Fundamental Economic Principles and Concepts

Law of Demand

Other things remaining the same, if the price of a commodity falls, the quantity demanded increases & decreases with a rise in price.

Quantity Theory of Money

Double the quantity of money, other things remaining unchanged, the price will be twice as high as before; half the quantity of money, the price will be one half of what it was before.

Marshall's Definition of Economics

Economics is a study of mankind in the ordinary business of life. It examines that part of individual and social action which is most closely connected with the attainment and use of material requisites of well-being.

Adam Smith's Definition of Economics

Economic inquiry into the factors that determine the wealth of a country and its growth.

Law of Diminishing Marginal Return

The additional benefit which a person derives from an increase of his stock of anything diminishes with the increase of stock that he already has.

National Income

The net output value of commodities and services, flowing during a year from the country’s productive system into the hands of the ultimate consumer.

Concepts of National Income

1. Gross Domestic Product (GDP)
2. Gross National Product (GNP)
3. Net National Product (NNP)
4. National Income at Factor Cost
5. Personal Income
6. Disposable Personal Income
7. Per Capita Income

Qualities of Good Money

An ideal money material should possess the following qualities:

1. General Acceptability: It is the very essence of money. Unless a person knows that the money will be accepted without objection, they will not accept it.
2. Portability: It must be easily and economically transported, possessing high value in small bulk.
3. Indestructibility or Durability: It must not easily deteriorate.
4. Homogeneity: All portions should be of the same quality, so equal weights have the same value.
5. Divisibility: It should be capable of division without significant loss of value.
6. Malleability: It should be capable of being shaped and coined.
7. Cognizability: It should be easily recognized and distinguished.
8. Stability of Value: It should not be subject to fluctuations in value.

Paper Money

Advantages

• Economical
• Portability
• Stability
• Homogeneous
• Elasticity

Disadvantages

• Inflation
• Difficulties in foreign payments
• Possibility of damage
• Fake money