Chapter 1: Introduction to Human Resource Management
Multiple Choice
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ecnomics 3rd lecture
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A. The Law of Demand
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope
A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve illustrates the negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded (A), and the lower the price, the more the good will be in demand (C).
Changes that decrease demand
Circumstances which can cause the demand curve to shift include:
- decrease in price of a substitute
- increase in price of a complement
- decrease in consumer income if the good is a normal good
- increase in consumer income if the good is an inferior good
Factors affecting market demand
Market or aggregate demand is the summation of individual demand curves. In addition to the factors which can affect individual demand there are three factors that can affect market demand (cause the market demand curve to shift):
- a change in the number of consumers,
- a change in the distribution of tastes among consumers,
- a change in the distribution of income among consumers with different tastes.
Some circumstances which can cause the demand curve to shift in include:- Decrease in price of a substitute
- Increase in price of a complement
- Decrease in income if good is normal good
- Increase in income if good is inferior good
B. The Law of Supply
Like the law of demand, the law of supply demonstrates the quantities that will be sold at a certain price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.
extraction and contraction
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2nd semster infomation technolgy book
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ecnomics
Ist Week lectures
2nd lecture
27th june2013
DEFINITIONS OF ECONOMICS
We have now formed an idea about the meaning of Economics. This at once leads to a general
definition of Economics. Economics is the social science that studies economic activities.
This definition is, however, too broad. It does not specify the exact manner in which the
economic activities are to be studied. Economic activities essentially mean production, exchange
and consumption of goods and services. However, with the progress of civilisation, the
complexity of the production, exchange and consumption processes in society have increased
manifold. Economists at different times have emphasised different aspects of economic
Meaning and Definitions
of Economics
These definitions can be classified into four groups:
1. Wealth definitions,
2. Material welfare definitions,
3. Scarcity definitions, and
4. Growth-centered definitions.
Adam Smith’s Definition
Adam Smith, considered to be the founding father of modern Economics, defined Economics as
the study of the nature and causes of nations’ wealth or simply as the study of wealth.
The central point in Smith’s definition is wealth creation. Implicitly, Smith identified
wealth with welfare. He assumed that, the wealthier a nation becomes the happier are its
citizens. Thus, it is important to find out, how a nation can be wealthy. Economics is the
subject that tells us how to make a nation wealthy. Adam Smith’s definition is a wealth-centred
definition of Economics.
Main Characteristics of Wealth Definitions
1. Exaggerated emphasis on wealth: These wealth centered definitions gave too much
importance to the creation of wealth in an economy. The classical economists like Adam Smith,
J.S. Mill, J.B. Say, and others believed that economic prosperity of any nation depends only on
the accumulation of wealth.
2. Inquiry into the creation of wealth: These definitions show that Economics also
deals with an inquiry into the causes behind the creation of wealth. For example, wealth of a
nation may be increased through raising the level of production and export.
3. A study on the nature of wealth: These definitions have indicated that wealth of a
nation includes only material goods (e.g., different manufactured items). Non-material goods
were not included. Hence, non-material goods like services of teachers, doctors, engineers,
etc., are not considered as ‘wealth’.
Alfred Marshall’s Definition
Alfred Marshall also stressed the importance of wealth. But he also emphasised the role of the
individual in the creation and the use of wealth. He wrote: “Economics is a study of man in
the ordinary business of life. It enquires how he gets his income and how he uses it. Thus, it is
on the one side, the study of wealth and on the other and more important side, a part of the
study of man”. Marshall, therefore, stressed the supreme importance of man in the economic
system. Marshall’s definition is considered to be material-welfare centred definition of
Economics.
Features of Material Welfare Definitions
The main features of material welfare-centred definitions are as follows:
1. Study of material requisites of well-being: These definitions indicate that Economics
studies only the material aspects of well-being. Thus, these definitions emphasise the
materialistic aspects of economic welfare.
2. Concentrates on the ordinary business of life: These definitions show that
Economics deals with the study of man in the ordinary business of life. Thus, Economics
enquires how an individual gets his income and how he uses it.
3. A stress on the role of man: These definitions stressed on the role of man in the
creation of wealth or income.
Lionel Robbins’ Definition
The next important definition of Economics was due to Prof. Lionel Robbins. In his book
‘Essays on the Nature and Significance of the Economic Science’, published in 1932, Robbins gave a
definition which has become one of the most popular definitions of Economics. According to
Robbins, “Economics is a science which studies human behaviour as a relationship between
ends and scarce means which have alternative uses”. A long line of economists after Robbins,
including Scitovsky and Cassel agreed with this definition and carried on their analysis in
line with this definition. It is a scarcity-based definition of Economics.
Main Features of Scarcity Definition
The principal features of scarcity definitions are as follows:
1. Human wants are unlimited: The scarcity definition of Economics states that human
wants are unlimited. If one want is satisfied, another want crops up. Thus, different wants
appear one after another.
2. Limited means to satisfy human wants: Though wants are unlimited, yet the means
for satisfying these wants are limited. The resources needed to satisfy these wants are limited.
For example, the money income (per month) required for the satisfaction of wants of an
individual is limited. Any resource is considered as scarce if its supply is less than its demand.
3. Alternative uses of scarce resources: Same resource can be devoted to alternative
lines of production. Thus, same resource can be used for the satisfaction of different types of
human wants. For example, a piece of land can be used for either cultivation, or building a
dwelling place or building a factory shed, etc.
4. Efficient use of scarce resources: Since wants are unlimited, so these wants are to be
ranked in order of priorities. On the basis of such priorities, the scarce resources are to be used
in an efficient manner for the satisfaction of these wants.
5. Need for choice and optimisation: Since human wants are unlimited, so one has to
choose between the most urgent and less urgent wants. Hence, Economics is also called a
science of choice. So, scarce resources are to be used for the maximum satisfaction (i.e.,
optimisation) of the most urgent human wants.
ECNOMICS
Ist Week lectures
ist lecture
26th june2013
1.1 INTRODUCTION
Any discussion on a subject must start by explaining what the subject is all about i.e., by
defining the subject. In this chapter, we shall define Economics. The questions which Economics
actually discusses will then be taken up in the subsequent chapters.
The principal fact about Economics that we must always remember is that it is a social
science. If we forget this, we tend to get bogged down with questions that are not relevant to
Economics and are best left to other disciplines.
1.2 MEANING OF ECONOMICS
The word ‘Economics’ originates from the Greek work ‘Oikonomikos’ which can be divided
into two parts:
(a) ‘Oikos’, which means ‘Home’, and
(b) ‘Nomos’, which means ‘Management’.
Thus, Economics means ‘Home Management’. The head of a family faces the problem
of managing the unlimited wants of the family members within the limited income of the
family. In fact, the same is true for a society also. If we consider the whole society as a ‘family’,
then the society also faces the problem of tackling unlimited wants of the members of the
society with the limited resources available in that society. Thus, Economics means the study
of the way in which mankind organises itself to tackle the basic problems of scarcity. All societies
have more wants than resources. Hence, a system must be devised to allocate these resources
between competing ends.
ist lecture
26th june2013
1.1 INTRODUCTION
Any discussion on a subject must start by explaining what the subject is all about i.e., by
defining the subject. In this chapter, we shall define Economics. The questions which Economics
actually discusses will then be taken up in the subsequent chapters.
The principal fact about Economics that we must always remember is that it is a social
science. If we forget this, we tend to get bogged down with questions that are not relevant to
Economics and are best left to other disciplines.
1.2 MEANING OF ECONOMICS
The word ‘Economics’ originates from the Greek work ‘Oikonomikos’ which can be divided
into two parts:
(a) ‘Oikos’, which means ‘Home’, and
(b) ‘Nomos’, which means ‘Management’.
Thus, Economics means ‘Home Management’. The head of a family faces the problem
of managing the unlimited wants of the family members within the limited income of the
family. In fact, the same is true for a society also. If we consider the whole society as a ‘family’,
then the society also faces the problem of tackling unlimited wants of the members of the
society with the limited resources available in that society. Thus, Economics means the study
of the way in which mankind organises itself to tackle the basic problems of scarcity. All societies
have more wants than resources. Hence, a system must be devised to allocate these resources
between competing ends.
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