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Basic Concepts of Economics

Concept of Wealth, Welfare and Investments

Alfred Marshall has defined economics as the study of human behavior in the normal business of life. It thus looks at the sources from where a person derives his income as well as the modes of investment. Hence, economics is a study that blends in wealth with the wellbeing of people. This study describes all those activities which can ensure the material welfare of men. Welfare meaning in this regard points out at happiness, security, comfort, and similar positive feelings of an individual or group.

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Wealth and Welfare Meaning

Adam Smith noted the definition of economics to be a specific science that examines the nature and cause of the wealth of different nations. This study is concerned with the production, distribution, and consumption of wealth.

Types Of Wealth

  • Personal Wealth – This refers to the stock of goods such as buildings, houses, lands, furniture, cash in hand, cash at bank, stocks of other commodities, company shares, clothes etc. owned by a person. An individual’s wealth also comprises of intangible assets like his goodwill and health.
  • National Wealth – It comprises of the wealth of the entire nation. It also includes public properties which are enjoyed by a country’s citizens who do not have any right of ownership over the same. Some popular examples of public properties are bridges, roads, hospitals, parks, public sector projects, public educational institutions etc.
    The government bond held by citizens of a country comprises of their personal wealth. However, from the point of view of the government, this liability should be actually deducted from national wealth to come at the ultimate figure.

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Relation Between Wealth And Welfare

Welfare is the well-being or satisfaction enjoyed by the society which is actually determined to a great extent by the wealth of the nation. Wealth generally hikes up our level of welfare although both of them are two completely different concepts.

Learn more about Nature of Economics here in detail

Even when society’s wealth increases, unequal distribution of the same amongst its citizens’ might lead to unnecessary tension. However, most economists hold a view that wealth and welfare shares a positive correlation amongst themselves.

Welfare meaning

Investment

 Investment refers to the purchase of goods today which can yield lucrative results in days to come. You can divide investments broadly into two categories:

  • Real Investment – Under this form of investment, people and even business houses increase their stock of buildings, machines, materials, and other capital goods.
  • Portfolio Investment – This refers to the purchase of company shares although it only pertains to the issue of new shares. As the company expands its productive capacity by using this money, its real capital stock also rises simultaneously.

You can also segregate investment into a gross and net investment where the first one can be further divided into inventory and fixed investment. The investment made in finished and semi-finished goods, as well as raw materials, comprise of inventory investment.

Fixed investment comprises the purchase of fixed assets such as factory sheds, machinery etc. You can derive the figure of net investment by simply deducting the depreciation cost from the amount of gross investment.

Questions on Concept of Wealth, Welfare and Investments

  1. Net Investment = Gross Investment – ______.

Ans.     Depreciation cost

  1. Purchasing _________ increases the capital stock of the company.

Ans.     New shares

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