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WHAT IS ECONOMICS?
CHAPTER
1-2
Definition of Economics
Scarcity All economic questions arise because we are unable to satisfy all our wants. Our inability to satisfy all our wants is called scarcity. Economics is the social science that studies the choices that we make as we cope with scarcity and the institutions that have evolved to influence and reconcile our choices.
Economics is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. The key word in this definition is choose. Economics is a behavioral, or social, science. In large measure, it is the study of how people make choices. The choices that people make, when added up, translate into societal choices.
Opportunity Costs
The opportunity cost of something is that which we give up when we make that choice or decision. The implication is that all decisions involve trade-offs.
Question to Consider
What is the opportunity cost of your attending university?
Include all forgone options in your consideration.
1-9
What is Business
Activities connected with production trade transport, banking, insurance, etc. It covers a complex field of industry and commerce which involves activities related to both production and distribution. These activities on the one hand satisfy societys needs and desires and on the other hand bring profits to business firms.
Business Environment
Business Environment refers to all external factors which have a direct or indirect bearing on the activities of business. Environment of business is divided in to two: Internal environment External environment
Internal environment includes Value system Goals and objectives Management structure Physical resources and technology Human resources
External Environment includes: It consists of Institutions Organizations Forces operating outside the company
External Environment
Macro Environment NonEconomic Environment Global economic Environment
Economic Environment
National Eco.Environment
Macroeconomics
Macroeconomics is the study of the effects on the national and global economy of the choices that individuals, businesses, and governments make.
Economic System
What is Capitalism?
"Capitalism is a system of economic organization featured by private ownership and its use for private profit of man-made and nature-made capital."
Features of Capitalism
Right to Private Property Freedom of Enterprise Freedom of Choice by Consumer Profit Motive Competition Importance of Price System
Socialism
"the important essentials of socialism are that all the great industries and the land should be public or collectively owned, and that they should be conducted (in conformity with a national economic plan) for the common good instead of private profit."
Features of Socialism
Social Ownership of Means of Production No Private Enterprise Economic Planning Classless Society Consumer is not sovereign
Mixed Economy
Co- Existence of Public and Private Property Price System and Government Directives Government Regulates and Controls the Private Sector Consumers' sovereignty is protected Government Protects Labor Interest
Growth
Development
Non-Economic Factors in Economic development Human resources Technical know how and general education Political freedom Social organization Corruption Desire to develop
Consider the importance of the structure of a firm in providing a solid base for its profit seeking activities
Make a balanced assessment of the role played by the PSUs in rapid economic development of India.
INTRODUCTION
The Economy Of India is the ninth largest in the world by nominal GDP and the fourth largest by Purchasing Power Parity. The independence-era, Indian economy was inspired by the economy of Soviet Union with socialist practices, large public sectors, high import duties and lesser private participation characterizing it, leading to massive inefficiencies and widespread corruption. However, in 1991, India adopted free market principles and liberalized its economy to international trade. Following these strong economic reforms, the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people.
Features
1. The Indian economy is a developing economy. Its a mixed economy in the sense that both private sector and public sector coexist and participate in the production process. 2. It is characterized by high population density and population growth. 3. About one-third of the population live below poverty line. 'Vicious cycle of poverty' operates in many sectors of the economy.
4.There is high level of unemployment and underemployment In addition, there is 'disguised unemployment' in the agricultural sector. 5.The level of technology used in production process is low in many sectors. Modern technology has not been adopted in all sectors of the economy. 6.There is a shortage of physical and economic infrastructure.
TODAY One of the fastest growing economies ; 9%+ growth rate for 5 years prior to current crisis 5-6% growth at the peak of the global crisis
Resilient Economy
YESTERDAY
Opening up sectors for investment Promising consumer markets Significant investment in infrastructure
development
An Enabling Environment
Robust banking sector; Capital markets World class IT & telecom infrastructure A connected economy; Economic efficiency &
INDIAN ECONOMY
MAIN FEATURES OF INDIAN ECONOMY AND MAJOR ISSUES OF DEVELOPMENT
Low per Capita Income
Income inequalities. High incidence of poverty. Predominance of agriculture and instability of output. Rapid population growth. High dependency Ratio. Low level of human development. Unemployment. Imbalance between population size, resources and capital. Inadequacy of entrepreneurs.
Rise in per Capita income. Structural transformation. Slowly changing occupational distribution of population. Growth of basic capital goods industries. Expansion of social capital.
Gross domestic product (GDP) is a measure of the income and expenditures of an economy. It is the total market value of all final goods and services produced within a country in a given period of time. How much is the current GDP?
Gross domestic product (GDP) is a measure of the income and expenditures of an economy. It is the total market value of all final goods and services produced within a country in a given period of time. How much is the current GDP?
Firms
Households
GDP is: the market value of all final goods and services produced within a country in a given period of time.
Gross National Product (GNP) Net National Product (NNP) National Income Personal Income Disposable Personal Income
Consumption (C) Investment (I) Government Purchases (G) Net Exports (NX)
Y = C + I + G + NX
% of Total
100% 68% 16 18 -2
Consumption 68 %
The monetary value of finished goods and services produced by a country's citizens, whether overseas or resident, in the time period being measured (i.e., the gross national product, or GNP) minus the amount of GNP required to purchase new goods to maintain existing stock (i.e., depreciation). In other words, NNP is the amount of goods that can be consumed within a nation each year without reducing the amount that can be consumed in following years
A business cycle refers to periods of expansion and contraction. A peak is the high point following a period of economic expansion. A trough is the low point following a period of economic decline.
Prosperity Phase
Unemployment rate declines Income tends to rise Investment increases Investors become more optimistic Consumption tends to rise Share price index tends to rise Money Supply increases
Recessionary Phase
Recession is turning point ie when prosperity ends recession begins Liquidation in stock market, fall in prices are symptoms Banks & People try to gain greater liquidity so credit sharply contracts Business expansion stops
Depression Phase
Shrinkage in volume output Rise in level of unemployment Fall in aggregate demand Contraction of Bank credit Fall in prices
Recovery Phase
Rise in demand for consumption goods which in turn lead to demand for capital goods and new investment is induced This will give rise to increase in income and employment
Peak
Trough
Trough
2005
2010 Year
2015
10-4
Recession in U.S.
The United States housing market correction a possible consequence of United States housing bubble and subprime mortgage crisis has significantly contributed to a recession. U.S. employers shed 63,000 jobs in February 2008. The unemployment rate of US grew to 8.5 percent in March 2009, and there have been 5.1 million job losses till March 2009 since the recession began in December 2007.
Fiscal Policy....
It is represented by the executive and legislative branches of government and captures changes in taxes (T) and government spending (G). If the economy is in a recession, a combination of tax cuts and increases in government spending can stimulate economic activity. ?
Monetary Policy.....
It is conducted by the central bank of a country. Monetary policy embraces banking and credit policy relating to loans and interest rates as well as the monetary standards and public debt and its management. In a depression a policy of chief money may be adopted o stimulate business investment and thus assist recovery. ?