IN1kCDUC1ICN 1C LCCNCMICS

Mean|ng of Lconom|cs:
Stud|es of human act|v|ty > sat|sfy needs and wants Ø
8as|c un|ts of an economy - househo|ds & product|on un|ts Ø
Lconom|c process - act|v|t|es through wh|ch goods and serv|ces a|med at sat|sfy|ng human needs are
produced , d|str|buted and used
Ø
Ior better understand|ng of econom|cs >> need to understand "1nL CCNCLÞ1 CI SCAkCI1¥" and
"MICkC AND MACkC LCCNCMICS"
Ø
Concept of Scarc|ty:
Scarc|ty - tens|on b]n ||m|ted resources and |nd|v|dua|'s un||m|ted wants and needs Ø
Ind|v|dua| - resources > t|me, money and sk||| Ø
Country - resources > natura| resources, cap|ta| |abour forces and techno|ogy Ø
8kANCnLS CI LCCNCMICS:
M|cro Lconom|cs:
Supp|y and demand |nteract|on |n |nd|v|dua| markets for goods and serv|ces Ø
Lxam|nes the econom|c behav|our of |nd|v|dua| actors > consumers, bus|ness-man, househo|ds |n
the face of scarc|ty and what effects they have
Ø
Macro Lconom|cs:
now the overa|| economy works Ø
Stud|es - emp|oyment, GDÞ, |nf|at|on , govt po||cy debates Ø
Stud|es economy as a who|e and |ts features ||ke nat|ona| |ncome, Lmp|oyment, poverty, ba|ance of
payments and |nf|at|on
Ø
Some other Important 8ranches of Lconom|cs:
Deve|opment Lconom|cs:
Dea|s w|th the econom|c aspects of the deve|opment process |n |ow-|ncome countr|es Ø
Goa| - how poor countr|es can be transformed |nto prosperous ones Ø
8ehav|oura| Lconom|cs:
Stud|es the effects of soc|a|, cogn|t|ve and emot|ona| factors on the econom|c dec|s|ons of
|nd|v|dua|s and the|r consequences for market pr|ces, returns and resource a||ocat|on
Ø
Lxp|ores why peop|e somet|mes make |rrat|ona| dec|s|ons and how the|r behav|our does not fo||ow
the pred|ct|ons of econom|c mode|s
Ø
Lnv|ronmenta| econom|cs:
Stud|es the econom|c |mpact of env|ronmenta| po||c|es Ø
Goa| - ba|ance the econom|c act|v|ty and env|ronmenta| |mpacts by tak|ng |nto account a|| the costs
and benef|ts
Ø
ECONOMY Page 5
Internat|ona| econom|cs:
Stud|es econom|c |nteract|ons among d|fferent countr|es > fore|gn trade, fore|gn exchange, ba|ance
of payments and ba|ance of trade
Ø
Gu|d|ng pr|nc|p|e > compar|t|ve advantage - |nd|cates every country, no matter what the|r |eve| of
deve|opment, can f|nd someth|ng that |t can produce cheaper than others
Ø
Informat|on econom|cs
Stud|es how |nformat|on and |nformat|on techno|ogy |nf|uence the economy Ø
D|ff character|st|cs - 1) |t |s easy to create, but hard to trust 2) It |s easy to spread, but hard to
contro|
Ø
Demograph|c econom|cs:
App||cat|on of econom|cs to demography >> study of human popu|at|on - s|ze, growth, dens|ty,
d|str|but|on and v|ta| stat|st|cs
Ø
1ypes of Lconom|es
8ased on extent of govt |nvo|vement |n dec|s|on mak|ng Ø
1rad|t|ona| economy:
Very ||tt|e govt |nvo|vement Ø
A||ocat|on of resources based on r|tua|s, hab|ts or customs Ø
Lconom|c ro|es > fam||y and peop|e work together for the common good Ø
Very ||tt|e |nd|v|dua| cho|ce |n th|s system Ø
Lx: tr|bes |n Amazon, Abor|g|nes |n Austra||a etc Ø
Iree market economy:
Very ||tt|e govt contro| Ø
Lconom|c dec|s|ons based on market pr|nc|p|es Ø
Lot of compet|t|on between f|rms >> many cho|ces to consumers Ø
kesources for product|on are under pr|vate ownersh|p and they make the|r dec|s|ons w|th the
des|re to max|m|se prof|ts.
Ø
1here are no pure free market econom|es, Un|ted States and Austra||a come c|ose to th|s type Ø
Command economy:
kesources of product|on are comp|ete|y under govt contro| Ø
1hese econom|es are run based on centra| p|ann|ng Ø
Due to |ack of compet|t|on, resource a||ocat|on |s |neff|c|ent and consumers have very ||tt|e cho|ces Ø
Lx: Iormer Sov|et Un|on, Cuba, North korea etc. Ø
M|xed economy:
Comb|nat|on of pub||c sector and pr|vate sector un|ts Ø
Govt |s the dec|s|on maker for the pub||c sector Ø
Ind|v|dua|s and bus|nesses for pr|vate sector Ø
8as|ca||y |ncorporates governmenta| |nvo|vement |n a market based economy Ø
Lx: Ind|a, kuss|a and Uk Ø
ECONOMY Page 6
Cpen economy:
1rade w|th other econom|es Ø
Market |s most|y free from trade barr|ers >> exports and |mports form of a |arge percentage of the
GDÞ
Ø
1he degrees of the openness of an economy determ|nes govt's freedom to pursue econom|c
po||c|es of |ts cho|ce and the suscept|b|||ty of the country to |nternat|ona| econom|c cyc|es
Ø
C|osed economy:
No trade or trade area w|th other econom|es Ø
Consumer get everyth|ng w|th|n the econom|c borders and govt act as the arb|trator , art|cu|ator
and fac|||tator
Ø
Cap|ta||st economy:
Cap|ta||sm - bas|c econom|c system based on pr|vate or corporate ownersh|p of product|on and
d|str|but|on of goods.
Ø
Cap|ta||sts favour a system of free enterpr|se wh|ch means the govt does not |nterfere |n the
economy that the |aws of supp|y and demand w||| make sure that the economy runs most eff|c|ent|y
In meet|ng peop|e's needs.
Ø
Cap|ta||sm |s character|sed by compet|t|on |n wh|ch there |s r|va|ry |n supp|y|ng or gett|ng an
econom|c serv|ce or good
Ø
Soc|a||st economy:
Soc|a||sm |s an econom|c theory or |dea that states the govt or the state shou|d be |ncharge of
econom|c p|ann|ng , product|on and d|str|but|on of goods
Ø
Soc|a||sm tends to favour cooperat|on whereas cap|ta||sm |s character|sed by compet|t|ons Ø
A form of soc|a||sm ca||ed commun|sm sprang up based on the wr|t|ngs of kar| marx and fr|endr|ch
enge|s
Ø
Commun|sm advocates c|ass strugg|e and revo|ut|on to estab||sh a soc|ety of cooperat|on w|th
strong govt contro|
Ø
Commun|sm predom|nated |n the former Sov|et Un|on and much of eastern Lurope at one t|me. Ø
1oday |t predom|nates |n Ch|na and Cuba, but |ts |nf|uence has |essened Ø
Sectors of an economy:
A nat|on's economy can be broad|y d|v|ded |nto var|ous sectors to def|ne the proport|on of peop|e
engaged |n a part|cu|ar sector.
Ø
Þr|mary sector:
Invo|ved |n the extract|on or harvest|ng of products from the earth Ø
Þroduct|on of raw mater|a|s and bas|c foods Ø
Act|v|t|es - agr|cu|ture, m|n|ng, forestry, f|sh|ng, quarry|ng , packag|ng and process|ng of raw
mater|a|s etc.
Ø
As an economy deve|ops the share of pr|mary sector |n tota| product|on and emp|oyment goes
down
Ø
Secondary sector:
Invo|ved |n the product|on of f|n|shed goods Ø
A|| manufactur|ng, process|ng and construct|on act|v|t|es ||e |n th|s sector Ø
Act|v|t|es - meta| work|ng, automob||e manufactur|ng, text||e, product|on, sh|p bu||d|ng etc. Ø
Most econom|es |n the|r process of deve|opment go through the m|dd|e phase, where the
secondary sector becomes the |argest sector of economy |n terms of product|on and emp|oyment
w|th the reduct|on |n |mportance of the pr|mary sector
Ø
Ind|a |s an except|on, where we have d|rect|y moved to serv|ces sector deve|opment w|thout f|rst
|mprov|ng the manufactur|ng capab|||t|es
Ø
1ert|ary sector:
A|so ca||ed as serv|ces sector Ø
Þrov|des serv|ces to genera| popu|at|on and to bus|nesses Ø
Act|v|t|es - transportat|on, enterta|nment, tour|sm, bank|ng etc. Ø
In the advanced deve|oped econom|es , tert|ary sector |s the |argest |n terms of product|on and
emp|oyment
Ø
Somet|mes two more sectors - quaternary and qu|nary are def|ned separate|y even these can a|so
be cons|dered as part of the serv|ces sector |tse|f
Ø
Cther sectors of economy:
Çuaternary sector:
Act|v|t|es - |nte||ectua| and know|edge based Ø
Lx: k & D, cu|ture, |nformat|on techno|ogy, educat|on etc. Ø
ECONOMY Page 7
Çu|nary sector:
Cons|sts of the h|ghest |eve|s of dec|s|on-mak|ng |n a country Ø
Inc|udes the top off|c|a|s of govt, med|a, un|vers|t|es etc. Ø
C|ass|f|cat|on of the country by economy:
Deve|oped country:
Country w|th a re|at|ve|y h|gh |eve| of econom|c growth and secur|ty Ø
A country's degree of deve|opment eva|uated on the bas|s of per cap|ta |ncome or GDÞ, |eve| of
|ndustr|a||sat|on, genera| standard of ||v|ng and the amount of w|despread |nfrastructure
Ø
Deve|op|ng country:
A|so ca||ed as a |ess-deve|oped country w|th |ower ||v|ng standard, underdeve|oped |ndustr|a| base
and |ow human deve|opment |ndex (nDI)
Ø
Least deve|oped country:
Accord|ng to the Un|ted Nat|ons country's hav|ng |owest |nd|cator of soc|o-econom|c deve|opment
w|th the |owest |nd|cator of soc|o-econom|c deve|opment rat|ngs of a|| countr|es |n the wor|d.
Ø
ECONOMY Page 8