INDIAN ECONOMY QUICK REVISION #L(1)

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 Basics of Economics & Social 

                Development   


      Economics is a social science that studies production, distribution and consumption of goods and services. It has been divided into two main branches:

• Micro Economics: It deals with the behavior of individual economic agents in the markets for different goods and services and helps determine how prices of goods and services are influenced through the interaction of individuals. Microeconomics majorly deals with products' demand and supply.

• Law of Demand: Demand of any product will be inversely related to its price provided other factors like income, taste, price of other commodities remain unchanged.

• Law of Supply: Supply of a product is positively related to the price of the product, if factors like technology, input price, taxes, etc., remain same. 

• Diminishing Marginal Utility: Utility derived from any product keeps on decreasing with consumption of successive units of the product.

• Market Equilibrium: It is the point at which a 

complete match between demand and supply of a product takes place. For example, at prices below equilibrium price, excess demand for the product enables seller to charge higher prices; resulting in an automatic shift towards equilibrium.


 Macro Economics is concerned with the aggregate economic variables of an economy and takes into account various inter-linkages that exist between different sectors of an economy.

• Aggregate Demand (AD): It is the sum total of 

expenditure that all households, firms and 

governments are willing to make on goods and 

services at various price levels, produced in an 

economy.

• Aggregate Supply (AS): Total monetary value of goods and services that the producers in an 

economy are willing to sell at different price levels.

• When Aggregate Demand equals Aggregate Supply, a short-run macroeconomic equilibrium is attained where total supply by producers is exactly purchased or exhausted by consumers in the economy.

• The difference between the constant and current prices is only that of the impact of inflation. GDP at current price (Nominal GDP) is not used to measure macroeconomic variables as it can present a distorted picture of actual growth in GDP owing to price changes. Real GDP reflects the true state of economy.






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