Introduction:
(i) The law of diminishing marginal utility was extended and is called Law of Equi marginal utility
(ii) Law of substitution or Law of consumer's Equilibrium or Gossen's II law or law of maximum satisfaction.
Definition:
Marshall, "If a person has a thing which he can put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all. For, if it had a greater marginal utility in one use than another, he would gain by taking away some of it from the second use and applying it to first.
Assumption
(i) Consumer is rational and wants maximum satisfaction.
(ii) Utility is measurable in cardinal numbers.
(iii) Marginal utility of money is constant.
(iv) Income of the consumer is given.
(v) There is perfect competition.
(vi) Price is given.
(vii) Law of diminishing marginal utility operates
Explanation:
(i) The consumer has Rs. 11.
(ii) He wants to spend it on apple ( Rs 1 each) and orange (Rs. 1 each)
(iii) He will be in equilibrium only when he gets maximum satisfaction ie.
\(\mathrm{K}=\frac{\text { Marginal utility of apple }}{\text { Price of apple }}=\frac{\text { Marginal utility of orange }}{\text { Price of orange }}\)
If is \(\frac{\mathrm{MU_A}}{\mathrm{P_A}}\) less than \(\frac{\mathrm{MU_O}}{\mathrm{P_O}}\) he would transfer money from apple to orange till it is equal.
He should buy 6 units of apple & 5 units of oranges. He gets (92 + 58) = 150 units satisfaction.
\(\frac{\mathrm{MU_A}}{\mathrm{P_A}}=\frac{\mathrm{MU_O}}{\mathrm{P_O}}=\frac{4}{1}=\frac{4}{1}\)

Apple				orange
Units of Commodities	Total Utility	marginal Utility	Total Utility	marginal Utility
1	25	25	30	30
2	45	20	41	11
3	63	18	49	8
4	78	15	54	5
5	88	10	58	4
6	92	4	61	3

Explanation:
(i) X axis shows amount of money spent
(ii) Y axis shows marginal utility of apple and orange.
(iii) If consumer spends Rs.6 on apple and Rs.5 on orange MU will be equal.
(iv) ie. AA₁ = BB₁ = 4 = 4. So he gets maximum utility.
Criticisms:
(i) Utility cannot be measured.
(ii) No consumer compares the utility and disutility from each unit of the commodity while buying it.
(iii) This law cannot be applied to durable goods.
Conclusion:
(i) The law of equi marginal utility is an improvement over the law of diminishing marginal utility because it can be used for many commodities consumed at the same time.

(i) Short term goal 8.29% growth rate.
(ii) The theme was faster, sustainable and more inclusive growth. For this purpose it seeks to achieve 4% growth in agriculture 10% in manufacturing sector.
(iii) The total budget was 47.7 lakh crore which is 135% more than that of the 11th plan.
Broad Objectives
(i) To reduce poverty.
(ii) To improve living conditions for SCs, STs, OBCs, Minorities.
(iii) To improve regional equality.
(iv) To generate attractive employment.
(v) To eliminate gender gaps.
Growth indicators
(i) It aims at average GDP growth rate of 8%.
(ii) It aims at generating 50 millions work opportunities in non farm sector.
(iii) Reducing IMR to 25, MMR to 100 and Total fertility rate to 2% Achieving universal road connectivity and power for all villages.
(iv) Provision of banking services for 90% households.
(v) Major welfare benefits and subsidies via Aadhaar card.
(iv) Secondary education for all by 2017.
(vi) Increase public spending to 2.5% of GDP
(vii) Getting 5 Indian universities in the list of top 200 universities in the world.
(viii) Eliminate gender and social gap in school enrollment.
(ix) Increasing green cover by 1 million hectare every year

Introduction:
The loanable funds theory also called Neo-classical theory was developed by Swedish economists Wicksell, Bertil Ohlin, Viner, Gunnar Myrdal and others.
Theory:
Interest is the price paid for the use of loanable funds.
Demand for loanable funds:
Investment:
Business firms borrow money for buying capital goods.
Consumption:
Individuals borrow money for consumption.
Hoarding:
People hoard money because of people's preference for liquidity, idle cash balance. The demand for C, I and H varies inversely with rate of interest.
Supply of loanable funds:
(i) Savings is of 2 types savings planned by individuals are called ex-ante savings. (eg) LIC premium, EMI payment.
(ii) Unplanned savings is ex-post savings. It is saving left out after spending.
(iii) Bank credit commercial banks create credit and supply loanable funds to investors.
(iv) Dishoarding means bringing out the hoarded money into use. After 1991, public sector undertakings are being sold to private to mobilize funds.
(v) Disinvestment means not providing sufficient funds for depreciation of equipment.
(vi) The supply of loanable funds of S, BC, DH, DI vary directly with interest rate.
Equilibrium:
The rate of interest is determined by the equilibrium between the total demand for and the total supply of loanable funds.
Diagram Explanation:

x axis demand for and supply of loanable funds.
y axis rate of interest.
LS curve- total supply of loanable funds.
(S + BC + DH + DI)
LD curve - total demand for loanable funds
(I + C + H)
LD & LS curves intersect at E. OR = rate of interest OM = amount of loanable funds.
Criticism:
(i) Asymmetric information & moral hazard have not been included.
(ii) Some large firms due to their political powers get huge bank credit at lower interest rate.
(iii) But due to non-performing assets (NPAs) small firms & depositors lose their interest income.
(iv) The loanable funds theory is indeterminate unless the income level is already known.
(v) It is difficult to combine real factors like savings & investment with monetary factors like bank credit & liquidity preference
Conclusion:
Loanable fund theory is wider in scope compared to classical theory.

Introduction:
Rural economy refers to villages and rural community refers to people living in villages.
Features of rural economy:
Village is an institution:
(i) Village is a primary institution and it satisfies almost all the needs of the rural community.
(ii) The rural people have a feeling of belongingness and a sense of unity towards each other.
Dependence on agriculture:
The rural economy depends on nature and agricultural activities.
Life of rural people:
(i) Life style in village is very simple. Education, housing, health and sanitation, transport and communication, banking, roads and markets are limited and unavailable.
(ii) Rural people rely on faith, superstitions and traditional cultural practices.
(iii) The methods of production, social organization, political mobilization, rural sector is extremely weak and backward.
(iv) The incidence of alcohol drinking has gone up.
Population density:
Population density is very low. Houses are scattered in the entire village.
Employment:
There is unemployment, seasonal unemployment and underemployment.
Poverty:
(i) Basic needs of the people like food, clothing and shelter are not met
(ii) About 22 crores of people in rural areas are poor and live below poverty line.
Indebtedness:
(i) People in rural areas are highly indebted owing to poverty, under employment, lack of farm and non-farm employment opportunities, low wage employment, seasonality in production, poor marketing network.
(ii) Since formal loan facilities are not available to the villagers, they depend on local money lenders who squeeze the villagers.
Rural income
Large proportion of labourers are underemployed and the scope for increasing their income is limited.
Dependency:
Rural households are largely dependent on social grants and remittances from family members working in urban areas.
Dualism:
The co-existence of features of organised and unorganised, traditional and modern, regulated and unregulated, poor and rich, skilled and unskilled is very common in rural areas.
Inequality:
There is inequality in distribution of income, wealth and assets. Land, livestock are owned by a few people. Landlords dominate the rural activities.
Migration:
Rural people migrate from villages to urban areas for gainful employment. Lack of basic amenities in rural areas also push the people to urban areas.

Iso and quant are derived from the Greek language, meaning 'equal' and 'quantity'.
Definition:
Isoquant curve is a locus of points representing various combinations of two inputs capital and labour yielding the same output. It is also called equal product curve or product indifference curve.
Properties:
1. The isoquant curve has negative slope:
(i) Capital is being substituted by labour.
(ii) Isoquant has negative slope because of diminishing MRTS.
(iii) Constant MRTS (straight line) and increasing MRTS (concave) are also possible.
(iv) It depends on the nature of isoquant curve

2. Isoquant curve is convex to origin:
The capital substituted per unit of labour goes on decreasing so the isoquant is convex to the origin.

3. Isoquant curves cannot intersect each other:
Point A lies on IQ₁ and IQ₂, Point C lies on IQ₂, showing higher output Point B
lies on IQ₁, showing lower output. C = A, B = A But C > B.


4. Upper isoquant curve represents a higher level of output:
Higher IQ₂ shows higher output 200 units. Lower IQ₁ shows lower output 100 units. IQ₂ means the use of more sectors than IQ₁. Arrow shows increase in output with a right and upward shift of an isoquant curve.

5. Isoquant curve does not touch either x axis or y axis:
In IQ₂ only capital is used and in IQ₁ only labour is used.

Conclusion:
These are the properties of isoquant curves.

Nature of Economics:
(i) Nature of a subject refers to its contents, how and why they find a place in the subject.
(ii) The nature is understood by studying the various definitions given by economists.
Wealth definition:
(i) Adam Smith in his book "An inquiry into nature and causes of wealth of nations" defines Economics as a science of wealth.
Welfare definition:
(i) Alfred Marshall in his book "Principles of Economics", defines Economics as a study of mankind in the ordinary business of life;
(ii) It examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well being.
(iii) It is a study of man and wealth.
Scarcity definition:
(i) Lionel Robbins in his book "An Essay on the nature and significance of economic science" defines Economics as a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.
Growth definition:
(i) Paul Samuelson defines economics as the study of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future among various people and groups of society.

(ii) Since there are many definitions Keynes observed that "Political Economy has strangled itself with definitions."
Scope of Economics:
(i) It refers to the subject matter of Economics, whether it is an art or a science.
Subject matter:
(i) Economics studies the ways in which people use the available scarce resources to satisfy their unlimited wants.
(ii) It deals with consumption, production of goods and distribution of income to the factors of production.
(iii) All human activities related to wealth is the subject matter of Economics.
Arts:
(i) Since Economics provides guidance to the solution to all the economic problems it is an Art.
Science:
(i) Economics is a science since it has similar characteristics of a science.
(ii) Economics examines the causes and effects of problems. So it is considered both an art and a science.
Positive Science:
(i) Economics is a positive science since it deals with what it is, it analyses a problem on the basis of facts and examines its causes.
Normative Science:
(i) Economics is normative science because it responds to what ought to be;

Wealth	Welfare	Scarcity	Growth
Adam Smith classical era.	Alfred Marshall-  neo classical era.	Lionel Robbins new age.	Paul Samuelson modern age.
An Inquiry into nature and causes of Wealth of Nations (1776).	Principles of Economics - (1890)	An Essay on the nature and Significance of Economic Science (1932).	Economics studies how men and society choose with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future among various people and groups of society.
Economics is the science of wealth.	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 with the use of material requisites of well being. It studies wealth and man.	Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.	Economics deals with how the society uses the limited resources for alternative uses.
Deals with only the goods which are scarce and have money value	wealth and welfare of man is important.	Human behaviour  regarding choice is important.	It covers production, distribution and consumption.
Deals with consumption, production, exchange, distribution of wealth.	Only material welfare is considered, differentiates between material and immaterial things.	Economic problem arises  because of scarcity of resources.	Economics is a social science.
	By introducing welfare,  economics  becomes inexact.	Ethical aspects are not  considered so Economics is exact
	Welfare definition makes Economics classificatory.	Economics is a positive science.
		Economics is a science of individual behaviour.
		Both material and immaterial activities are considered.

Introduction:
Few firms selling homogeneous or differentiated product is oligopoly. (eg) car, cigarette.
(i) Few large firms: Very few big firms own the major control of the whole market by producing major portion of the market demand.
(ii) Interdependence among firms: The price & quality decisions of a particular firm are dependent on the price & quality decisions of the rival firms.
(iii) Group behaviour: The firms realise the importance of mutual co-operation.
(iv) Advertisement cost: The oligopolist raises sales by advertising or improving the quality of the product.
(v) Nature of Product: Products may be differentiated or homogeneous.
(vi) Price rigidity: Prices are difficult to be changed. The oligopolistic firms do not change their prices due to the fear of rival's reaction.

Q	Price Rs	TR	AR	MR
1	5	5	5	5
2	5	10	5	5
3	5	15	5	5
4	5	20	5	5
5	5	25	5	5
6	5	30	5	5

\(A R=\frac{T R}{Q}\)

\( M R=T R_{n}-T R_{n-1}\)

Constant AR & MR (fixed price)
When price remains constant, MR is also constant and AR / MR curves coincide.
Declining AR and MR
When a firm sells large quantities at lower prices both AR & MR will fall but the fall in MR will be steeper than the fall in AR.

Q	AR	TR	MR
1	10	10	10
2	9	18	8
3	8	24	6
4	7	28	4
5	6	30	2
6	5	30	0
7	4	28	-2

(i) MR is lower than AR.
(ii) Both AR and MR slope downwards.
(iii) MR divides the distance between AR curve and axis into 2 equal parts.
(iv) The decline in AR need not be a straight line or linear.
(v) If the prices are declining with the increase in quantity sold, the AR can be nonlinear, taking a shape of concave or convex to the origin.

Introduction:
Indian economy is the seventh largest economy of the world. Its features are:
Mixed economy:
(i) In India private and public sectors co-exist.
(ii) Some fundamental and heavy industries are under public sector.
(iii) Due to liberalization private sector's importance has increased.
Agriculture:
(i) 60 % of Indians depend on agriculture for their livelihood.
(ii) 17 % of GDP is got from agricultural sector.
(iii) Green revolution and inventions in biotechnology have made agriculture self sufficient.
(iv) The export of fruits, vegetables, spices, tobacco, animal skin, vegetable oils also add to foreign exchange earning.
An emerging market:
(i) India has emerged as a vibrant economy sustaining stable GDP growth rate even when there was global downtrend.
(ii) This has attracted foreign capital through FDI and FII.
(iii) India is in the 7^th position in terms of nominal GDP and 3^rd in terms of purchasing power parity.
(iv) India is one among the G20 countries.
Fast growing economy:
(i) With a growth rate of 7.1% in GDP India is the world's fastest growing economy in 2016-17 next to China.
Fast growing service sector:
(i) There has been growth in technical sectors like Information Technology, BPO.
(ii) These emerging services have helped the country to go global.
Large domestic consumption:
(i) The standard of living has improved a lot. There is rapid increase in domestic consumption.
Rapid growth of urban areas:
(i) There has been a rapid growth of urban areas in India after Independence. Improved connectivity in transport and communication, education and health have speeded up urbanization.
Stable macroeconomy:
(i) India is one of the most stable economies of the world.
(ii) The current year's economic survey represents the Indian economy to be a "heaven of macroeconomic stability, resilience and optimism".
Demographic dividend:
(i) The human capital is young.
(ii) They are young, skilled and trained enough to maximize growth.
(iii) This has invited foreign investments and outsourcing opportunities.