FIRST HUNDRED OF ECONOMICS

1. Adam Smith first devised the Canons of Taxation.

2. There are Eight Canons.
3. Four (4) canons are classics.
4. Four (4) canons are Modern.
5. Classical Canons are
Canon of equality or equity Canon of Certainty
Canon of economy Canon of convenience
6. Modern canons are
Canon of productivity Canon of elasticity
Canon of simplicity Canon of diversity
7. Taxation by nature are of two types
Direct Taxation Indirect Taxation
8. Direct Tax
Corporation tax Income Tax
Wealth Tax Gift Tax
Property Tax
9. Indirect Tax.
Sales Tax Custom Duty
VAT GST
10. Objectives of Taxation
Raising Revenue Regulation of Consumption and Productivity
Encouraging Domestic industries Stimulating Investment
Reducing income inequilities Promoting Economic Growth
Development of Backward Region. Ensuring Price Stability
11. The trade balance of a country is represented by:
a) the difference between imports and exports; b) the total imporrs and exports;
c) the report between imports and exports; d) the difference between income and expenditure;
e) the report between income and expenditure.
12. The movement to free international trade is most likely to generate short-term unemployment in which industries:
a. Industries in which there are neither imports nor exports *b. Import-competing industries.
c. Industries that sell to domestic and foreign buyers d. Industries that sell to only foreign buyers
13. International trade is based on the idea that:
a. Exports should exceed imports b. Imports should exceed exports
c. Resources are more mobile internationally than are goods
*d. Resources are less mobile internationally than are
goods
14. Increased foreign competition tend to
b. Induce falling output per worker-hour for
a. Intensify inflationary pressure at home
domestic workers
*c. Place constraints on the wages of domestic d. Increase profits of domestic import-competing
workers industries
15. A primary reason why nations conduct international trade is because:
a. Some nations prefer to produce one thing while *b. Resources are not equally distributed to all
others produce another trading nations
c. Trade enhances opportunities to accumulate d. Interest rates are not identical in all trading
profits nations
16. A main advantage of specialization results from:
*a. Economics of large scale production b. The specializing country behaving as a monopoly
c. Smaller production runs resulting in lower unit costs. d. High wages paid to foreign workers

17. International trade in goods and services is sometimes used as a substitute for all of the following except:
a. International movements of capital. b. International movements of labor.
*d. Domestic production of different goods and
c. International movements of technology
services
18. International trade forces domestic firms to become more competitive in terms of:
a. The introduction of new products b. Product design and quality
c. Product price *d. All of the above
19. International trade tends to cause welfare losses to at least some groups in a country
*a. The less mobile the country’s resources b. The more mobile the country’s resources
c. The lower the country’s initial living standard d. The higher the country’s initial living standard
20. International trade in goods and services tends to:
a. Increase all domestic costs and prices b. Keep all domestic costs and prices at the same level
c. Lessen the amount of competition facing home *d. Increase the amount of competition facing
manufacturers home manufacturers
21. Individual choices is the decision by an individual of what to do, which necessary involves a decision of what not to do.
22. A resource is anything that can be used to produce something else.
23. Resources are scarce; there is not enough of the resources available to satisfy all the various ways a society wants to
use them.
24. The real cost of an item is its opportunity cost. What you must give up in order to get it.
25. You make a trade-off when you compare the cost with the benefits of doing something.
26. Decisions about whether to do a bit more or a bit less of an activity are marginal decisions. The study of such
decisions is known as marginal analysis.
27. The real cost of something is what you must give up to get it. Specifically, giving up your next best alternative. All
cost are opportunity costs. Monitory costs are something a good indicator of opportunity costs but not always.
28. Many choices are not whether to do something but how much. <How much> choices are made by making trade-off
at the margin.
29. The study of Marginal decisions is known as Marginal analysis.
30. Because people usually exploit opportunities to make themselves better off. Incentives can change people’s
behavior.
31. The law of increasing opportunity cost states that the opportunity cost of a good rises as more of the good is
produced.
32. An economy is efficient if there is no opportunity to make someone better off without making anyone else worse off.
33. Economic growth is an increase in the ability to produce goods and services over time.
34. Microeconomics is the study of how people make decisions and how those decisions affect others in the economy.
35. Macroeconomics is the study of the economy as a whole.
36. Positive economics is the study of what the world is like and why it works the way it does.
37. Normative economics is the study of the way things should be rather than the way things are.
38. I n economics, a market is not a place but a collection of buyers and sellers, wherever they may be.
39. Milton Friedman (1912– 2006) writes books named Capitalism and Freedom and Free to Choose. In his books, he
promoted policies such as a negative income tax, a school voucher program, and the elimination of the draft.
40. An economy is a system for coordinating the production and distribution of goods and services.
41. Goods are physical items produced in an economy, such as jeans, tennis rackets, popcorn, cars, and homes.
42. Services are activities produced in an economy, such as education, entertainment, and health care.
43. Resources are the basic elements from which all goods and services are produced.
44. Land is anything drawn from nature for use in the production of goods and services.
45. Labor is the time and effort people contribute to the production process.
46. Capital is anything long lasting that is created by humans for use in production.
47. Physical capital is any long- lasting good that is used to make other goods or services.
48. Human capital refers to the skills and knowledge of workers.
49. Entrepreneurship is the willingness of people to organize, operate, and assume the risks involved with business
ventures.
50. Inputs include the four types of resources— land, labor, capital, and entrepreneurship— along with anything created
from these resources that is then used to make something else, such as cement, steel, lumber, and plastic.
51. A nation’s gross domestic product (GDP) is the total dollar value of all final goods and services produced within the
country’s borders in a given year.
52. A final good or service is one that is sold to its final user, rather than to a firm that will use it to make something else.
53. An intermediate product is a product that becomes part of a final good or service, or is used up in the production process.
54. Investment is business spending on physical capital, new homes, and inventories.
55. The expenditure approach to calculating GDP is to add up the spending on everything included in GDP.
56. The income approach to calculating GDP is to add up all the income earned during the year by people who are
involved in the production of goods and services.
57. GDP = wages + rent + interest + profit.
58. The underground economy represents business activity conducted without the knowledge of the government.
59. Transactions excluded from GDP:
• foreign production • transfer payments such as Social Security payments
• Unpaid work. • The sale of used goods
• Production in the underground economy.
60. Nominal GDP values each good at the dollar price it actually sold for in the year in which it was produced.
61. Real GDP measures total production in dollars after removing the distorting effect of price changes.
62. The standard of living is the level of material wealth as measured by the consumption of goods and services.
63. Economic growth is a sustained increase in real GDP over time.
64. Real GDP per capita is output per person, calculated as real GDP divided by the total population.
65. Productivity is the amount of output the average worker can produce in an hour.
66. A country’s capital stock is the total amount of physical capital in the country.
67. Capital deepening is an increase in a country’s capital per worker.
68. The Four Pillars of Economic Growth
i. physical capital, ii. human capital,
iii. technological change iv. sound governance.
69. If a country can increase its capital stock at a faster rate than its workforce, it can achieve capital deepening.
70. Economic infrastructure is physical capital, such as communications systems and power systems, that provides a
basic foundation that users share for many types of economic activity
71. In order to increase the capital stock, investment spending must be greater than depreciation, which is the amount
of capital that is used up each year.
72. But where do the funds for all this investment come from?
i. Business investment is largely funded with domestic savings
ii. foreign sector also affects the amount of savings available for business investment.
73. Firms conduct research and development activities to discover or improve products or procedures.
74. The rule of law is the principle that no person is above the law.
75. Business cycles are alternating periods of rising and falling real GDP
76. An expansion is a phase of the business cycle during which real GDP rises.
77. A contraction is a phase of the business cycle during which real GDP falls.
78. A recession is a contraction severe enough to last several months or longer and have widespread effects on
production, real income, employment, and sales across the economy.
79. Aggregate supply is the total output a country’s firms are willing and able to produce, contingent on the price level.
80. Changes in aggregate supply can cause expansions or contractions
81. Smith was naturally opposed to any government intervention in industry and commerce. Every individual if left free,
will seek to maximize his own wealth, therefore all individuals, if left free, will maximize aggregate wealth.
82. Division of Labour is the starting point of Smith’s theory of economic growth. It is division of labour that results in
the greatest improvement in the productive powers of labour.
83. Process of Capital Accumulation. Smith, however, emphasized that capital accumulation must precede the
introduction of division of labour.
84. According to Smith, farmers, producers and businessmen are the agents of economic progress. It was free trade,
enterprise and competition that led farmers, producers and businessmen to expand the market which, in turn, made
economic development possible
85. “Taking institutional, political and natural factors far granted, Smith starts from the assumption that a “nation”—will
experience a certain rate of economic growth that is accounted for by increase in numbers and by saving. This induces a
“widening of market” which is turn increases division of labour and thus increases productivity...
86. Smith’s theory is explained in terms of Fig.1 where time is taken on the horizontal axis and rate of accumulation,
dK/dT , on the vertical axis. The economy grows from K to S during the time path T. After T, the economy reaches the
stationary state linked to S where further growth does not take place because wages rise so high that profits become
zero and capital accumulation stops.
87.

88. David Ricardo also presented his views on economic development in an unsystematic manner in his book The
Principles of Political Economy and Taxation. This book was published in 1917
89. Ricardo never propounded any theory of development. He simply discussed the theory of distribution. Therefore,
Ricardo’s analysis is a detour. The Ricardian theory is based on the marginal and the surplus principles.
90. The marginal principle explains the share of rent in the national output, and the surplus principle explains the
division of the remaining share between wages and profits.
91. Money can be anything that is widely accepted in exchange for goods and services.
92. Currency is paper money and coins.
93. Barter is the exchange of goods or services for other goods or services without the use of money.
94. A medium of exchange is something people acquire for the purpose of payment for goods and services.
95. A unit of account is a standard measure used to set prices and make economic calculations.
96. A store of value is something that can be saved and will hold its value relatively well over time.
97. CHARACTERISTICS OF MONEY
• Durable, • portable, • uniform, • divisible, • in limited supply, and • accepted for payment.
98. Commodity money is money that has value apart from its use as money.
99. Fiat money has value because the government has ordered that it be accepted in payment of debts.
100. Representative money has no value of its own but can be exchanged for something of value.