Economics

Presentation prepared by

Abhilash Alphonso

What is meant by the term Economy

•Production.•Consumption.•Exchange.•Distribution.•Saving .•Investment.

Why Economic is studied ?

• To deal with the economic process.

• To understand the economy, economic system and economic function.

• Gives knowledge to know the political problem that affect us.

• Give knowledge to the government, how to frame the budget.

• Helps labour leaders to solve the labour problems.

Areas of economics are classified as follows:-

1. Micro economics & Macro economics.

2. Positive economics & Normative economics.

1. Micro economics and Macro economics.

Micro economics:-Micro in Greek language means “small”.In micro economic the part of the component of the wholeEconomic are studied.

Thus the study cover chiefly:--

(i) Product pricing (ii) Consumer behaviour

(iii) Factor pricing (iv) Economic condition of a section of the

people (v) Study of firms (vi) Location of a industry

i) National income and output.

ii) General price level

iii) Balance of trade and payment

iv) Aggregate production, consumption etc.

v) Saving and investment.

vi) Employment and economic growth.

Macro economics:- Macro in Greek language means “large”. Macro economic is the study of the economic system as a whole.

2. Positive economics and Normative economics

Positive economics:-Positive is concernedwith “what is”. Thus positive economic may bedefined as a body of systematic knowledgeconcerning “what is”.

Thus when it confines itself tostatements about cause and there effect andto statement of functional relationship, thetheory is said to be positive economics.

Normative economics:-

Normative economic is concernedwith “what ought to be”. Normative economics is asystematic body of knowledge relating to “what oughtto be” and it is concerned with the ideal distinguishedfrom the actual.

Thus the objective of normativeeconomic is the determination of ideals.

Demand

Demands refers to the quality of a good or service thatconsumers are willing and able to purchase. Effectivedemand depend upon 3 things.

(i) Desire (ii) Means to purchase (iii) On willingness to use those means for that

purchase.

Unless demand is backed by purchasing

power or ability to pay, it is not called as demand.

Determinants of demand

• Price of the commodity.

• Price of other related commodities.

• Level of income.

• Tastes and preferences of consumers.

• Size and composition of population.

• Distribution of income.

• Size of population.

Law of Demand.

• Price falls the quantity demanded of it will rise.

• Price rises the quantity demanded will decline.

This is assumed when other things remained

constants which include prices of related

commodities, income of consumers, tastes and

preference of consumers and such other factor

which influence demand.

Exception to Law of Demand

• Some commodities are more desirable at a higher price. Then more of it will be demanded at higher price and less of it at lower price. For e.g. GOLD

• If people fear that the rise in future will be more than the prevailing price, they will buy more even at higher price. Similarly if people feel prices would fall in future, they would buy less even if there was a fall in price.

Supply

Supply refers to the amount of a good or servicesthat the producer are willing and able to offer to theMarket.

There are 2 important points apply to supply

(i) The supply refers to what firm offer for sale, not necessarily to what they succeed in selling.

(ii) Supply is a flow. The quantity supplied is on the base of per unit of time, per day, per week or per year.

Determinants of Supply

• Number of firms or sellers• Level of technology.• Price of the factor of production.• State of technology.• Government policy.• Foreign policy.• Infrastructural facilities.• Market structure• Natural factors.

Law of Supply.

• The quality of a good produced and offered for sale will increase as the price of the goods rises.

• As the price decrease the quality of the good produced and offered for sale will also decline.

Types of Market

• Farmers Market.

• Financial Market.

• Grocery Market.

• Stock Market.

• Media Market.

• Street Market. (Atvada)

• Market Place.

Types of Market Structure.

Market structure:- There are four main type

of market structure.

(i) Perfect competition.

(ii) Monopoly.

(iii) Monopolistic competition.

(iv) Oligopoly.

• Perfect competition:-

Perfect competition is said when there are many seller selling identical product to many buyers.

• Monopolistic competition:- Monopolistic competition

is said when there are many sellers selling differentiated products to many buyers.

• Monopoly:-

Monopoly is said when there is only one single seller for many buyers. This type of market structure does not have any competition or any substitute goods.

• Oligopoly:-

Oligopoly is said when there are few sellers selling competing products for many buyers.

What is Economic Growth?

Economic growth is the increase in value of

goods and services produced by the economy.

Thus economic growth means increase in

aggregate output of real goods and services during

a given period of time, generally a year.

E.G=(Aggregate product at current price/ Price index of the current year) X 100

Major factor affecting economic growth.

• Poverty.

• Illiteracy.

• Population growth.

• Unemployment.

• Government policy.

• Foreign policy.

Major sector of Indian Economy

• Agricultural sector.

• Manufacturing sector.

• Financial sector.

• Service sector.

• Indian Industrial sector.

• Infrastructure

Some important concepts of economy:-

• What is inflation.• What is deflation• Balance of trade• Balance of payment• Gross domestic product• Gross national Product• Net national product• Purchasing power parity.• Human Development Index

Inflation

Inflation refers to the general rise inprice measured against a standard level ofpurchasing power.

Inflation is measured by comparingtwo sets of goods at two point in time andcomputing the increase in cost not reflectedby an increase in quantity.

For E.g.- BLACK MARKETING

Deflation

Deflation is the opposite of inflation.Deflation is the decrease in the general price level.Deflation refer to the decrease in size of the moneysupply.

During deflation the demand for liquidity

assets goes up in preference to goods andfixed assets. E.g.- Duplication of goods or products.

Balance of trade

Balance of trade means the differencebetween the value of goods that a nation exportsand the value of goods that it import annually.

When a country exports more than itsimport, its balance is favorable, and when import ismore than its export then balance of trade isunfavorable.

Balance of Payment

Balance of payment systematically

record all the economic transaction between

one country and the rest of the world in a

given period of time.

It include the amount for shipping,

banking, insurance, technical service and

tourisms etc.

Gross Domestic Product (G.D.P)

GDP is one of the way of measuring the size of the economy.GDP of a country is defined as the market value of all finalgoods and services produced within a country in a given periodof time.GDP= (Nominal GDP/Real GDP) X 100

Nominal GDP = Consumption + investment + government spending + (export – import)

Real GDP = Production of current year & base year price.

Gross National product (G.N.P)

Gross national product is defined as the sumof the gross domestic product and net income fromabroad.

Thus to estimate the GNP of INDIA we have of

add net income earned from abroad by Indianresidents minus income earned by non residents inIndia.

GNP = GDP + NIFA

Net national product

Net national product is the total

market value of all the final goods and

services produce by a citizen of the economy

during a given period of time minus

depreciation.

NPP= GNP – Depreciation.

Purchasing Power Parity (PPP)

Purchasing power parity theory was

developed by Gustav Cassel in 1920. it is the

method of using the long run equilibrium exchange

rate of two currencies to equalize the currencies

purchasing power

PPP’s main motto is to see that in

efficient market identical goods must have only

one price.

Human Development Index (HDI)

HDI is a comparative measure of life expectancy, literacy, education and standard of living.

Thus HDI measure the average achievement of the countries on three basis.

(i) A long and healthy life, as measured by life expectancy at birth rate.(ii) Knowledge as measured by the adult literacy rate (with 2/3rd weight)

and the combined primary, secondary and tertiary gross enrollment ratio (with 1/3rd weight)

(iii) A decent standard of living as measured by GDP and PPP in U.S.Dollar.

Now we shall be discussing about the following topic:-

1.Indian Economy.

2.World Economy.

Types of country from the view point of Economy Strength.

All the countries of the world are divided in mainly three parts

(1) Developed Countries

(2) Developing Countries

(3) Underdeveloped Countries.

Developed Countries

Developed countries arethose countries which are economically,financially and industrialized developedcountries.

According to United Nationdeveloped countries are those whose HDI is0.9 or more (as of 2004)For E.g.- U.S, Australia, Japan, U.S.S.R etc

Developing Countries

Developing countries are

those which has relatively low standard of

living, not financially sound and not well

developed industrial sector.

Thus developing countries are those

countries which are on the way of development

and not achieved the HDI of 0.9.

E.g.- South Africa, India, Pakistan, Sri-Lanka etc

Underdeveloped Countries

Underdeveloped countries are those countries which according to the

United Nations exhibit low indicators of socioeconomic development,

with the low HDI rating of all the countries.

Under developed countries are called under developed if they meet the below criteria:-

(i) Low income (3 years GNI per capita less than $750)

(ii) Human resource weak (based on nutrition, health, education and adult literacy)

(iii) Economic instability in production agricultural goods and industrial goods, services, employment opportunities etc.

E.g.- Bhutan, Nepal, Afghanistan, Bangladesh etc.

Indian Economy

• India is considered as a developing country.• The economy of India is the 5th largest in the

world on the basis of PPP.• India is the 10th largest country in the world in

case of GDP.• India is the 2nd fastest growing major economy in

the world with a GDP growth rate of 9.2% at the end of the second quarter of 2006-2007.

Position of India on the basis of Purchasing Power Parity

in the World.

Rank of the countries on the basis of GDP

Sr.no Country Million in US Dollars.

1 United States 11,667,515

2 Japan 4,623,398

3 Germany 2,714,418

4 UK 2,140,898

5 France 2,002,582

6 China 1,932,093

7 Italy 1,672,302

8 Spain 991,442

9 Canada 979,764

10 India 691,876

Position of India on the basis of Gross Domestic Product

in the World

India’s development on the basis of different sectors:-

(1) Agriculture:- • India ranked 2nd in the world in farm output.• Agricultural and allied sector like fishing, forestry

etc accounted for 18.6% of the GDP in 2005 and employed 60% of the total work force.

• Yield in per unit area of all crops have grown since 1950 and if internationally compared the average yield in India is generally 30% to 50% of the highest average yield in the world.

(2) Industry:-• India is fourteenth in the world in factory output.• They together account 27.6% of GDP and

employed 17% of the total work force.• Here are India’s 5 leading company in the list of

Fortune Global 500 for the year 2006.

(3) Service:-

• India is ranked fifteenth in the service output.

• It provided employment to 23% of work force.

• It has the fastest growth rate of 7.5% in 1991-2000 which before was 4.5% in 1951-1980.

• It has the largest share in GDP accounting 53.8% in 2005 from 15% in 1950.

(4) Banking and Finance:

• Prime Minister Indra Gandhi Nationalized 15 banks in 1969 followed by other 6 in 1980.

• Since then the number of bank branches increased from 10120 in 1969 to 98910 in 2003 and the population covered by a branch decreased from 63800 to 15000

• Total deposits increased by 32.6 times between 1971 to 1991

World Economy

World economy can be evaluated in various ways, depending on the model used and this valuation can be represented in various ways.

E.g. in 2006 US Dollars.

Now we shall learn about United State

• U.S is considered as developed countries.• U.S GDP is more than $13 trillion, which

constitute 22% of the gross world product.• It has abundance amount of natural

resource, well developed infrastructure and high productivity.

• In U.S more than 80% of the population have full time employment of which 79% are employed in service sector.

Economy of Japan

• Japan is 3rd largest country by volume on basis of PPP.

• The GDP growth rate was $4.22 trillion in 2006

• It employed 1.6% in agriculture, industry 25.3%, service 73.1% in 2006.

• Its export estimated $ 590.3 billion, and import $ 524.1billion

• So it is known as a developed countries.

The End

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