used by Karl Marx to describe economic thoughts of David Ric ......
Pages: 8
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Keynesian Theory of Employment Total views (292)  
The first systematic theory of employment was put forward by J.M. Keynes. His theory is often called the 'Demand Deficiency Theory'. He attributes unemployment to a lack of effective demand. In his famous book, 'The General theory of Employment, Interest and Money' he outrightly rejects classical theory of employment, Say's law of market and the concept of free economy. The Great depression of 19 ......
Pages: 11
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Consumption Function Total views (292)  
According to Keynes, one of the important factors that determine effective demand is Consumption function. It shows the functional relationship between income and consumption. Consumption Function is the most important concept of Keynes.
Pages: 10
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Investment Function Total views (294)  
In Keynes' analysis, the effective demand is determined by consumption and investment. Effective Demand determines the level of employment. According to Keynes, consumption remains constant in the short run. Therefore it is investment which plays a decisive role in the determination of employment level. It means that the gap that exists between income and consumption is to be filled with the help ......
Pages: 8
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Business Cycles Total views (293)  
Economic fluctuations present a recurring problem for economists and policy makers. An economy may experience long run growth, but the growth may not be steady at all. Recessions - Periods of falling incomes and rising unemployment - are frequent. During recessions, not only more people are unemployed, but those who are employed have shorter work weeks, as more workers have to accept part time jo ......
Pages: 9
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Monetary and Fiscal Policy Total views (295)  
Monetary and Fiscal policies are essential to achieve price stability. Monetary policy relates to policies relating to supply of money. Fiscal Policy includes tax policy debt policy and government expenditure policy. Both these policies are useful in achieving the price stability.
Pages: 6
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