Independent Indian: Work & Life of Professor Subroto Roy

Economics as a Beautiful Subject: Its Concepts & Principles Explained for Everyone….

 

 

by Subroto Roy Draft 12 July 2019, 11 October 2019, 2 February 2020, 26 April 2020, 18 March 2021, 19 March 2021, 20 March 2021, 28 March 2021, 5 April 2021, 17 September 2021, 19 September 2021

 

 

0. Economics is a beautiful science that is important to mankind’s well-being and progress.  The purpose of this work is to describe and explain its main concepts and principles to any person who is literate and numerate, that is, to just about everyone or anyone who wants to know…

 

 

0.1. Economics is about… people… homo sapiens (tho yes there’s a general theory from biology yet to be written)…

 

and those people’s

 

budgets

 

needs

 

decisions

 

learning

 

productive capacity.

 

 

 

 

 

0.2. It’s also about

prices

 

technology

 

 the organization of agriculture & industry

 

government finance & decision-making

 

domestic commerce & its regulation

 

labour & its employment

 

capital, and land, & their utilization  

 

money, banking, & finance

 

world trade, factor flows, & international payments

 

0.3. Time does not stand still,

 

 

so prices have to include 

 

interest-rates and cross interest-rates

 

 

and quantity decisions have to include

 

decisions about needs over time, ie Savings

 

decisions about productive capacity over time, ie Investment.

 

 

 

0.4. There are

Consumption goods,

 

for the present…

 

 

and

Capital goods

 

taking us & being taken by us into the future…

 

 

 

0.5. Traditionally, Economics has had its

 

Three Great Categories:

 

Consumption

 

Production

 

Exchange

 

and a Fourth too…

 

Distribution…

 

 

 

0.6. Then there is

 

Theory of Value (Price Theory) or “Microeconomics”

 

— theory of the “Real Economy“, where measurements are of quantities of goods and services, and of Relative Prices, ie ratios of these those measured quantities (eg 3 apples for 4 oranges)…

 

 

and

 

 

Theory of Money or “Macroeconomics”

 

— theory of the “Nominal Economy“, where prices are measured in monetary units as Money Prices ie in units of fiat or other money (eg 3 apples for 1 monetary unit, 4 oranges for 1 monetary unit…). 

 

 

0.7.   Suppose, for example, there are only three real goods and services in an economy, whose prices per unit expressed in terms of a Monetary Unit (MU) are 3 MU, 2 MU, 6 MU respectively.   If those Money Prices per unit happened to double to 6 MU, 4 MU, 12 MU respectively, we might say Inflation of 100% occurred in money prices during that time, or that the real value of the Monetary Unit fell by that amount.  If the money prices had gone instead to 4.50 MU, 3MU, 9MU, we would say inflation was 50%. 

 

Ratios between the three prices have remained the same in these cases; i.e., while Money Prices of the three items changed, the (two) Relative Prices between them stayed the same.  In reality there are many hundreds of millions of differentiated real goods and services in any economy though the same logic would continue. And the number of Relative Prices always will be one less than the number of Money Prices.

 

 

0.8.  The attempt to write “microeconomic foundations of macroeconomics” has been the attempt to comprehend “aggregate” or “macro” sized variables like

 

Consumption

 

Savings

 

Investment

 

Demand for & Supply of Money

 

 

 

in conceptual terms rooted in terms of the “micro” decisions (or “constrained optimizations”) of masses of individual people…. as these individuals may happen to be arranged in

 

Households

 

(for Consumption)

 

 

and/or

 

 

Firms

 

(for Production…)

 

 

 

 

Exchange appears everywhere between Households, Firms,  Governments as people seek to acquire what they have greater need of by means of  what they have less need of.