Unit 2-1-economics-management

Financial Management & Homeland Security

Lecture Series Unit No. 2:Topic: (1) Economics & Management (Course: Forensic Accounting & Homeland Security, GFSU)

CA Vikram Shankar Mathur

BA (Eco) Hons, FCA, DISA (ICAI), FAFP (ICAI)

Contact No: +91-9998090111 or +91-8460890111.

Email: [email protected] or [email protected]

Website: http://vsmathur.co.in | http://ahmedabadfca.com | http://fcavsmathurfaculty.wordpress.com

FB Profile(s): http://fb.me/vsmathurco or http://fb.me/vsm.ahmfca

FB Page: http://fb.me/fcavsmathur.faculty

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CA Vikram S. Mathur (GFSU - Lecture series) 2Fina

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Definition of Economics

“Economics is a broad term referring to the scientific study of human action, particularly as it relates to human choice and the utilization of scarce resources.” (http://www.investopedia.com/terms/e/economics.asp).

Economics is the one subject that affects our lives the most, as it is used by individuals, firms, societies, industries and nations on a day-to-day basis. Unlimited ends and scarce resources have to be optimized in such a way that output is maximized using minimum input.

In 1776 Adam Smith published “The Wealth of Nations”, and came to be known as the Father of Economics. In this, he explains that the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called “invisible hand”.

John Stuart Mill advocated that a market has two distinct roles – that of allocation of resources and distribution of income.

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Economics – Views & Theories

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Stages of Economic Growth

PRIMITIVE STAGE Hunting Fishing

PASTORAL STAGE Trading of Cattle etc. Private Property Ownership

AGRICULTURAL STAGE Cultivation of Land Land – Primary Property

INDUSTRIAL STAGE Emergence of Machines Factories – Large-scale production Expanding markets Development of Monetary markets

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What is meant by “Economy” ?

Economy refers to the conditions under which goods are produced in a society and the manner in which people are gainfully employed.

It may be defined as the system of production, distribution and consumption of goods and services that a society uses to tackle the problem of scarcity of resources and the multiplicity of uses that they can be put to.

An economy in which people are well employed and thus have high standards of living and high per capita income, is known as a rich economy. Conversely, where employment and per capita income is low is known as a poor economy.

An economy where the state is the owner of the means of production and people are employed as per the government’s prescription is a socialist economy. Where production and employment is controlled by private entrepreneurs it is a capitalist economy. A mixed economy would be one where the government retains ownership of core and capital intensive means of production and the rest is open for the private entrepreneurship.

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Essential processes of any economy

PRODUCTION: Any economic activity directed towards the satisfaction of human wants is known as production.

CONSUMPTION: The act of satisfying one’s wants is called consumption. Goods and services are produced only because human wants need to be satisfied.

INVESTMENT: The addition made to total stock of capital is called investment. This addition can only be made from what remains from production that are not consumed, therefore called SAVINGS. An economy that consumes all that it produces cannot grow, and that cannot happen without adequate investment over time to grow it’s stock of capital.

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Fundamental problems of an economy

What to Produce: Calls for deciding which goods to produce and in what quantities. This is because resources are scarce, hence need to be optimized. Consumer Goods are those that are directly utilized by consumers to satisfy their wants. Produced Goods are those that are used to produce further goods, for example, machine, tools etc are the latter, while butter bread, shoes etc are the former.

How to Produce: What combination of resources and technology should be used to produce goods is the next problem, as there could be various alternative methods in which goods are produced. Labor-intensive methods are those where manual methods are used and Capital-intensive methods are those where machines are largely used.

For Whom to Produce: Distribution of goods and services among the various members of the economy is what needs to be addressed next. This can be summarized as the problem of sharing the National Product and it’s distribution.

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Some Basic terms and concepts

1. Goods

2. Utility

3. Value

4. Price

5. Wealth

6. Income

7. Yield

8. Profit

9. Want and Need

10. Saving

11. Input

12. Output

13. Firm

14. Market

15. Resources

16. Scarcity

17. Opportunity Cost

18. Equilibrium

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Financial Management & Homeland SecurityThank you for your patience!!CA Vikram Shankar Mathur+91-9998090111 / +91-8460890111(Available on WhatsApp on both numbers, anytime)[email protected] [email protected] Page: http://fb.me/fcavsmathur.facultyWebsite: http://fcavsmathurfaculty.wordpress.com

Unit 2-1-economics-management

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