Basic Concepts of Economics

Basic Concepts of Economics


Each knowledge has some terms or basic concepts. That is the words that are repeatedly used during the study of this article and it is necessary to avoid relevant knowledge that it is important to understand the basic terms (terms) as it is impossible to understand this knowledge without understanding the meaning of the basic terms. Therefore, here we describe some of the following basic concepts or terms of economics in this chapter that include the course:

1. Utility

2. Income

3. Wealth

4. Saving

5. Investment

6. Value


In economics, utility refers to the ability or characteristic of goods and services due to which human desire is satisfied. In the words of the economist left vich, the satisfaction of an item or service is called utility. For example, water is thirsty and the bread is hungry, so in water and bread Utility is available.

To better understand the concept of utility, it is important for me to understand the difference between the following:

(i) Utility and bavailabl

(ii) Utility and gratification


There is difference in utility and benefit but often individuals use them in the same sense. Sometimes it has been seen that one item is harmful but it has utility such as alcohol is very harmful and not useful for health but it has utility because it has the ability to meet one of our needs. It is therefore said that all the beneficial items are useful, but all the useful items are not beneficial.


There is also a difference between utility and comfort. The goods are found in the goods. From the economic point of view, it is wrong to say that water is useful, but we can say that water is useful or water is satisfied.


(i) Depends Upon Human Ends

Utility depends on human desire. There is no desire in a person to get the item, for example, there is a strong desire for medicines in a patient, but when it becomes healthy, there is no use for it in medicines.

(ii) Depy Upon Usage

Utility also depends on the use of something, for example, if a high type of wood is used as fuel, it will have less utility. But if this wood is used to make furniture, its utility increases.

(iii) Depends Upon knowledge

If people’s knowledge and information increases about the use of objects, then it is not useful or not. For example, the first step was that the use of sui gas was very low, so the utility was low. Now man has found many USES of it, so its utility is also increased.

(iv) Depends Upon Form

If the shape of the items is changed, the utility is also reduced or increased, for example, if the book is made from the paper, the paper utility will increase.

(v) Depends Upon Time

Over time the utility also changes, for example in winter the utility of warm clothes is more and less in summer.

(vi) Depends Upon place

Changing the location also reduces the utility of some items, such as wood in the forest is less and more in the city because its different and useful USES are possible.

(vii) Depends Upon Ownership

 Changing the ownership of goods can also reduce the utility, for example if the reader has a book, its utility will be very low, and if the same book is found according to the need of a reader, its utility will increase.


Generally all kinds of receipts are called income, but in economics the income of one person refers to all those receipts which they get in return for their production services for a certain period of time. For example, the wages of a laborer, the profits from the business of the trader, the profits on a person’s bank balance, all the receipts in the land owner’s Scot are offered to the concerned persons. In economics, illegal practices such as theft, bribery, smuggling etc. are not considered as income. Pakistan’s per capita income is very low compared to developed countries. According to a survey by imf2016-17, Qatar’s per capita income is $129727, Japan $38894, Turkey $21147, USA $57294, Canada $46240, UK $42514, China $15424, while Pakistan is $5120 and inter or $6658. In terms of per capita income, Pakistan is 137th in the world, whereas in terms of population, Pakistan is the sixth largest country in the world.The total population of the world is 7600000000 and the population of Pakistan is 207,774,520 (as of 24 February 2018). The total country of the world is 242. The lowest population is Ireland (UK) 57. The highest population is China 1,413,100,153 In terms of population, the order of the world’s first 6 countries is: China, India, America, Indonesia, Brazil and Pakistan.


1. Remuneration of Labour

The amount earned without hard work is not counted in income, such as gift, scholarship, pocket expenses, etc.

2. Specific period

Income is always relevant for a particular period of time. Akmal remains income connotation without mentioning any particular period Special period refers to the daily, monthly, weekly and annual

3. Illegal earnings

The amount earned illegally and unethically does not include arrival, such as theft, robbery, bribery, etc.

4. Charity

The amount received as charity is not counted in the income of the poor etc.


Knowledge economics has the following types of income by virtue of:

(1) Gross income

(2) net income

(3) personal income

(4) national income

(5) net national income

(i) Gross income

Compound income refers to all the receipts of an individual or organization, it includes the expenses and profits of the individual or organization. For example, if a single bin factory sells one lakh soap, it is its mixture of income.

(ii) Net income

If the mixture of income is deducted from outflow (expenditure), the remaining income is called net income. For example, if a total of rs 70,000 is spent on making soap and it is sold for rs 100,000, then rs 30,000 will be net income. It can also be shown by the following formula net income = mixture income – total expenses

(iii) Personal income

Personal income refers to the income earned by a person in a particular period e.g. monthly salary of principal etc.

(iv) National income

According to professor fisher, men from national income are all the goods and services which the people of the country produce during one year. It can also be explained by the following formula: national income = agricultural commodity value + product value + minerals value + services value

(v) Net national income

The amount that saves after the breakdown and milling of machines from the total income is called net income.


Generally, wealth refers to money or gold or silver or land and property, but in economics this word is used in a wide sense. This refers to the storage of goods, services and money that we have received from hard work and the use of which meets our needs.


Everything is wealth which has the following three qualities:

1. Utility

In the items called wealth, there is the ability to fulfill some of the needs of human beings, such as pencil writing and listening to the radio.

2. Scarcity

The amount of wealth items is less than human needs and they are not available free like water, air, light or sunshine, but they have to pay for it.

3. Transferability

(transferability) is the condition of transfer in goods called wealth. That is, they can move from one place to another or from one person to another.


 The following types of wealth are:

1. Personal wealth

An attribute of a person who is the source of creating wealth for him and cannot separate that attribute from that person is the person’s personal wealth such as professor’s lecture, doctor’s ability, artist’s skills, etc.

2. Individual wealth

Individual wealth refers to items that are owned by one man and can be transferred to others.

3. National wealth

National wealth refers to all the items and means of production which are owned by the whole nation and country and all the people of the country use it for example government buildings roads, gardens, mountains were of mineral and monkeys etc.

4. International wealth

It refers to all the resources that are used by the whole world and benefit from them in all the world, such as sea and air.

5. social wealth

It refers to all the items that are owned by the community, such as government libraries and entertainment houses, etc.


Saving refers to the part of income that can be spent on daily use items. As if the middle difference between income and expenditure is called savings, for example, the monthly salary of a professor is rs. 75000 and rs. 60000 is his monthly expense, then rs. 15000 will be his monthly savings. It can also be expressed through the following equation.

 Saving = income – expenses.

 The rate of savings in Pakistan is about 12% of national income, which is very low, while the average rate of savings in the world is 20% annually.


1. Saving Power

 Beth’s reliance on two elements in the world:

The power of saving refers to the courage and affordability of saving. The power of saving depends on the following factors:

(i) Net income

If people’s income is high, their saving power will also be high, and if the income is low, their saving power will also be low, and if the madani is so low that they can fulfill their lives, then the power of saving will not be equal.

(ii) TAX system

If more of the income is spent on paying taxes, then the saving power will be less, but if the faxes are less, then the saving power of the people will be more.

(iii) Natural resources

If a country has minerals, forests and other natural resources in abundance, then the country will achieve more economic development, which will increase the standard of living of the people and increase the per capita income and also increase the saving power.

(iv) Ratio of Income and Expenditure

If a person’s income is more than his expenses, the power of saving will be more and if he is in a yinx situation, the power of saving will be less or non-existent.

(v) Banking system

Due to the banking system of the country, the power of saving also falls. If the banking system is developed, people are encouraged to save their wealth on the one hand and industrial and agricultural loans are available on the other hand, which increases the income of the people and increases the saving power.

        2. Intention to Save.

It refers to the effort and desire to save. Intention to save depends on the following elements:

(i) Economic prestige

People intend to save to gain respect and prestige in the society.

(ii) For the future

People also plan to save to face future calamities.

(iii) Rate of profit

If the rate of return is high, people will plan to save to get more income.

(iv) For children

The idea of raising children and good education also strengthens the intention of saving in a person.

(v) Habit

If there is a habit of saving, people save only because of this habit.

(vi) Unexpected income

Entrepreneurs also save to take advantage of unexpected business profits.

(vii) Peace situation

Savings also grow due to the situation of law and order and political stability, while on the contrary, people do not intend to save during times of war and unrest.

(viii) For old age

Some people save some money for their old age to help them in difficult times.

(ix) For marriage

Some people save some money for their children’s calamitie


The types of savings are as follows:

1. Personal savings

Personal savings refers to the amount that common people save from their income, for example, an employee’s salary is 50000 rupees per month and he spends 40000 of it and the remaining 10000 is his savings.

2. Corporate savings

 Various business organizations and companies do not distribute all their profits to the shareholders, but save some of it. This share is called businessmen.

3. Government savings

The difference between the annual revenue of the government and the annual expenditure is called government saving. When the annual budget of the government is more, that is, its income is more than its expenditure, then the excess amount will be called government savings. For example, the annual income of the government is 200 billion rupees and the expenditure is 180 billion rupees, then the government saving will be 20 billion rupees.

4. Forced savings

 Sometimes the government needs funds to meet emergency needs and levies taxes. Due to which the people are forced to spend less money on consumer goods than before and if they pay taxes to the government, then we will count it as forced savings.


To increase public savings, the government can take the following measures:

(1) Peace and order should be created in the country.

(2) Political stability should be created.

(3) The influx of people should be increased.

(4) The tax rate should be reduced.

(5) Maximum number of financial institutions should be established.

(6) The quality of life should be raised.

(7) Investment should be encouraged.

(8) Maximum employment opportunities should be created.


Investment in common parlance refers to investing some of the saved money in activities that are expected to generate income. For example, buying a house and renting it out, starting an old business, etc. will increase the individual income, but there will be no increase in the country’s wealth. Therefore, we will not call it an investment from an economic point of view.Investment in economics will happen only when we will spend our savings on getting something new like new building, new factories, new machinery etc. In other words, investment is what will increase the national assets.


1. Expectation of profit

If the probability of profit is high, people will invest more and if the expectation of profit is low, people will not invest at all.

2. Economic condition

If the economic condition of people is such that their purchasing power is high, then they will buy more consumer goods and expand their business, i.e. investment will increase, otherwise not.

3. Tax system

If the taxes are high and the government takes most of the profit, then the morale of the investors will be low and they will not invest, but if the taxes are low, then the investors will invest with courage and courage. .

4. Interest rate

If the interest rate will be higher than the profit of the normal business, then people will reduce the investment by giving money on interest, in the case of breaks, the investment will be more.

5. Political stability

If there is political chaos and unrest in the country, people will not invest, but if there is political stability, capital investment will increase.

6. Population

The increase in population increases the demand for goods. In this way, new factories, factories, businesses come into existence and investment increases.

7. Savings

If saving is high then capital investment will also be high and if saving is low then capital investment will also be low.

8. Protection

If the investors get capital protection, the investment will be more, but if there is a fear of nationalization, the speed of investment will be low and the businessman will not invest his capital in the country.


The types of investment are as follows:

1- Individual investment

It refers to investing a person’s money in such activities that increase his real assets and increase his income, for example, renting a new house, etc.

2- Corporate investment

It means making profit by investing in one’s property like setting up a new factory etc.

3- National investment

If the government of a country invests capital to increase national assets, it is called national investment, for example, building roads, bridges, dams, etc.

4- International investment

When the government or people of one country invest their capital in another country in various activities to increase the real assets of that country, it is called global investment.

Note: Real assets mean new items ie new factory, new machine or new company to be established.


 The following steps can be taken to increase investment:

(1) Interest rate should be reduced.

(2) Protection of capital should be provided.

(3) Tax exemption should be given to investors.

(4) Necessary facilities should be provided.

(5) The rate of profit should be increased.

(6) Financial institutions should be strengthened.


In economics, value refers to the purchasing power or exchange power of something, i.e. how many goods and services one thing can get in return. For example, if one kilogram of ghee costs five meters of cloth, then it will be said that the value of one kilogram is equal to five meters of cloth. Sir Adam Smith used stature in two senses.

(i) Value by use

(ii) Value in Exchange

(i) Value by use

The word utility is used for use in terms of value, for example, when we say that water is a valuable thing, it means that water has utility for humans.

(ii) Value in exchange

Value in terms of exchange is called value. Purchasing power is actually the value of an item. For example, if you buy one piece of china, then the height of one pan will be equal to two books.


For something to have value, it must have three things:

(i) Scarcity

(ii) Transferability

(iii) Utility

(i) Scarcity

Scarcity means that the demand for a thing is more than its supply, for example, wheat, rice, etc., need to be scarce for value.

(ii) Utility

For value, it is necessary that there is utility in the object concerned. If not, it will not have value.

(iii) Transferability

For value, things must also have the attribute of transferability, i.e. the thing from one place or person.

Can be transferred to another place or person.

Absence of any one of the above mentioned three attributes, the object has no value.




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