🧠 MODULE 1 – FOUNDATION OF ECONOMICS
(Short Notes)
1️⃣Meaning & Nature of Economics
Economics = Study of how people use limited resources to satisfy unlimited wants.
Divided into:
o Microeconomics – individual or firm decisions.
o Macroeconomics – economy as a whole (GDP, inflation, etc.).
Science & Art: Science (theories/laws) + Art (practical use in solving real issues).
Positive economics: What is.
Normative economics: What ought to be.
2️⃣Major Definitions of Economics
Economist Focus Key Idea Criticism
Production & trade increase
Adam Smith (Wealth) Wealth creation Ignores welfare
prosperity
Alfred Marshall Welfare is
Human welfare Wealth = means to well-being
(Welfare) subjective
Lionel Robbins Unlimited wants vs limited
Scarcity & choice Ignores growth
(Scarcity) means
Paul Samuelson Growth &
Present & future resource use Too broad
(Growth) distribution
Modern (Choice Rational choice under Assumes
Decision-making
theory) constraints rationality
Evolution: Wealth → Welfare → Scarcity → Growth → Choice
Link with Law: Economic ideas help form laws on property, wages, taxation, monopoly, and
welfare.
3️⃣Assumptions in Economics
Ceteris paribus – other factors constant.
Rational behavior – aim for satisfaction/profit.
Perfect knowledge & competition.
No govt. interference (classical view).
Short-run / Long-run assumptions.
4️⃣Importance of Economics
General:
Helps understand human behavior & resource use.
Basis of govt. policy (Budget, taxation).
Promotes growth, reduces poverty.
Useful in business & daily life decisions.
Encourages sustainable development.
For Law Students:
Explains economic basis of laws – trade, labour, tax.
Helps analyze economic crimes (fraud, money laundering).
Aids policy making & legal reforms.
Strengthens understanding of property, contract, corporate, and labour laws.
5️⃣Law of Demand
Definition: When price ↓, demand ↑ (inverse relation).
Assumptions: Income, taste, prices of related goods constant.
Exceptions: Giffen goods, Veblen goods, necessities.
Determinants: Price, income, related goods, taste, population.
Importance: Basis of pricing, policy, and forecasting.
6️⃣Elasticity of Demand
Meaning: Measures response of demand to change in price/income.
Types:
o Price Elasticity (PED)
o Income Elasticity (YED)
o Cross Elasticity (XED)
Degrees: Perfectly elastic, elastic, unitary, inelastic, perfectly inelastic.
Uses: Pricing, taxation, wage & trade policies.
7️⃣Law of Supply
Definition: When price ↑, supply ↑ (direct relation).
Determinants: Price, cost, technology, govt. policy, natural factors.
Exceptions: Perishable goods, monopoly, agriculture.
Importance: Helps fix prices & output levels.
8️⃣Market Structure
Type Sellers Product Price Control Entry Example
Perfect Competition Many Same None Free Wheat market
Monopoly One Unique Full Blocked Railways
Monopolistic Many Differentiated Some Free Restaurants
Oligopoly Few Same/Diff. Partial Difficult Telecom
Importance: Basis for Competition Act, Consumer Protection, Antitrust laws.
9️⃣Circular Flow of Income
Shows how money & goods flow between households, firms, govt., and foreign
sector.
Real flow: Goods & services.
Money flow: Income & spending.
Leakages: Savings, taxes, imports.
Injections: Investment, govt. spending, exports.
Equilibrium: I + G + X = S + T + M.
Use: Explains interdependence & policy impact on income.
🔟 National Income
Definition: Total money value of all final goods & services produced by residents in a
year.
Main Aggregates: GDP, GNP, NDP, NNP, NI, PI, DPI, PCI, GVA, Green GDP.
Methods:
1. Output method
2. Income method
3. Expenditure method
Importance: Measures growth, guides policy, compares nations.
Example (India 2024–25): GDP ₹295 lakh crore; PCI ₹1.73 lakh.
11️⃣Trade (Business) Cycles
Definition: Alternating phases of expansion & contraction in economy.
Phases: Expansion → Peak → Recession → Depression → Recovery.
Causes: Monetary, psychological, technological, political.
Importance: Helps govt. plan stabilization & employment policies.
✅ Summary
Economics explains how people and nations use scarce resources for welfare and growth.
Law applies these ideas to ensure justice, efficiency, and fair distribution — both are
inseparable for balanced development.