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FUNDAMENTALS OF ECONOMICS BOOK

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Designed for the one-term introductory economics course for non-majors, Boyes's FUNDAMENTALS OF ECONOMICS, Sixth Edition, engages students with. Fundamentals of Economics for Business is an innovative text designed are available upon request for all instructors who adopt this book as a course text. Common Sense Economics, by James Gwartney, Richard L. Stroup, and Dwight R. Lee – Three top economists lay out basic principles of.


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FUNDAMENTALS OF ECONOMICS is a concise but thorough survey Fundamental Questions at the beginning of each chapter preview key. Based on the comprehensive two-semester text by the same authors, this version of Economics "boils down" the formal economic theories and concepts into. Dr. William Boyes is professor of economics at Arizona State University. He received his Ph.D. in economics from the Claremont Graduate School in

Mouseover for Online Attention Data Overview Praise Summary This text by one of Europe's leading economists covers a wide variety of public economics issues with great clarity and precision, illustrating them with a wealth of carefully-chosen examples and problems. Starting from theories of general equilibrium analysis, Laffont considers issues of market failure, collective decisionmaking, and distributional equity. He analyzes the important informational and motivational problems involved in planning solutions for market failures, and provides a rigorous justification for the theoretical foundations of public economics. For each Laffont begins with the classical foundations, moves on to consider the topic within a simple model of the economy, and concludes by integrating results from recent journal articles into this simple framework. In this way students are led to understand the classical tradition in the context of modern general equilibrium theory.

The Fifth Edition provides a convenient, integrated learning experience by including a Study Guide after each chapter, which allows students to review key concepts and practice new skills before they go on to read the next chapter. Fundamental Questions at the beginning of each chapter preview key points, reappear next to the relevant in-text discussion, and form the basis of chapter-ending Summary sections. Economic Insight and Global Business Insight boxes focus on the policies of today's leaders and the business decisions of real companies and governments around the world, adding real-world relevance to the material.

Important Notice: Media content referenced within the product description or the product text may not be available in the ebook version. Consumers Firms and Social Issues. You are less than half-educated if you understand one while being ignorant of the other. Economists, before , concentrated their attention on micro economics. Macro economics was regarded as a junior partner. It was, therefore, given a passing reference. The classical economists believed that the economy normally operates at full employment and, therefore, the actual level of output in the economy was simply whatever could be produced with full employment of resources.

According to them, the economy could depart from full employment situation only temporarily. They believed that the automatic forces of competition would take the actual level of output back to the full employment.

Therefore, these economists were concerned with the problem of unemployment. The fact that there was relatively few situations of prolonged unemployment and depression before gave support to this belief of classical economists. However, the situation changed dramatically during the s. During this decade, there was widespread unemployment in the advanced capitalist countries of the world. It was this which led to the development of macro economic theory by the famous economist J.

Keynes provided a theory of the determination of employment and output. He explained that the economy can operate at any level of employment, with full employment only as one possible level. In fact, according to him, economy normally operates at less than full employment level. Ever since then, economists have shown their concern with macro economics and micro economics has assumed as unprecedented importance.

The contemporary economists are concerned with both micro economics and macro economics. Economics as a Science While explaining the subject matter of economics we have often stated that economics is a social science. A social science studies various human activities.

Economics as a social science studies economic activities of the people. By classifying economics as a social science, economists have placed their subject in the category of science rather than art. Let us understand why economists regard economics as a science or why we use the title science for economics. The term science implies the following : i ii A systematic body of knowledge which traces the relationship between cause and effect. Observation of certain facts, systematic collection and classification and analysis of facts.

Subjects such as Physics, Chemistry, Botany, etc. In this sense, economics is also considered to be science since it satisfies all these characteristics of science. Firstly, economics is a systematic body of knowledge as it explains cause and effect relationship between various variables such as price, demand, supply, money supply, production, national income, employment, etc.

As in other sciences, one way of making generalisations in economics is through logical deduction. This is the traditional Deduction Method where economic theories are deduced by logical reasoning. In this method certain assumptions are made and by using logical reasoning we arrive at certain logical deductions.

From these deductions certain economic laws or themes are formulated. Thus, under the deductive method, logic proceeds from the general to the particular. This method is called abstract or a prior because it is based on abstract reasoning and not on actual facts.

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Economic laws, like other scientific laws, state what takes place when certain conditions assumptions are fulfilled. For example, Newtons Law of Gravitation in Physics states that every body in the universe attracts every other body with a force.

But the gravitational force depends upon the size of the mass and the distance between the two bodies. Therefore, the Gravitation Law states that given the mass of the two objects, the force of gravitation is inversely proportional to the distance between them. In the same way, the law of demand in economics states that a fall in the price of commodity leads to a large quantity being demanded given other things, such as income of the consumer, prices of other commodities, etc. An alternative method to derive economic generalizations is Inductive Method.

Under this method, a mass of data is collected from actual experience with regard to economic phenomenon and on the basis of these collected observations certain generalizations are made and conclusions are drawn there from. The logic in this approach is from particular to general. The generalizations are based on observation of individual instances. They are used side by side in any scientific enquiry. Thus, like other branches of science, economics possesses the above mentioned characteristics 2 and 3 as well.

In economics we collect data, classify and analyse these facts and formulate theories or economic laws. Lastly, we call economics a science because the truth and applicability of economic theories can be supported or challenged by confronting them to the observations of the real world.

If the predictions of the theory are refuted by the real-world observations, the theory stands rejected. But if the predictions of the theory are supported by the real-world events, then the theory is formulated. For example, the law of demand, stating the there is an inverse relation between price and quantity demanded, is a scientific economic hypothesis, because it has been corroborated by the real world observations. The method of economics is, therefore scientific and hence it is appropriate to label economics as a science.

However, compared with physical and natural sciences, economics is at a disadvantage. Economics cannot claim the precision of the physical sciences because the human and social behaviour is complex and unpredictable.

In economics, unlike Physics, Chemistry and Biology, we cannot perform the controlled experiments. We have to depend upon observation of economic events; these observations are not so well behaved and orderly. That is why economy laws are not as accurate, precise and of universal validity as laws of physical and natural scienties are.

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The laws of economics or economic theories are conditional subject to the condition that other things are equal; Economic theories are seldom precise and are never final; they are not as exact and definite as laws of physical and natural sciences. From the above discussion, we make the following two observations: 1. The laws of physical and natural sciences have universal applicability, but economic laws are not of universally applicable.

The laws of physical and natural sciences are exact, but economic laws are not that exact and definite. Economics as an Art Art is completely different from science. What is an art? Keynes defines art as a system of rules for the attainment of a given end.

The object of art is to formulate rules to be used for formulation of policies. Thus, as compared to science, which is theoretical, art is practical. A science teaches us to know, an art teaches us to do. Applying this definition of art, we can say that economics is an art. Various branches of economics, like consumption, production, distribution, money and banking, public finance, etc. Thus, the theory of demand guides the consumer to obtain maximum satisfaction with given income.

Similarly, theory of production guides the producer to equate marginal cost with marginal revenue while using resources for production. Thus, economics is an art in the sense that the knowledge of economic laws helps us in solving practical economic problems in everyday life.

To conclude, we can say that economics is both a science and an art. As a science, economics is a systematic body of knowledge which makes generalizations and theories by adopting scientific approach.

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As an art, it puts this knowledge into practice. It uses economic theories and laws in formulating various economic policies. Thus, economics is science in methodology and art in its application. Corsa observed that science required arts, and arts requires science-each being complementary to the other. It is advisable, therefore, to treat economics both as a science and an art. Samuelson has rightly stated that economics can be described as the oldest of the arts and the newest of the sciences indeed the queen of social sciences.

Another question related to nature of economics is whether it is a positive science or a normative science or both. Economics as a Positive Science A positive science is that science in which analysis is confined to cause and effect relationship.

In other works, it states What is and not what ought to be. There is a school of thought which believes that economics is only a positive science. It should confine itself to stating the cause and effect relationship. It should not pass any value judgement regarding what is right and what is wrong.

Positive economics is concerned with the facts about the economy.

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It relates to what the facts are, were or will be about various economic phenomena in the economic. It studies the economic phenomena as they exist, finds out the common characteristics of economic events, specifies cause and effect relationship between them, generalize their relationship by formulating economic theories and make predictions about future course of these economic events.

For example, positive economics deals with questions like what are the causes of unemployment? How do we account for inflation?

Why price of a particular good has increased? Economics as a Normative Science Economics as a normative science is concerned with what ought to be. Its objective is to examine real economic events from moral and ethical angles and to judge whether certain economic events are desirable or undesirable.

It tries to find out and prescribes certain course of action which is desirable and necessary to achieve certain goals. Thus, normative economics involves value judgment. Normative economics deals primarily with economic goals of a society and policies to achieve these goals.

It also prescribes the methods to correct undesirable economic happenings. To understand the difference between the positive and normative nature of economics, let us consider some economic events and their positive and normative aspects, in economic studies.

For example, how are the prices of foodgrains determined is a question of positive economics, but what should be the prices of foodgrains is a question of normative science. Consider another example.

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The statement a decrease in taxes will encourage production is a question for positive economics, but should taxes be reduced or not is a question of normative economics. In the past, there was controversy among economists over the nature of economics. Robbins emphasized that economics is purely a positive science. According to him economics should be neutral between ends.

It is not for economists to pass value judgement and make pronouncements on the goodness or otherwise of human decisions. Marshall and Pigou, on the other hand, considered economics both a positive and a normative science. However, there is hardly any controversy on this issue now. It is generally agreed not that economics is both a positive and a normative science.

Economists believe now that complete neutrality between ends is neither feasible nor desirable. It is not possible because in many matters the economist has to suggest measures for achieving certain economic objectives. He advocates various policies for increasing employment, reducing inflation, etc. While making these suggestions, he is making value judgement.

A mere study or positive facts would not take us very far. Complete elimination of value judgements from the study of economics robs the subject much of its practical utility.

In many cases, an economist as a policy formulator and social reformer has to pronounce undesirable effects of certain economic events and has to make suggestions for their removal.

When he does this, he is not entirely neutral between ends. Thus, neutrality between ends is not desirable in many cases. Deductive and Inductive Methods of Economic Analysis In Economics the issues are analysed either by inductive method or by deductive method. The deductive method tries to draw conclusions from certain fundamental assumptions or truths.

The logic proceeds 1. For example, we can deduce from the basic truth that a man will download more at lower prices. The Law of Demand and the Law of diminishing Marginal Utility have been derived from deductive reasoning. The inductive method, on the other hand, deduce conclusions on the basis of collection and analysis of facts and figures. The Logic proceeds from particular to general. It leads to exact and precise conclusions for policy making.

The Deductive method was used by earlier economists. It is a simple method, obviates the need of experimentation and collection of statistical data. But deductive conclusions are based upon assumptions that may turn out to be untrue or partially true. Hence it is unsuitable for policy making as it is dangerous to claim universal validity for economic generalizations.

Economics is a Science and an Art Being a systematized body of knowledge and establishing the cause and effect relationship of a phenomenon, Economics is a scientific study.

Like other branches of science, we in economics deduce conclusions or generalizations after observing or collecting facts and figures. However the laws of economics are conditionalthey assume other things being equal.

Economics cannot predict with so much certainty and accuracy as physical can. The reason is obvious. The subject deals with the behaviour of human beings as such controlled experiment is not possible.

However some economists prefer to treat economics as an art. An art is a system of rules for attainment of a given endso remarked J. It implies that the function of an art is to provide rules, norms and maximises to solve human problems. An art teaches us to do. The fact is that every science has an art or a practical side and every art has a scientific side which is theoretical. Economics deals with both theoretical aspects as well as practical side of many economic problems we face in our daily life.

The theoretical side teaches us to know and the applied side teaches us to do. Thus, Economics is both science as well as an art. Robbins said that human wants are unlimited but the means available to satisfy them are limited.

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It is also true in case of any economy, whatever the economy required cannot be satisfied fully. This is because economic resources or means of production are limited and they can be put to alternative uses. So every economy faces some common problems. One of them is what to produce?

In view of limited resources a country cannot produce all goods. And all other random things kept constant for a good brand, quality etc. Higher the price, higher will be the supply from the manufacturers make hay while the sun shines! The former is called the law of demand , and latter is called the law of supply. Time also plays a huge role in a free-market economy, more so in the case of entities in a competition to serve the consumers. Stock-outs are no good for a supplier as it affects the brand and the consumer can move elsewhere.

If there is an excess of demand, the producers have to gauge the nature of demand first seasonal, increasing trend to react in a swift fashion, to corner the market and retain the existing customers. The stable state of equilibrium in an economic system makes the economy efficient, the suppliers are moving their goods and the consumers are getting what they are demanding.

The only point worth noting: In a perfect free market, for any good or service— the total quantity supplied by the sellers and the total quantity demanded by the downloaders will reach a state of economic equilibrium over time. Things closely follow the free market paradigm if two basic assumptions hold true: Perfect competition assumes that no seller is large enough to sway the natural movement of the market owing to its large market share and cash reserves, which too often becomes the case for corporations in a capitalistic system with the wherewithal to wipe out smaller players.

In these cases, regulations to prevent monopolies and unfair practices become all the important to ensure that the market remains efficient.

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On the other hand, too many government regulations and quotas pre-liberalization India was on the verge of bankruptcy hinder the natural process towards equilibrium and result in easily avoidable inefficiencies in the system. How much government regulation is the right amount is a question which we are yet to answer with full confidence, but we know for sure that both extremes can be really bad!

Taking a holistic example in lieu of an easier and obvious one — research proves that the money one earns contributes hugely towards average life happiness in the initial stages of getting those riches, but its role tapers off sharply as the income grows. The economists refer to this is as the law of diminishing marginal utility.

The fundamental concept which is responsible for economic growth as we know it is specialization of labor. If an entity is really efficient in producing a commodity output to input ratio is high , it has an advantage over another entity which is not that efficient in producing the commodity under consideration.

If I am good at making shoes and you are good at making jam, it makes sense to do what we are good at and trade afterwards. Moreover, the economies of scale prove to be an icing on the cake — the production cost per unit decreases as we produce more and more of the same units the initial one-time setup cost can be a major part of the total expense. And the best part is that both parties are better off after doing the transaction and so is Mother Earth, for less wastage.

Just to appreciate the grandeur of this simple idea, just imagine your standard of living in a world where you have to produce everything for yourself. You would likely revert to a medieval lifestyle, growing your own food and defending our own property.

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