The term or word ‘Economics’ comes from the Ancient Greek oikonomikos (oikos means “households”; and, nomos means “management”, “custom” or “law”). Thus, the term ‘Economics’ means ‘management of households’. The subject was earlier known as ‘Political Economy’, is renamed as ‘Economics’, in the late 19th century by Alfred Marshall.
Economics is divided into three parts :
In consumption, we study wants, their origin, nature and characteristics and the laws governing them.
It refers to all activities which are undertaken to produce goods and services for generation of income and satisfaction of wants.
Economic activity which studies how income generated from the production process is distributed among the factors of production.
Important Denitions in Economics
Per capita income (PCI) / Average income: The average income earned per person in a given area (city, region,
country, etc.) in a specified year. It is calculated by dividing the area’s total income by its total population.
Literacy rate: The number of persons who is 7 or above and has the ability to read, write and understand in any
language. It is calculated by dividing ‘number of literate persons aged 7 or above’ to the total ‘population aged
7 or above’ and multiplying by 100.
Bank Rate / Discount Rate: The rate of interest which a central bank charges on its loans and advances to a
Prime Lending Rate / Prime Rate: The interest rate charged by banks to their largest, most secure, and most
creditworthy customers on short-term loans.
Neo-Malthusian Theory: Malthusian theory is based on the idea that population growth will outstrip the ability
to feed people. Malthus called for abstinence from sex was necessary to stop population growth.
General Equilibrium Theory (Walras): Explains the behavior of supply, demand, and prices in a whole economy
with several or many interacting markets, by seeking to prove that the interaction of demand and supply will
result in an overall general equilibrium.
Gresham’s law: A monetary principle stating that “bad money drives out good”. For example, if there are two
forms of commodity money in circulation, which are accepted by law as having similar face value, the more
valuable commodity will gradually disappear from circulation