Economics:

1. Wealth Definition: Adam Smith.

He defined economics as the study of the nature & cause of national wealth.
• How wealth is produced & distributed.

2. Welfare Definition – Alfred Marshall

Shifted the emphasis from wealth to human welfare.
According to him, economics is on the one side a study of the wealth; & the other & most imp side , a
Part of the study of man.

3. Scarcity definition – Lionnel Robbins

According to him, economics is the science which studies human behavior as a relationship b/w ends
& scarce means which have alternative uses.
• Unlimited wants- ‘ends’ refer to human wants which are boundless or unlimited.
• Scarcity of means(limited resources) – the resources (time & money) at the disposal of a person to satisfy
his wants are limited.
• Alternative uses of scarce – economic resources not only scarce but have alternative uses also. So one has to
make choice of uses
• The economic problem- when wants are unlimited, means are scarce & have alternative uses, the economic
problem arises. Hence v need to arrange wants in the order of urgency.

INFLATION :
According to Crowther, inflation is a ‘ state in which the value of money is falling, ie, the prices are rising.’

Types of inflation :
• Creeping inflation : when the rise in prices is very slow like that of a snail or creeper.
• Walking inflation
• Running inflation
• Hyper inflation
• Semi inflation
• True inflation
• Suppressed inflation
Categories of inflation
1. Demand –pull inflation
2. Cost –push inflation

Demand –pull inflation: is a situation where price rises due to the excess demand in the economy.

Cost –push inflation: is caused by rise in the cost of production – ie, rise in wages ,price of raw materials,
sectoral rise in prices & profit push inflation.
Basic concepts of NI:
 GNP at market price
 GDP at market price
 NNP at market price
 NDP at market price
 Per Capita Income

National Income : is defined as the money value of the goods produced & services made by the people of a
Country during a specified period. It is the annual flow of goods & services.

 GNP at market price: it refers to the total value of final goods & services produced in the country during a
given period of time.
GNP = P X Q
P = Market price
Q = Final goods & services produced
 GDP at market price: is the money value of all final goods & services produced by normal residents as well as non
Residents in the domestic territory of a country but does not include net factor income earned from abroad.
GDP at market prices = GNP at market prices – net factor income from abroad

 NNP at market price: refers to the net money value of final goods & services produced at current prices
In one year in a country.
NNP at market price = GNP at market price - Depreciation

 NDP at market price : it is the market value of final goods and services produced in the domestic territory
of a country by its normal residents and non residents during an accounting year.
NDP at market price = NNP at market price – net factor income from abroad.
 Per capita income: it is defined as an average earning of an individual in a particular year.
Per capita income = National income of a country
population of a country
Problems in estimation of GDP:

• Difference b/w final & intermediate goods

• Double counting
• Service without reward
• Existence of barter system
• Illiteracy

Remedies to improve India’s NI

 Increase in rate of saving & investment dev. Of banking & insurance

• Modern technology use of natural resources
• Check on growth of population growth of foreign trade
• Dev. Of industries
• Dev. Of agriculture
• Dev. Of transport & power
• More social welfare services
• Education
Business cycle:

Fluctuations in economic activities

 Boom or peak : flourishing stage of an economy

 Recession or contraction : pace of economic activities slows down.
 Depression : lengthiest phase. Decline in the level of production, employment & income generation.
 Recovery : revival of the economic activity.

Causes of business cycles:

 Overinvestment
 Farm prices : fluctuations in the prices of agricultural products
 Profit motive
 Human psychology
 Weather
 Banking operations