Chapter 1: Basic Concepts of Economics (SEBA)

What is economics?
Economics is the study of how individuals and societies use limited resources to satisfy unlimited wants. It helps in understanding choices and trade-offs.

Define scarcity.
Scarcity refers to the limited availability of resources in comparison to unlimited human wants. It forms the central problem of economics.

What is a resource?
Resources are inputs used to produce goods and services. They include land, labor, capital, and entrepreneurship.

What is utility?
Utility is the satisfaction or usefulness derived from consuming a good or service. It varies from person to person.

What are economic goods?
Goods that are scarce, have a price, and provide utility are called economic goods. Example: water in cities, petrol.

What are free goods?
Goods available in abundance and not having a price are free goods. Example: air, sunlight.

Define wants.
Wants are human desires for goods and services. They are unlimited and keep changing with time, place, and income.

What is consumption?
Consumption is the process of using goods and services to satisfy human wants. It is the end of economic activity.

What is production?
Production is the process of creating goods and services using inputs like land, labor, and capital.

What is distribution?
Distribution is the process of dividing national income among the factors of production—land (rent), labor (wages), capital (interest), and enterprise (profit).

What is exchange?
Exchange means giving up something to get another. In economics, it mainly refers to buying and selling of goods and services.

Define opportunity cost.
Opportunity cost is the next best alternative foregone when a choice is made. It reflects the cost of choosing one option over another.

What is marginal utility?
Marginal utility is the additional satisfaction from consuming one more unit of a good. It usually decreases with more consumption.

What is total utility?
Total utility is the total satisfaction derived from consuming a certain quantity of goods or services.

What is wealth?
Wealth refers to all assets or goods that have value, are scarce, and can satisfy human wants. Example: land, machinery.

What are wants and their characteristics?
Wants are unlimited, changeable, and recurring. They differ by person, time, place, and are classified as basic or luxury.

What is human capital?
Human capital refers to the productive skills and knowledge of workers, gained through education and training.

What are the types of economy?
Economies can be capitalist (private ownership), socialist (state ownership), or mixed (both public and private sectors).

What is the central problem of an economy?
Due to scarcity, every economy faces three basic problems: what to produce, how to produce, and for whom to produce.

What is positive economics?
Positive economics deals with facts and objective analysis. It explains “what is.” Example: India’s unemployment rate is 7%.

What is normative economics?
Normative economics deals with value judgments and “what ought to be.” Example: Government should provide free education.

What is microeconomics?
Microeconomics studies individual units like households, firms, and markets. It focuses on demand, supply, and price determination.

What is macroeconomics?
Macroeconomics studies the economy as a whole—national income, inflation, unemployment, economic growth, and policy.

What are wants vs needs?
Needs are essential for survival (food, shelter), while wants are desires for comfort (mobile, car). Needs are limited; wants are unlimited.

Define income.
Income is the earning received by individuals or factors of production in exchange for work, rent, or investment.

What is saving?
Saving is the part of income that is not spent on consumption. It can be invested or stored for future use.

What is investment?
Investment is the use of resources to create capital goods or improve future production. It includes building factories, buying machinery, etc.

What is wealth creation?
Wealth creation is the process of generating economic value through production, innovation, and investment.

What is barter system?
An old method of exchange where goods are traded for other goods without using money. It lacked a common measure of value.

What is the role of economics in daily life?
Economics helps individuals and governments make informed choices about spending, saving, resource use, and policy-making for a better standard of living.