= Economic, 1 than $1. That is the point at which the ‘marginal benefit equals the = 7 : marginal cog, Adam Stith wrote ‘dn inguiry into the Nature and Causes of the Wea, Nations* Which as the name suggests, was an attempt at understanding the reagg, behind the economic growth (or lack thereof) of a nation. i sider here — the fundamental assumption tha that Pn ee make for the whole economic system (as we know it today) to work is that human beings are motivated by pure self.interest and will take decisions that Tey think will make them ‘better off" now or sometime in the future The economic and political systems t of @ country are closely inter-linked and Jointly determine the well-being of its itizens, Tn other words we can say that ,” Econo Production, distribution, and consumption of what choices people make and how a chases. mics is the scienee of analyzing the Soods and services. In other words, ind why they make them when making pur. ‘The study, of economies can be subcategorized into microeconomics and macroeconomics. Microeconomics is the study of economics at the individual or Susiness level; how individual people or businesses behave giver scarcity and gov. emment intervention. Microeconomics includes concepts such as supply and de. mand, price elasticity, quantity demanded, and quantity supplied Microeconomics the social science that studies the implications of individual human action, specifi cally about how those decisions affect the utilization and distribution of scarce resources. Microeconomics shows how and why different goods have different values how individuals make more efficient or More productive decisions, and how indi viduals best coordinate and cooperate with one another. Generally speaking, microeconomics is considered a more complete, iaueeane settled science thar macroeconomics, ~ As 4 purely normative science, microeconomics does not try to explain wha! should happen in a market. Instead, microeconomics only explains what to expec if certain conditions change. If a manufacturer raises the prices of cars microeconomics says consumers will tend to buy fewer than before. If a mio! Copper mine collapses in South America, the price of copper will tend to increase because supply is restricted, Macroeconomics is the study of the performance and structure of the whol economy rather than individual markets. Macroeconomics includes concepts such # inflation, international trade, unemployment, and national consumption and prod® tion, There are several main principles of economies that every theory and ae is based upon, Here is a description and quick application or example oh , Principles that apply to the study of production, distribution, and consumpti® Econ good unli has. you not sibl serv muc con incr rest one con the tha Se stu dis.Economies - 1 6. Lack of competition: : nt ownership. Therefore, government decides. jpotasepaetliy ig are determined by government because Se ee ae Govt, avoids all sorts of rivalries and Productive enterprises are si en tive there is absence of competition in a competition among state enterptis 7. Non-existence of social parasites ist if i a socialist economy the society is not divided between haves and haves-nor ialis 4 servants’, ¥ = te iy js not classified between capitalist and working class. Here all arc masters and all are workers. : . The philosophy of a socialist economy is-‘to each according to his needs and from each according to his ability.” Thus there is no place of social parasites ard ‘no possibility of exploitation. 8, Bquality of opportuni Socialism guarantees equality of opportunities and equal pay for equal work Government does not discriminate among members of the society on the basis of cast, creed, religion and sex. In short, a socialist economy is not controlled and regulated by market mecha- nism. It is a comprehensively planned economy. This economy is in sharp contrast to a capitalist economy 9. Democratic System- As in financial sector in socialism is free from any type of centralization , that’s the reason that every citizen has equal rights in socialis economy. 10. Economic planning- Economic planning is the root of Socialism, in absence of which cannot even think of a socialistic economy, Merits of Socialism ) No Labour Exploitation; There is only one class in a socialistic economy hence there is no question of exploitation, There are no concept of strikes and lock-outs, Everybody works in a well-knit family way, (2) Proper Utilisation of Resources: __ Under this economy, all types of natural resources are utilized in a most orge- nized manner. Its main objective is to exploit these Tesources for the welfare of society, “= ind cor wa pr pls ity kp tcEconomics _, a the marginal cog, 28 of the Wealth anding the reaso, tal assumption that it today) to work is take decisions that : future. ely interlinked and ee of analyzing the es. In other words, when making pur- croeconomics and t the individual or n scarcity and gov- as supply and de- Microeconomics is nan action, specifi- tribution of scarce .ve different values, ons, and how indi- snerally speaking, ettled science than ry to explain what ins what to expect = prices of car: pefore. If @ major il tend to increas goods and services. Searcity is the basie economic problem that ext unlimited wants that cannot be met by the limited amount of resources OM world eli good of service that has a non-zero pice is considered scarce: I¢ will cost you something to consume that good or service. Without scarcity, tere ‘would be yovreason to study economics. People would consume everything they could POs, ibly consume and not have to make choices or trade-offs between goods and services. Jneconomies, marginal means the impact of a small, or one-unit, change HOW much beter off will you be with one additional vnit? As a tational thinker, you wil tne to increase the variable until the addtional (marginal) benefit gained from the last small increase is no less than the additional (marginal) cost of the last small irerease. Consider your favorite dollar menu item from your preferred fast food festaurant. Each additional one you consume costs you $1. And with each additional fone you eat or drink, you are satisfying a want, At some point, you ‘will. stop onsuming that item, ‘The point at which you stop consuming is the point # which the additional benefit you gained by eating or drinking that item is valued no more than $1. That is the point at which the marginal benefit equals the marginal cost. ists because we as humans have Scope of economics “Scope’ means the sphere of study. We have to consider what economies studies and what lies beyond it. The seope of economics ‘will be brought out by discussing the following. (a) Subject — matter of economics. (b) Economics is a social science (a) Subject — matter of economics: Economics studies man’s life and work, not the whele of it, but only one aspect of i. It does not study how a person is born, how he grows up and dies, how human body is ‘made up and functions, all these are concemed with biological sciences, Similarly Economics js also not concerned with how a person thinks and the human organizations being these are a matter of psychology and political science. Economics only tells us how @ man utilizes his Jimited resources for the satisfaction of his unlimited wants, a man has limited amount of money and time, but his wants are ‘unlimited. He must so spend the he has that he derives maximum satisfaction. This is the subject money and time matter of Economics. " a Economic Activity: It we Jook around, we see the farmer tilling his field, worker is working in factory, @ Doctor attending the patients, @ teacher teaching Ue ‘gudents and so on. They are all engaged in what is called “Beonomie Acs ‘eam money and purchase goods, Neither money nor goods is an end in itself. “They are needed for the satisfaction of human wants and t0 ‘promote human welfare.Beonomics - 1 nment decides- ment because f rivalries and mpetition in a 1d haves-notes and working lis needs and parasites and ‘equal work. the basis of arket mecha- jarp contrast om any type n socialistic , in absence question of a well-knit most orga~ welfare of Heonomies - 1 3B (3) No Wasteful Advertisement: ‘The government is virtually the owner of almost every sector. Hence, all the individual producers are also mote according to the plan targets. Therefore, the competition among the producers is almost nif, Hence, very less money is spent on wasteful advertisement. (@ Proper Planning: Jn order to solve various problems, which atise from time to time, there is proper economic plan in this type of economy. Thus, with the help of economic plans socialist economy will adopt the balanced development strategy. (9) No Cyclical Fluctuations: Under socialist economy, no cyclical fluctuations are found. It means economy faces no boom, depression, unemployment or over production ete. Economic stabil- ity is maintained by the government on the basis of ‘economic planning. (9) Social Welfare: The aim of socialist economy is to maximize social welfare of the society. Tt provides equal opportunities of employment to all individual according to their abilities. (7) Rapid Economic Development: The Central Planning Authority is the main figure in a socialist economy. It ‘coordinate the natural, human and physical resources to attain economic progress of ‘the country. In turn it accelerates the path of tremendous progress and people enjoy higher standard of living. (6) Most Suitable to Developing Countries: This type of economic system is most suitable to the needs of developing -couniries as all means of production are controlled by the government. (9) Increase in production- In Socialism, there is hold of society ever the factors of production, Therefore production is high. Its main reason is there is no competition and production takes place by keeping social welfare in mind. (10) Elimination of Unemployment In Socialistic economy, there sets a target to eradicate unemployment and provides full employment to the society. For each work, eligible person have been appointed according to his/her eligibility Demerits of Socialist Economy: Economists like Robbins, Maurice Dobb, Georg Halm etc. have criticised the socialist economy on the following grounds: () Loss of Consumer Sovereignty: Socialist economy is always less democratic as it possesses no freedom. It is also like government dictatorship. element ofa Economics.) re momics 1 To fulfill the wants a man is taking efforts. Efforts lead to satisfaction. Thus wa, = he wat . THIS Wang, —_—$—__— Efforts-Satisfaction sums up the subject matter of economics. " price and natura (BY BeebtriTes WW doetAN Selenes: Tr primitive sctety, the connection j_, Prices sre Jom be. “any abstract lev tween wants efforts and satisfaction is close and direct. But in a modem Soci i rs Hk 8 Ste erage trian prociaces what he des not consun, Subee'givays iid ceauns Wat hat dows WOE produce, Whien he produces more, fie haw to wn Cague’s eo, ie Gacess quant. Silty hs has to buy d product which i not produced by him, the Thus the process of buying and selling which is called as Exchange comes aoe sseteneet was offers ane autiafuctions Now-t-4iys, most ofthe things we need an gjeaaandtl made in factories. To make them the worker gives his labour, he land lord his land mythical pre~ the capitalist his capital, while the businessman organizes the work ofall these, derived from They all get reward in money. The labourer earns wages, the landiord gets rent e ‘wages, profits capitalist earns interest, while the entrepreneur's (Businessman) reward is profi, Ricardo also Beonomics studies how these income—wages, rent interest ard profits-are dete. He eriticized mined, This process in called “Distribution: This also comes in between efforts ani ™ineds an satisfaction. ‘Some hi ‘Thus we can say that the subject-matter of Economics is cfessical the 1. Consumption: the satisfaction of wants. 1 og 2, Production: i.e. producing things, making an effort to satisfy our wans 2a € 3, Exchange- its mechanism, money, credit, banking etc. — 4, Distribution — sharing of all that is produced in the country. In addition, ee Economics also studies “Public Finance” Gels (© Views of classical economists- Classical economists observe that makes value in tl generally regulate themselves, when free of coercion. Adam Smith referred to this the Classi 2s 2 metaphorical “invisible hand,” which refers to the notion that private incentive: of abstrac ate aligned with society welfere maximization tinder certain competitive conditions oF Popul ‘Smith warned repeatedly of the dangers of monopoly, and stressed the importance level and of competition.[2] of populs ‘There is some debate about what is covered by the term "classical economics" =" particularly when dealing with the period from 1830-75, and how classical econos" Ls ies relates to Neoclassical economics, Bis Analyzing the growth in the wealth of nations and advocating policies 10 pr a. mote such growth was a major focus of classical economists. John Hicks & Samu are Hollander, Nicholas Kaldor, Luigi L, Pasinett, and Paul A. Samuelson have PY ct sented formal models as part of their respective interpretations of classical polit) was tas economy. deriving value” Value theory cost of Classical economists developed a theory of value, or price, to investiga!® A ‘nomic dynamics, William Petty introduced a fundamental distinction betwee? sal? thoughEconomics.) 4 (2) No Automatic Functioning: i atic. fi ‘Under this system, NO automé Central Authority, i.e., government, that governs interest. Evils of Bureaucracy (@) Evils of all economic activities are controlled by the governmen, racy like favouritism, delay, corruption any notion in systern exists at all. It is ihe the country according to its oy, In socialist economy, ‘Thus, they develop all evils of bureau other sue evils, (@) Rigid Economy: Socialist economy is very rigid and not susceptible ‘To change according to requirements. Hence people work like @ machine ang never get any incentive to work. (3) Burden on Government: ‘All the economic activities are performed by the Central Authority on behalf of the government. Hence, it is overburdened with daily activities and, therefore, i gets very less time to think and plan for the economic prosperity of the economy. (6) Expenditure on Planning: In fact, planning is a long process in a socialist economy. This expenditure is unnecessarily wasteful and a burden on the national economy. (7) Lack of personal liberty- In Socialistic economy, the consumers have to consume only those goods which are produced by the state. Therefore in socialism the personal liberty of the consumers ends, Because in soicialism the production is done by keeping the social welfare in mind , that’s why the choice of the consumers ends. (8) Lack of efficiency and productivity- In socialistic economy, there is always a threat of corruption and due to this the efficiency and productivity lacks behind ‘sometimes, (Y) Lack of freedom — There is always a lack of freedom in socialism as the power is in hands of government. Personal liberty is almost ended from the society: People don’t even have freedom to choose business of their choice. (10) Economie inequaliy- \\ has been cleared from the experience of Russi* pease pares va 8 economic inequality occurs in Socialism. There 8 ee ion of discrimination between rich and poors. Its is therefor we still have not been succeded in getting pure equality in socialism. Econon A istics prope allow aims. free 1 ditio in prEconom! | lism | companies tio rakes prof. TRE mo serps and serves oly for profits. © for al ae ope's needs. Even though fome goods ‘ompanies 4° Merits hey will only BE avaitable if the people have the Wis Service ™ a them. he Vo fay gn to pete prover? 1 capitate each one fas th body er private property. BVery citizen can keep private property and ite Fight to ha wishes. property can be transferred to his/her successor: ler his/her dean ®) {@) Minimal government Intervention: Capitalist societies ee should be left alone to operate without government Heventon Hee Me deman¢ pietely government-free capitalist society exists in theory, onl Howe @ pe) he poster child for capitalism_—the governm Bay, Even in th how to a Daldrank Act for Sinaia institutions. ie pele Sieh would allow the markets to set pri ee a f purpose of making profit. prices based on demand an suo ne (4) Competition: True capitalis inane = 3 jpitalism needs a A mur | competition, monopolic A competitive soe 1e conditions of capitali es & Price mechanism- Ci capitalism, : + Capitalistic Tey ism, ie economy revolves round the ox ome: (The producti price mecta synod ion of any commodity depends « i is profit percentage. ‘on the price of the to be fi) consumptionsaying and is comm ae saab iraet estment Pe ei reer tireen ft eet one os ¢ Importance of regulated through rican tient preneur is Very i Enterpreneur- " igh price mechanis a Peres, importa. An entre In capitalistic economy the rol > ie 5. Production reneur coll y the role of an en will sito Parte eomy isnot possible without fseesisnase ant bx , ; nin the marker, petition In capitalistic entrepreneur. a ¢ econ ‘ wen De Last crear) jomy there exist a perfect compe- nique Petition in the m, aston, Tenia . 2) arket, lack. istic econoin; by its ne eyele- Trad Be cicte ines te mx of pare sie in capitalist nc, eyele exist i ses between the sectors. : Cowie. in capitalistic eco: ; ad igness {¢ momy. Trade cycle show ( ” adapt and chay ‘0 change: labs will ge, Tog tge* The last labo Within 9 allo echnology hi characteristic of capitali Tess in econom W change and las been g eane'Ghancer capitalism is the ability lo structures j. adaptabilit changer in every society and ti” ( ty of societies to i e up ies to improve inefficien** Pe of lif sis 4 true characteristic, the ¢1 entre- loss of compe- perfect 2 show ability and the jencies Economics - t Merits of Capitalistic System: ‘The main merits of this system are: “The foremost advantage of this system is that every- as one can spend one’s income acconding to one’s it any business or trade. At) Beonomie Freedom: tbody enjoys’ economic freedom wishes, Producers have complete freedom to invest i ‘Another advantage according to classical economists U2) Automatic Working ibrium point is automatically come with the forces of {san automatic system. Equi demand and supply. (@) Variety of Goods and Services- All the basic decisions of what fo produce, and for whom to produce are taken by producers. Every producer taste and preferences. Hence, there are large variety e economy. ‘All natural resources are used to their opti- wn with a sole purpose: of eaming profit and how to produce ives attention to consumers’ of goods and services; produced in th ) Optimum Use of Resources- ‘mum level as production is undertaker no scope for wastages at all. 6) Efficient Producer- There is very tough competition among entrepreneurs. ‘Thay always encouraged to produce best quality of products. Thus, technical devel- opment will lead to increase in higher productivity as well as efficiency. (©) Higher Standard of Living- Varieties ‘of goods at cheap rates make it easy to be within the: reach of poor and weaker sections of society. This results im rise in their standard of living. (7) Incentive to efficient- In this system, incentives are given t® the efficient workers in cash or kind. This means every worker should get reward according 10 his ability. Hence, workers will try to work more and more, therefore, total output will also increase. (8) New Inventions- In this type of economy, invention. To get more profit every producer takes ini nigues in production. there is ample scope of new tiative to develop new tech- Demerits of Capitalistic economy The main demerits of this system are given below: (1) Labour Exploitation-The main defect of capitalism is the exploitation of labour, Labourers get less wages in comparison to their working hours. ‘The wages less than their marginal productivity are not sufficient for their livelihood. (2) Class Struggle- A lion's share of income and resources is controlled by the upper sections of the society, while others remain deprived of the basic amenities of life, Thus, the entire society is divided between ‘haves and ‘have not’s. Hence, the continuous class struggle spoils the health environment of the economy.2 wasteful competition. 4 j, ig the sale Of the con jonsumers in the form of inerg. se @) Wastetal Comte ne nt on advertise by the poor ¢ ion- The production is made on a large scate wy, i i wrefore, under capitalism, fear of roducti price. i. reat of OVE short period. The (4yTh ea changed in a s! gs i s Oe te cai ations- Being automatic in nature, capitalist ee, Fluctw leeaogentin ‘of economic fluctuations and unemployment. This .,.° always faces j : m4 sjate of instability and uncertainty 4 Growth. All the resources are put only 10 those ch», eg balance eae mum profit. Other sectors of the economy are nevieciy a, ere there is maxit ‘ ‘a is no cheek on the economic system, the growth is unbalanced in nar, ( No Welfare Activities- In capitalism, the sole motive is maximum po, tout not the public welfare, Variety of goods are produced according t0 naj, demand, not for any welfare activity. s (8) Monopoly Fractices- This economic system has been criticised on thei s within the country. ‘ that it develops monopoly activi Socialistic economy Definition_and_ origin: Socialism is a populist economic and political system in which the means v production operate under public political ownership, sometimes called commin ownership. Common ownership under socialism may take shape through techn. cratic, oligarchic, totalitarian, democratic or even voluntary rule. All legal produc tion and distribution decisions are made by the ruling class. Origin and Development ‘Aneconomic system in which the production and distribution of goods arevontrol substantially by the government rather than by private enterprise, and in which cooperation rather than competition guideseconomic activity. There are many varieits of socialism. Some socialiststolerate capitalism, as long as the government maintalts the dominantinfluence over the economy; others insist on an abolition of privat enterprise. All communists are socialists, but not all socialists arecommunists. Socialism developed as an objection to liberal individualism and capitalis™ Under carly capitalist economies during the 17th and 18th centuries, western Eu pean countries experienced compound economic growth and industrial productt* for the first time, Some individuals and families escaped poverty faster than olte® creating income inequality and other social concerns. The most famous early socialist thinkers were Robert Owen, Heri de Sti Beone ‘Sima the i after Chi Fe @ peethe means of led common ough techno- egal produc- recontrolled in which ny varieties t maintains of private nists. capitalis™- tern Euro” sroduction Economies - 1 ae Simon, Karl Marg and Viadiinit Lenin. 1 was primarily Lenia who the ideas of earlier socialists and hel Primarily Lenin who expounded on Characteristics of Socialistic economy The main features of a socialist economy are as under: Features 1. Public or coltective ownership of resources: Jn this economy all the material means of production are owned and used by state organs. However, it does not mean that private enterprise and private property are totally nonexistent in socialist economy, but their relative importance is so insignifi- cant that they can be ignored. 2. Economic plannii A socialist economy is a fully planned economy. Planning may be centralized ‘or decentralized, All the basic decisions for the control and regulation of tie economy are taken by government, Similarly all the basic and strategic functions are per- formed according to a definite plan. Formulation of plans is the responsibility of a central planning authority, 3.Social welfare motive: Ina socialist economy research are used in production process to maximize social welfare instead of private profits. Social welfare is the basis of all economic decisions and economic policies. Price policy is guided by social welfare motive. Everyone is entitled to the benefits of socialized production on the basis of equal rights. 4. Little importance of price mecha In a socialist economy the price mechanism is given a minor role in resource allocation. A specific plan based on social needs provides guidelines for resources allocation. However, in democratic socialism the price system is allowed some role according to the size of private sector, _..,, 5. People co-operation: Socialist economy is a planned economy. No plan can possibly succeed without the active participation, of people, 3 Therefore, while fixing the priorities of plans the central planning authority keeps in mind the interest of the community to seek the active participation of People in the implementation of plan, the government may provide special incen- tives,mu Definition ‘A theory or system of social organization based around @ free market and privatization ih which ownership is as eribed to the individual per- ‘sons. Voluntary co-ownership {sg also permitted. Key Proponents Richard Cantillon, Adam Smith, David Ricardo, Frédéric Bastiat, Ludwig von Mises, Fredrich A. Hayek, Murray N. Rothbard, Ayn Rand, Milton Friedman. Competition for ownership of capital drives economic activ- ity & creates a price system that determines resource al- location; profits are rein- vested in the economy, “Pro- duction for profit”: useful goods and services are a byproduct of pursuing profit. eonomicy theory oF ster of socio nization ase of the holding, most property in common, iin Bel cw cose” the workers. : Charles Hall, Frangoisnop, Babeuf, Henri de SaintSiny, Robert Owen, Charles Fou. Louis Auguste Blanqui, Wiha, Thompson, Thomas Hodgskin Pierre-Joseph Proudhon, io,,. Blanc, Moses Hess, Karl Man, Friedrich Engels, Mikhail Bukinin eee Key Elements Calculation in kind, Collective ‘ownership, Cooperative common ownership, Economic democracy Economic planning, Equal oppo tunity, Free association, Industrial democracy, Input-output mode! Internationalism, Labour voucher. Material balancing. Political System Can coexist with a variety of political systems, including dictatorship, democratic re- public, anarchism, and direct democracy, Most capi- talists advocate a democratic republic, Economic System Market-based economy com- bined with private or corpo- rate ownership of the means of production. Goods and services are produced to make a profit, and this profit is re- invested into the economy to fuel economic growth. Can coexist with different palit cal systems. Most socialists aévo- cate participatory democracy, some (Social Democrats) advocate par- liamentary democracy, and Man ist-Leninists advocate “Democratic centralism.”” The means of production ar ‘owned by public enterprises or ¢0- operatives, and individuals art compensated based on the prit- ciple of individual contribution. Production may variously be ¢* ordinated through either econo™* planning or markets.onomies . y = — S0Cial orga holding of Mon, with ssctibed 16 — ois-Nog] nt-Simon, Fourier, | William odgskin, n, Louis rl Marx, ollective common mocracy 1 oppor- adustrial model, oucher, t politi- s advo- y, some ite par- jocratic yn are or cO- Is are > prin- ition. be co- i i Economics - 1 8 OTe re Social Structure Classes exist based on their relat ship to capital: the lists own shares of the means of production and derive their ineome in that way while the working class is dependent on wages or salaries. Large degree of mobility between the classes. Class distinctions are diminished. Status derived more from political distinctions than class distinctions. Some mobility Religion Freedom of religion. Freedom of religion, but usually Promotes secularism. Private Property Private property in capital and other goods is the domi: nant form of property. Public property and: state property play a secondary role, and there might also be some col- lective property in the economy. ‘Two kinds of property: Personal Property, such as houses, clothing, ‘etc. owned by the individual. Pub- li¢ property includes factories, and means of production owned by the State: but with worker control, Free Choice All individuals make deci- sions for themselves. People will make the best decisions because they must live with the consequences of their actions. Freedom of choice allows consumers to drive the ‘economy. Religion, jobs, & marriage are up to the individual. Compulsory edu- cation. Free, equal access to healthcare & education provided through a socialized system flinded by taxation. Production decisions driven more by State decision than consumer demand. a EEE a eee a a Economic Coordination Relies principally on markets to determine investment, pro- duction, and distribution de- cisions. Markets may be free- markets, regulated-markets, ‘or may be combined with a degree of state-directed eco- nomic planning or planning within private companies. Planned-socialism relies principally on planning to determine invest- ment and production decisions. Planning may be centralized or de- centralized. Market-socialism relies ‘on markets for allocating capital to different socially-owned. enter- prises.B aM, Union of Soviet So y alg ss modem worl Soro. ica (USSR although 9", 2 etre th ty according ah the xa operates tang ae incipes of capitalism. ateBorization of te 5 2, tte PK. US, and Hong nomic system is in ¢ UK, alist. are mostly capi Sinzipoe i an example of state capitalism. The means of reduction are The means of progicy > Ownership < cially-owned with the sy" » Me ete fe piadoced accruing to gig Se 5s Srrcture for private profit. This produced Cite : Heke tieeivea ae produc- society (in Public-ormner : chad in.economic lS) or to all the EMP oye, brs 0 eueaee, bers of the enterprise : yned ivy. Firms ean be owned Bers , : ee duals, worker co- ¥e-ownership models, ops, or shareholders. : Spy, ‘often considered 19 4. P*, a centrally-planned Social tion Government does not dis- The people are Considers criminate based on race, jaws are made when tes color or other arbitrary clas- protect people from ‘disor sification. Under state capi- Immigration, is often talism (unlike free-market trolled, capitalism), government may have policies that, intention- ally or not, favor the capital- ist class over workers, View of war Wer, although good for se- Opinions range from proms lect industries, is bad for the (Charles Edward Russell, Allan L economy as a whole. It Benson) to antiwar (Eugene V. Wastefully diverts resources Debs, Norman Thomas). Socialists #way from producing that tend to agree with Keynesians that which Woutd raise onsum- War is good for the economy by ers’ standard of living (ie, spurring production. that which is demanded by | consumers), toward destruc. tion, = Political Classical liberalism, social ~ Democratic socialism, communists liberalism, libertarianism, libertarian socialism, social ana"lal; Economics - 1 Way of Change Fast change within the sys- ‘Variations tem. In theory, consumer demand is what drives pro- duction choices. Government can change the rules of con duct and/or business. prac- tices through regulation or ease of regulations, Free-market capitalism (also known as laissez-faire capi- talism), state capitalism (also known as neo-mercantilism). 27 Workers in a socialist state are the nominal agent of change rather than any market or desire on the part of consumers. Change by the State on behalf of workers can be swift or slow, depending on change in ideology or even whim. Market socialism, communism. state socialism, social anarchism, Earliest Remnants The ideas of trade, buying, selling, and such have been around since civilization. Freesmarket, or lasseiz-faire capitalism was brought to the world during the 18th cen- tury by John Locke and Adam Smith, aiming for an alternative to feudalism. Means of control Capitalism promotes a “so- ciety of contract” as opposed to a “society of status.” Pro- duction decisions are driven by consumer demand and re- source allocation is driven by a price system arising from competition for profit. In 1516, Thomas More write in “Utopia” about a society based around common ownership of property. In 1776, Adam Smith ad- vocated the labor theory of value, ignoring the previous Cantillonian view that prices are derived from supply and demand. Usage of a government. View of the world Mm Capitalists see capitalistic and market-based societies as beacons of freedom, prid- ing themselves on permitting social and economic free- doms not experienced under Communism and Fascism, The focus is on individual- ism as opposed to national- ism. Socialism is a movement of both the worker and middle-class, all for a. common democratic goal.12 gues Economic, | geonomics 1 Firstly, economists collect the facts. Ce Secondly, they analyze them and derive result. 3 Thirty, they determine the relationship between facts and results ba Finally, they give a title to the bosomed relationship. the Economics is normative science because: its 1, Firstly, economists points out different economic problems, 5) Le 2 Secondly, they analyse them in the light of statistics oF facts and gp a 3, Finally, they advise policies, laws, theories to solve the problems, a Arguments against , Economics is a Science y 1) Not based on evidence- The first major reason why economics is ny, st science is that alot of itis not based on evidence. If you study econoni v you will spend a great deal of time studying perfect competition, sn, it of affairs that almost nowhere exists. d Lack of unity- The views of economists are always found to be ven , different all the time ,which is not correct. Because economics is « veloping subject and so much of difference in views is obvious. 3) Lack of scientific methods- Economics lacks a crucial element of scientific method, the ability to repeatedly test hypothesises. Ther ply is no neutral control in the real world to test theories and poisis against, For example, it would be great if we could test how bes» respond to a recession by having one country implement a Key stimulus and another conservative austerity and compare the rest However, that simply isn’t possible as the variables would be enomos: (the different economy size, structure, culture and a thousand other 3 Labour @ Ls ferences even between neighbours). Crucially, it is almost impossible’ SPeetalisati repeatedly test a hypothesis, a Gi) N 4) Non practical - Utility is another concept which plays a huge pit ! ‘economics that is so vague and undefined that it is hard to know i! oon exists or how you can possibly maximize it . Rational actors, effet tO most ec markets, supply and demand are all concepts that are assumed wile’ Selene. evidence to be true,, After all, if economics truly was based on i Regn ona evidence then it would have long since dropped many of its ideas 1 have been since debunked, There is a whole schoo! of economic ™™® gyey ge primarily devoted to showing that people are not rational and in fat ‘many heuristics and biases, yet economic students still receive th", 19° century view of utility maximizing rational actors as thous fact. I have thoroughly investigated the evidence regarding w°l"#* ". efits and unemployment and found no connection, yet many & _ a:Economic, “1 Economi agement The management of public S€°%0r is alway, h a oe on is diversification of work there fs no competition in wore on ‘and which results in lazy behavior of public sector workers. A 7. Impractical- Mixed economy is impractical tenposs 8. Non-Cooperation between the Two Sectors: Ge The experience of the working of mixed ecorennee reveals that the big aes sector and the private sector do not see eye to eye with one ‘another. The priv, 7 sector i treated lke a stepchild and groans under the various restrictions imooe ein upon it by the state, The private sector is taxed heavily, while the public sen, po given subsidies and preference over the former in the supplies of inputs, Th, al sense of bitterness and non-cooperation develops between the two sectors, robbe 9. Inefficient Public Sector: ‘Altec The public sector of a mixed economy is a big burden on the economy ieca, 985 it works inefficiently. Bureaucratic control brings in inefficiency. There is ove, a staffing ofthe personnel, red-tapism, corruption and nepotism. As 2 result oie 9 tion falls and losses emerge. — 10. Economic Fluctuations: a The experience of the working of the mixed economic system in the develop: the! ‘countries also reveals that they have not been able to remove economic fluctuations ‘This is because of the improper mixture of capitalism and socialism. The privas and sector is allowed to operate freely under a loose system of government regulation ret and controls. The public sector also does not operate under the rigid condition: an: which are laid down under a planned economy. » ec Sa ag ha It has to depend for its supplies of rew materials, intermediate products an factors on the vagaries of the market mechanism. If in the market, the prices © ‘inputs are increasing due to their shortages, the public sector will be equally 7° siencing these shortages and price increases. Hence economic fluctuations which 3" eaaeiaaeh feature of a capitalist economy are equally experienced in a mix’ b Conclusion; 3 But the defects of eet of the mixed economy enumerated above are not so acute th? : < f ‘Economics er =a results, s, NS and figures, problems. Omics is not a dy economics etition, a state nd to be very mics is a de. pvious. jement of the s. There sim- and policies how best to a Keynesian ‘the results. be enormous nd other dif- mpossible to nuge part in » know if it rs, efficient ned without on impartial! s ideas that nic thought in fact 0° (enae ve the same yugh it wo" yelfare De” econois® ronan“! 13, ill claim increasing welfare will i ail i ness wire wi insas nemptoment: The ono that morkets are efficient even ater they sporacur fi rods ext a Bai aR ot cain ote evens en iy 55) Less predictive - Economics has litle predictive power, another impor- fant feature of science. In fact asking an economist what the “ae quences of a certain policy will be is the same as asking for their best What will happen if we raise the minimum wage? Maybe unem- ployment will rise or maybe it will improve the living standards of the poor. What about printing huge quantities of money? Maybe it will de~ stroy the economy in a wave of hyperinflation or may noting, much will appen. What if we reduce regulations on the financial sector? Maybe it will lead to a more efficient and prosperous economy or maybe it will destroy it? What if we raise taxes and have a strong welfare state? Maybe it will destroy the incentive to work and lead to an inefficient economy cor maybe it will create some of the richest countries in the world Economics and Positive Science: ‘The following statements can ensure economics as a positive science, such @ Logically based: ‘The ideas of economics are based on absolute logical clarifications and mors ‘over, it develops relationship between cause and effect (ii) LabourSpecialisation: Labour law is an important topic of economics. It is pased on the law of specialisation of labour Economists must concer with the causes and effects of labour-division. (iil) Not Neutral: Economics is not a neutral b to most economists, economics is mere science. Economics and Normative Science: The following statements can ensure e ve sciences. According erween positive and normati rather than normative ly. positive soience conomics a8 & normative science, Emotional View: A rational human being has not only !oe! hments and emotional views reesding 2° ical view but also has sentimental activity, These emotional attachFeonomicy petition in wor, oe 2 St? Piven estrictions impose, ¢ the Public sector j, of inputs. Thus « wo sectors. * economy because ey. There is over. $ a result, produc. |in the developed omic fluctuations. lism. The private ment regulations rigid conditions ate products and et, the prices of be equally expe ations which are need in a mixed jot so acute tha! ; machinery, the ye made to work |, monetary and d, . ‘Economics ~ 7 = i Q. % Explain Economic crime? Give classification? ‘Ans. There is no widely accepted definition of economic crime, and it is impossible to enumerate briefly the vatious definitions, theories, and offenses in- cluded in this category. We focus on the theoretical work that explores three aspects, of economic crime: offender motivations, economic outcomes, and economic pro- cesses ‘The first tradition refers to economic erimes as illegal acts in which offenders’ principal motivation appears to be economic gain (e.g., Freeman) Here, an eco- ‘nomic crime is ‘conceived of as any offense in which individuals or collectivities of people purposively act in an illegal manner in order to gain financial retums (+. robbery, drug selling, tax evasion, computer crime, and abuses of economic aid) ‘Although conceptually appeating, this tradition has several drawbacks. For example, it assumes that offenders’ motivations are readily observable or knowable from the criminal act itself. Although the motive behind robberies may appear to be the desire for property, perpetrators’ primary motivation may be different (eg., thrill seeking or racial hatred). Some crimes have multiple motives and economic gain may be a secondary goal. Furthermore, offenders themselves are not always conscious of their ‘motives and they may be unable to distinguish between the reasons that precipitated their actions and the rationalizations or justifications that follow them. A second tradition avoids difficulties associated with trying to infer motives and focuses on illegal acts that successfully provide offenders with an economic return (e.g., Chamlin and Kennedy). However, excluding attempted crimes from analysis limits our understanding; successfully completed offenses may differ in imporlant ways ftom those that are failures. A variation of this tradition defines economic crime as offenses for which victims incur an economic cost (2.8. Salvesberg; Reuvid ). Typical victims include individuals, groups, or organizations against which the act was directed; however, a much wider group of victims may have been indirectly affected by such crimes. This occurs in cases in which a ‘criminal act subverts or undermines the commercial effectiveness of normative business practices and the negative consequences extend beyond those at whom the specific immediate harm was intended (e.g., computer hacking, insider trading in stock market transactions), ‘This definition addresses a common oversight in crimi- nology—ignoring or under-representing victim issues—nonetheless, it is too narrow in some respects and 100 broad in others. For example, it excludes Svictimless” Crimes that have economic implications (¢.g., prostitution) and includes any offense for which victims experience a cost (e.g, an assault that results in medical expenses or loss of wages), A third tradition contends that the processes that lead to criminal behavior are the same as those that guide consumer behavior in the marketplace. This approach informs most theoretical work on crime offered by economists since the late 1960s.“ patement is four i Gary Bee 0, fs mom nem nes The remade Of ety, describes this on™ inmate, approsch 10 sd evenness, reviews caer social science iti) eatin inclu ot esac some of the ‘shortcomings of the neoclassical approach; an, a fa) of the if economic crime win, vives recem! directions in the study of office 3. Bank fr Meaning of jie crime assets. © crimes refer to illegal acts commitied by an individual oF a group money from 3 my» finan ot profesional advange. (no 28 ee ee ini prigal moive i esonomie pun. CIN Dies tek onsen” meen ‘selling of controlled substances, ‘and abuses of economic aid are all examples sober oF the economic crimes. crime: 4, Stock Ciassification of economic crimes frauds takes ‘One of the groups of economists classified econtomic into following 3. Cor 1. Crime against life individual < 2. Crime against body - se 3. Crime against property by their © 4, White collar crimes ete see Whereas an other group of economists classified economic crimes as: ses 1. Violent crimes ee entitled. | 2. Property crimes tion and. 3. Beonomic crimes ete omitted ‘Sub classifi sabe : rere. co of economic crimes can be done as follows: a . ion- is Sie top Pe Se He an ane of taxes by individusls Recent fens ter vi ee man often entails taxpayers deliberately miso ee Bo sue dacs fs to the tax authorities to reduce their tax liabl profits Picea enero orate reporting, such as declaring less income, profits or gaits legal Pea ete ree Tints Cau ° econ ce Ss A eine Wise io intemal so times feline hc he eee es ca oe thing _ be reported to the tax authorities and the act te amount of income tats incko is the ones with fund Jaws oF other regulations tot include the participation ‘pro tic_wil i yp 108s, vasion, Sa) all examples o¢ mes as: - individuals, tely misrepre- ir tax liability ofits or gains nal_economy: punt of unre~ ¢ that should types of drugs through the use of drug prohibition laws. eonomics <1 = psn inmate o the theft ofthe items being smu a pyaton include bringing banned items past security checkpoint (such as alin megs) or the removal of classified documents from « government or corporate office 3, Bank fraud- Bank fraud is the use of potentially illegal means to obtain snoney assets, or other property owned or held! bya financial ination, or 9 OSM money from depositors by fraudulently posing as a bank or other financial institution. Jn many instances, bank fraud is a criminal offence. While the specific ‘elements of particular banking fraud laws vary depending on jurisdictions, the term tank fraud applies to actions that employ a scheme or artifice, as opposed to bank robbery or ‘theft, For this reason, bank fraud is sometimes considered a white-collar sine: 4, Stock market scams- In this frauds related to buying or selling of shares by frauds takes place and it adversely affect the stock exchange. 5, Corporate frauds- Corporate fraud consists of activities undertaken by an individual or company that are ‘done in a dishonest or illegal manner, and are designed to give an advantage to the perpetrating individual or company. Corporate fraud schemes go beyond the scope of an employee's stated position, and are marked by their complexity and economic impact on the business, other employees and outside parties. 6. Insurance frauds- Insurance fraud occurs when individuals deceive an insur- ‘ance company, agent or other person to try to obtain money to which they are not ‘entitled. It happens when someone puts false {information on an insurance applica- tion and when false or misleading information is given or important information is omitted in an insurance transaction or claim. 7, Foreign exchange violation- Wrongly sending money out of the counsty ip accounts outside the country is called as foreign exchange violation. Examples are Recent Vijay malya case and hawala fraud, 8, Money laundering- Money Inundering is the process of transforming the profits of erime and corruption into ostensibly ‘legitimate? assets!) In a number of legal and regulatory systems, however, the term money laundering has become conflated with other forms of financial and business crime, and. is some times used more generally to include misuse of the financial system (involving ‘things such as securities, digital currencies, credit cards, and traditional currency), including terrorism financing and evasion of ‘international _sanctions.® Most anti- money laundering laws openly conflate money laundering (which is concerned with source of funds) with terrorism financing (which is concerned with destination of funds) when regulating the financial system, 9, Drug trafficking- The illegal drug trade is a global black market dedicated to the cultivation, manufecture, distribution and sale of drugs that are subject to drug Drohibition laws, Most jurisdictions prohibit trade, except under license, ‘of many: Economics.) — 1) the Production paar 2) the Consumption eorexsionon 3) the Distribution Macroec 4) the Exchange entire econon 5) and the Public Finance. tion, the rate ‘i . Microec: 1) Production in terms of economics means as the manufacturing process oj aie ‘ i segm: goods to provide and satisfy the different needs. of consumers, a 2) Consumption means utilization of products, goods and services by the consumers in a given amount of time. Nature of 3) Distribution means the way the goods products and services are delivered What is to the consumers, as well as the way the products, goods and services are allocated answer of th to the consumers through the different economic outlets. an art or be 4) Exchange means the way the products, goods or services are transferred to Econor ‘one person to another. it has theor 5) The Public Finance means the way the government implement financial ‘There activities such as on taxation, on expenditures and other else. economics, There are certain factors that involved in the production in economics: thes If iti are: 1) the Land 2) the Labour 3) the Capital 4) the Entrepreneur 5) and the Foreign Exchange. i The Land is one of the important factors in production. Land refers to the Posi natural resources that are going to be utilized in order to produce products or goods. ___ Labour means the people or the workforce or the manpower that will do spe Eeonom cific activities in order to produce goods or services, They are the employee or the Befo workers of a certain company, necessary ___ Capital means the physical productive capacity such as machines, tools, fart knowledg nies, money and other attributes that are needed to produced products or goods. — Stience i Entrepreneur means an individual who organizes some other factors and brings e facts all these factors together in order to Produce products or goods. This activity att also be performed by groups of individual as in the form of cooperative of corp Many sci ration, ‘oped by Foreign Exchan, upton | ge means the foreign money or currencies that are reseV@!"" pessond Grder to import material or raw materials that are needed in the production cesses,Economies _ uring process of services by the es are delivered es are allocated re transferred to sment financial onomics; these refers to the sets or goods. will do spe- ployee or the tools, facto ; or goods. -s and brings activity ™Y ve of corpo” 9 these are called as Macro- There are two divisions or branches of economics; economies and Microeconomics yomies is the economics the deals with the behavior ¥y. This branch of economics is eoncemed about the level of produc- as well as in the gross national product and others. nomics that deals with the behavior of a specific different business firms, the prices of products in tal unit anid not as a whole. of the whole or ‘entire econom, ion, the rate of unemployment ‘Microeconomics is the ecor vent such as the consumers, the market and others. It is concerned with the indi Nature of economics What is the nature of Economics ? it is en important question. To find the answer of this question ,first we need to find that whether economies is science or an art or both? Beonomics is science in its methodology and an art in its application, jt has theoretical as well as practical aspects. ‘There is a great controversy among the economists regarding the nature of ‘economics, whether the subject “economics” is considered as science or an art. science or normative science. ‘because If it is a science, then either. positive Economics v Science At 5 ote Positive Normative Economics as a Science: mics is science or not, it becomes Before we start discussing whether econo! necessary to have a clear idea about science, knowledge and fact which develops the correlation Science is not only the collection of facts, according the facts must be systematically collected, classified and analyzed. At its core, the field of | economics many sciences, economics has a strong oped by testing hypotheses. In many ways, applied psychology. Understanding how hum tespond to changes is essential for the field’s development. tries to uncover basic foundation in ‘mathemati economics can be views Science is a systematic study of ship between cause and effect. to Prof, Poincare, in reality, all ‘universal facts. Like ics, and it is devel- ed as a field of ‘ans behave in certain. situations and10 Economies = ‘Talike the so-called “hard sefences,” however, many economic hypotheses are imncult to test. Economie systems are run by governments, and it is immoral to "the tause eeovomic harm to individuals and populations. With its strong rrathematical | em foundation and its reliance on human behavior, esonomics straddles the BAP be- tween more basie type ‘ogy and sociology. In the media and in polities, however, often ignored, Politicians might discuss the morality of dit the scientific aspects of the field are to fferent economic policies, and they might make promises based on faulty economic premises. Because eco- sta rnomie policies have such a dramatic effect on the lives of voters, politicians spend or considerable amount of time developing a message that influences voters. ‘There are following characteristics of any science subject, such ass (i Iris based on systematic study of knowledge or facts; * Pi econo! 1 of acience and so-called “soft sciences” such as anthropol. cerned ies -f ss. it gives the sol petal things. For win India. The Tite ve statements are Kn fth real facts a ‘on the contrary, n rave happened? Norr men's dealing with thes ements give the ide policy. For example of Jadian economy is ‘Now an importan normative science? af. Robbins, Prof. F (i) Te develops correlation ship between cause and effec; a ie é positive science. Ho} Gil) All the laws are universally accepted et (iv) All the laws are tested and based on experiments; (@) It can make future predictions; (vi) It has a scale of measurement. ‘On the basis of all these characteristics, Prof. Robbins, Prof Jordon, Prof. Robertson cic. claimed economics as one of the subject of science like physics, chemistry ste. According to all these economists. ‘economics’ has also several char- acteristics similar to other science subjects. (i) Economies is also a systematic study of knowledge and facts. All the theo- ries and facts related with both micro and macro economics are ‘systematically collected, classified and analyzed. Gi) Economies deals with the corelation-ship between cause and effect. For example, supply is @ positive function of price, i.., change in price is cause but change in supply is effect. (i) All the laws in economics are also universally accepted, like, law of de mand, law of supply, law of diminishing marginal utility etc. Gv) Theories and laws of economies are based on experiments, lke, mised economy 10 is an experimental outcome between capitalist and socialist economies. r (¥) Economies has a scale of measurement. According to Prof. Marshall, ‘money’ 4 a ze measuring rod in economics, However, according to Prof. A.K. Se, aM. levelopment Index (HDI) is used to measure economic development of & However, i wd cea Bae 8, important question is whether economics is a positive s+ ive seience? Positive science deals with all the real things ° ‘What is Science? Science is a sys experiment. It is a b ‘out a casual relation Kinds of Science 1, There are: 2. Positive S 3. Normative Positive scien ought to be™-ie. in positive science of logic, which ¢ ables. While nor things. Positive mic relative prices ar positive macroe employment, ag determined. Nor be fixed, what EconomicsEconomies - ayes / economic hypotheses are ents, and it is immoral to th its strong mathematica) ies straddles the gap be. ences” such as anthropo}. aspects of the field are Terent coonomic policies, premises. Because eco- voters, politicians spend influences voters. subject, such a: + facts; offect: is, Prof Jordon, Prof ‘science like physics, hhas also several char- id facts. All the theo- es aro systematically ause and effect. For n price is cause but ed, like, law of de- iments, like, mixed socialist economies. Marshall, ‘money” to Prof. A-K. Sen, - development of 4 s is a positive sti- the real things reonomics <1 " iia jativities It gives the solution what is? What was? What wilt be? It deals with all ihe practical things. For example, poverty and unemployment are the biggest prob- jems in India, The life expectancy of bith in India is gradually rising. All these | Shove statements are known as positive statements. These statements are all con ‘cemed with eal facts and information. On the contrary, normative scienice deals with what ought to be? What ought to have happened? Normative science offers suggestions to the problems. The state- nents dealing with these suggestions are coming under normative statements. These statements give the ideas about both good and bad effects of any particular problem or policy. For example, illiteracy is a curse for indian economy. The backwardness ‘of Indian economy is duc to ‘population explosion’ Now an important question arises whether economics is a positive science or 4 normative science? The economists like Prof. Senior (classical economist) and prof Robbins, Prof. Freightmen (modern economists) claimed that economics is a positive science, However, Prof. Pigou (classical economist). Prof: Marshall (neo- classical economist) etc. are of opinion that economics is @ normative science. ‘What is Science? Science is a systematized body of knowledge ascertainable by observation and ‘experiment, It is a body of generalizations, principles, theories or laws which traces ut a casual relationship between causes and results. Kinds of Science: 1. There are two Kinds of science: 2, Positive Science 3, Normative Science or Prescriptive Science Positive science only explains “what is” and normative science tells us “what ought to be”-ie., positive science describes while normative science evaluates. Thus, in positive science we derive propositions, theories and laws following certain rules of logic, which explain the cause and effect relationship between economic vari- ables, While normative science is concemed with describing what should be the things, Positive microeconomics {8 concerned with explaining the determination of relative prices and allocation of resources between different commodities, Whereas, positive macroeconomics is concerned with how the level of national ineome and ‘employment, aggregate consumption and investment, and general price levels are determined, Normative economics is concerned with what price for a product should be fixed, what wage rate should be paid, how income should be distributed, ete. Economics is a positive science because:satisfy our wants ntry. In addition, erve that markets 1 referred to this rivate incentives titive conditions. { the importance ical economics”, lassical econom _ policies to Pr” Hicks & samuel uelson have pr sJassical politica! s eonomics =! Ss Saat facilitate the portrayal of regularities in prices. Market and Proes are jostled By many transient influences that ate difficutt to theorize about at Pay abetract level. Natural pris, according © Petty, Smith, and Ricardo, for ex ary fe, capture systematic and persistent forecs ‘operating at a point in time. Market prices always tend toward natural prices ina process that Smith described as some- Prat similar 10 gravitational attraction, qhe theoty of what determined rarural prices varied within 18 Classical school. petty tried to develop a par between land and labom ‘and had what might be called rerené-and-labour theory of value. Smith confined #6 labour theory of valueto @ ythical pre-capitalist past, Others may inerpte! Smith to have believed in value as TTerived from labour, He stated that natural prices Wie the sum of natural rates of wages, profits Gnchuding interest on capital and waEh! of superintendence) and rent. Ricardo also had what might be described as 2 cost of production theary of value. He criticized Smith for describing rent 9s price-determining, instead of price-deter- mined, and saw the labour t value as a good approximation. Some historians of economic thought, in particular, Sraffian economists see the classical theory of prices as determined from three givens: 1. The level of outputs at the level of Smith’s “effectual demand”, 2. technology, and 3. wages. From these givens, one can rigorously derive & theory of value. But neither Ricardo nor Marx, the most rigorous investigaters ‘of the theory of value during the Classical period, developed this theory fully "Those who reconstruct the theory of value in this manner see the determinanis 3 natural prices as being explained by The Classical ecoriomists from within the Tneor) fof economics, albeit ata lower level of abstraction. For example, the theory of wages was closely connected to the theory ‘The Classical economists jeterminants of the took the theory of the ¢ of population. evel and growth of population as part ‘of Political Economy. Since ‘then, the theory of population has ‘been seen as part ‘of Demography. In contrast to the Classical theory, the determinants of the neoclassical theory value: 1, tastes 2, technology, and 3. endowments classical economics: nefits of trades 1s theory of valve are seen aS exogenous to f thought which sees “use walls” Classical economics tended to stress the was largely displaced by inalist schools © , 5 deriving from the inal utility that consumers finds in @ good, and ‘exchange the marginalopportunity= OF disutility: value” (je, natural price) 28 determined by duct, Ironically, cons! cost of the inputs that make up the pro of many classical economists to the free market, the largest schot thought that still adheres to classical form is the ‘Marxian school ‘dering the attachment ‘ol of economicKeon, Omics ey jes “1 fconom! Monetary theory a ists In the 19th century had a well-develo, ———— @ student of Alfred V British classical econom! h , i ae between the Banking and the Cite ee id tee foc eerie ih the theory of endogené WY, BUCH a8 Nichola pets | re between proponents of : Monetarlits ond members of st-Krlg, _ahie the eructs! cone 1 Cutten mn vidual preference imonetarists, such as Milton Eriedmany clet argued that aus on Mid should control the supply of money. n earee aean, tation Wy eoused Uy BANKS TaRKTD 98 emeerins Surly of ‘According to proponents of the theory ofendogenous money. the supply, ; ceromatically adjusts to the demand, and banks can only control the terms in economic affairs, ticians. After the Gr rate of interest) on which loans are made sical economics 48: Rise of the Classical Theory The modern 1 ‘rhe classical theory developed shortly after the birth of western Keynesian econom Many historians date the rise of capitalism to the breakdown of sert- ing im terms of ho England, as well as the creation of the first joint stock company ir maintain that price capitalism gave birth to the Industrial Revolution, public’ intellectuals to short-term econ peting theories about its causes and consequences. Classical economi This in/tum e the best early attempt at explaining capitalism’s inner workings. 2 the impact of feds The earliest classical economists developed theories of value, prices, sup, *New Keynesis demand and distribution. Nearly all rejected government interference with mary ‘The new Ke exchanges, giving rise to the French phrase “laissez-faire,” or “let it be.” gish behavior of Classical thinkers were not completely unified in their beliefs or understanding °* caused by ine! of markets, though there were notable common themes in most classical litera. Remrceees shee The majority favored free trade and competition among workers and business. Classi Classical economists wanted to transition away from class-based social structures in mee favor of meritocracies. ‘The classic i economic grow : One major peaking in classical economist occurred in 1825, when aes oe t Samuel Bailey popularized the subjective utility theory of value real GDP per | 70s witnessed the so-called ‘marginalist revolution,” which completely overtm! decrease real ( Smithian value theory. Thereafter, classical schools split into. competing fico notably the neoclassicals and the Austrians. - BREAKING model the the Decline of the Classical Theory incom The classical economics of i , the Pile i Ge valved and Ae Seen oii Filenpke Pe 2 re remained intact. By that time the writings! Would always cane iosopht Kal Mane en challenge othe pois pres oft sea ee conomics made very few lasting contributions © © Pack to the s A mor HS he! ore ae to classical theory emerged in the 1930s and 1™ ritish mathematician John Maynard Keynes. Key" Markets. Keynesian econc Economis Division of EconomWe, Prices, supply rence with marke, let it be.” S$ or understanding plassical literature. rs and businesses. social structures in 325, when English ry of value. The pletely overturned mpeting factions, Eeonomics = 1 student of Alffed Marshall and admirer of Thomas Malthus, and thought fee frarket economies tended toward underconsumption and underspending, He called this the erucial economic problem, and used it to cfiticize high interest rates and individual preferences for saving. Keynes also believed he refuted Say's Law of Markets. Keynesian economics advocated for a much larger role for central governments in economic affairs, which made Keynes popular with British and American poli- ticians. After the Great Depression and WWII, Keynesianism had replaced neoclas- sical economics as the dominant intellectual paradigm’ among world governments The modem macroeconomic school of thought that evolved from classical Keynesian economics, This revised theory differs from classical Keynesian think ing in terms of how quickly prices and wages adjust. New Keynesian advocates maintain that prices and wages are “sticky”, meaning that they adjust more slowly to short-term economic fluctuations. ‘This in/turn explains such economic factors as involuntary unemployment and the impact of federa! monetary policies, ‘New Keynesian Economics” ‘The new Keynesian theoty attempts to address, among other things. the slug- gish behavior of prices and its cause. The theory explains how market failures could be caused by inefficiencies and might justify government intervention. Whether this intervention should occur is a more complex question. Classical Growth Theory The classical growth theory is the theory on economic growth that argues ‘that economic growth will end because of an increasing population and limited re- sources, Classical Growth Theory economists believed that temporary inereases in plosion that would. consequently real GDP per person would cause @ population ex decrease real GDP. BREAKING DOWN ‘Classical Growth Theory” . Economists behind this theory developed an idea of a “subsistence level” model the theory. They believed that if real ‘GDP tose above this subsistence level ‘of income that it would cause the population to increase and ee oe os ee tt was sort of like a equilibrium leve real GDP down to the subsistence level, It wi ane to in this theory. ‘Alternatively, if the real GL i ane e population ‘would die off and real income would rise subsistence level, parts of th back to the subsistence level. Division of economic activity Economics is divided into certain divisions; these ar°Economics. t the interest S out of his n° IS tota oF by raising he Bing exploitatio, {monopolist ang isparities in the luce inequalities lly may create Benerate class. pS the rich and a welfare state cal and credit 0 this conclu- gether. On the and there are . d the private the other. - or minimise my; So as 10 evelopment. ced economy erefore such but less than rk well suc Sector 10 4 nn the other. The undue jlems in the - Economics - 1 af ‘The difficulties may follow ns under: 1. The Private Sector has to work under certain restrictions and controt and it js likely to carry out its programmes under a National Plan. But itis experienced jn Indian Economy that the process of private sector ultimately depends on the profit motive system and it is generally against the objectives of national planning. 2. The transportation of Private Sector into Public Sector, as a State Policy of nationalization of private enterprises, tends to a lot of fear and confusions against private entrepreneurs. 3, The Public Sector is encouraged throughout the planning period but its formance is not satisfactory and is almost misfit in the framework of national planning. With the result that none of them fulfils the objectives of national plan- ning and hence it is one of the major factor causing the failure of a long-term planning in India. ‘Measures for the Efficient Working of a Mixed Economy: Following are the important steps which can be taken up for the efficient working of a Mixed Economy: 1, Political Stability at the Centre: ‘There should be a strong central government along with the political stability 2, Timely Execution of Plans is Essential + The prompt and timely execution of plans in inevitably necessary. 3, State Policy should be Clear: The state policy of nationalisation should be clear and understandable to gen- eral public, 4, Private Sector should Work within the National Guidelines: ‘The Private Sector should work strictly within the structure of National Eco- nomic Planning, 5. To Maintain balance between Public and Private Sector: The Government of India has made it clear that in future, the Government has no programme of nationalisation of any industry and therefore has decided to main- tain a balance between the two sectors. So no danger of take-over by the Govern ‘ment. Merits of mixed economy Ina mixed economy, private businesses can decide how to run their busi- ‘esses (eg. what to produce, at what price, who to employ, etc.). © Consumers also have a choice in what they want to buy. © In this system, there is also less income inequality.| Economies, ies -1 that are the only producer of a certain pr ‘Economics —— ictures fies, market str th so they do not make it impossi,), ent wate . | pai lea eaae! rene why to succeed. co jnvol cp aamaiats tial economy have been demonstrated to include a var; ae benefi of freedoms: 7 ae | © to possess means of production (farms, — stores, = . sx ‘eto participate in managerial decisions (cooperative and participatory co. i nomics) wih © te wavel (heeded to tahsport all the items in commerce, to make deals JF: | person, for workers and owners t0 £0 to where needed) such as: ‘eto buy (items for personal use, for resale; buy whole enterprises to make te : | organization that creates wealth a form of wealth itself) . | © to sell (same as buy) : eto hire (to create organizations that create wealth) . to fire (to maintain organizations that create wealth) - © to organize (private enterprise for profit, labor unions. workers’ and profs. 2 sional associations, non-profit groups, religions, etc.) . © to communicate (free speech, newspapers, books, advertisements, make » ! deals, create business partners, create markets) om to protest peacefully (marches, petitions, sue the government, make ‘avs (os friendly to profit making and workers alike, remove pointless inefficiencies ‘0 Der maximize wealth creation). They provide tax-funded, subsidized, or state-owned factors of production com infrastructure, and services: fing © libraries and other information services oe © roads and other transportation services | * schools and other education services ? \| * hospitals and other health services ‘. i © banks and other financial services ® telephone, mail, and other communication services " * electricity and other energy services (e.g. oil, gas) FG ‘ water systems for drinking, agriculture, and waste disposal : ‘subsidies to agriculture and other businesses noe Monopoly to otherwise private businesses ;Eeonomies_ r ofa certain hy nake it impossit,” le to include @ varie, y s, etc.) | participatory cog. , to make deals in rprises to make the rkers’ and profes- rtisements, make ment, make laws inefficiencies to s of production, reonomies - a a government-furded oF state-run research and development agencies Such governments also provide some autonomy. over personal finances, but fn jude involuntary spending and investments, such as transfer payments and other fash benefits, including: fe welfare for the poor ‘e social security for the aged and infirm fe government subsidies to business ‘a mandatory insuratice (e.g. automobile) ‘Tey also impose repulation laws and restrictions that help socichy 8 & whole, such as: ‘environmental regulation (¢.8- ‘labor regulation, including minimum wage laws ¢ consumer regulation (e.g, product safety) toxins in land, water, air) «antitrust laws intellectual property laws «incorporation laws ¢ protectionism import and export controls, such as + taxes and fees written or enforoed with manipulation oF the economy. in mind Demerits of mixed economy 1. Possibility of dictatorship- In mixed economy, due to continuous progress: of eases and due to which centralization of commercial sector the power of state incr financial and political sectors takes place, which tends to inerease the possibility of dictatorship. 2, Danger of nationalization always have a threat of nationalizati nation and also due to the threat of nationalization the fore’ to invest in the country. 43, Corruption-The bureaucrats and government officials make arrangements for the industries in mixed economy that’s why the percentage of corruption increases. 4. Lack of efficient operation- In mixed economy due to Jack of coordination between the factors there is always lack of efficiency in operations. It is very difficult to form a situation of equilibrium in such type ‘of economy. 5, Danger to Democracy- In mixed economy due 10 nationalization on the name of public welfare, the private sectors come to an end, And which being a danger for the democracy of the country. = tn mixed economy, the private sector enterprises ion, Due to which they never give full coordi- gn countries also fearsBeonomies _ ae em exists at all It ish muntry according 0 its ows rll by the governmen tism, delay, corruption ang - work like @ machine ang eee oo Dchel activities and, therefore, i rosperity of the economy. jomy. This expenditure is nomy. , the consumers have 10 e. Therefore in socialism ism the production is choice of the consumers economy, there is always roduetivity lacks behind dom in socialism as the t ended from the society. 1d poors. Its is therefore ¢ equality in socialism. 3s a eonomies ee & a merits and demerits? nic system that features character- YF azcialism, A mixed economic system protects private the use of capital, but also aes for governments (0 interfere in eoonorie ‘activities in order to achieve social % 7 xcoording to neoetasical theory, mixed ‘economies are less efficient than pure terventions argue that the base con i foe market, but proponents of government IM sions such as equal inrormation and rational ‘market participants cannot be achieved ie jn practical application. Pacer exo TELS pet of 6 of a F fing at some pont along a continuum. The public sestt works swith economies fal te sector, but may compete for the same limited resources. Mixed alongside the privat geonomie systems do not block the private secfoF from profit-seeking, but do moni- for profit levels and may nationalize companies ‘that are deemed impediments 10 the public good. The United States is mostly a ee market economy, but it ineor- sae gtection for agriculture and manufacturing by through tes elements such de restrictions and subsidies. This makes the United States a mixed economy by definition. In other words, An economic system in which both the private enterprise and ‘a degree of state monopoly (usually ‘in public services, defense, infrastructure, and basic industries) coexist. ‘All modern economies are mixed where the means of production are shared between the private and public sectors. Also called dual economy. 1. Mixed Economy is a two ‘Wheel economy in which Private Sect Sector run together. Im other words—it is neither pure capitalism nor pure socialism but it is the mixture of the two. In this economy private enterprise is not permitted to function freely and un- controlled, The Government intervenes to control and regulate private enterprise. 2, Hanson has written that—"Mixed Economy is a golden mean by socialism and capitalism”. 3, Joseph BE, Stigtitz, has defined the concept in a much more simple manner. He says that Mined Eeonomy i "Mixture of Public and Private Decision making” _ 4, Prof. A. Samuelson has defined—"Mixed Eeonomy 85 00 which primarily telies on price mechanism for economic organisation but uses variety of govert> ‘ment interventions, such a8 taxes, spending and regulation to handle macro-eco- nomic instability and market failures.” o Further, a mixed economy implies the operation of both Private Sector and ie ‘Sector, The enterprises in the private sector are not permitted to work freely oe price mechanism and are often controlled by the state in order to stimulate to work within the frame work of the national economic planning &_What is mixed economy? Explain its tor and Public ee 0Economic, 36 Economies: xed economies: fe means of production i.e. farms and facing, ind the Government merely con, | “Types of Mixed | There are two types of mie 1c the ownership of t wa es mntrolled by the private sector at functioning of the private sector. irectly participates in productive enterp,,. 1d type the government direct product “ oa srvests ts ow éapital and purchases or hires the productive resources an¢ a, the risk of profit or loss like an ordinary entrepreneur. ‘There are also Joint Sector which is shared both by Private and the Pubj, j Sector. és ‘The US.A. and the U.K. are prominent examples of first type of mixed economy while India represents the second type of mixed economy. and regulates the Features of Mixed Economy: The following are the main features of the mixed economy: 1. Coexistence of Public and Private Enterprises: ce The main feature of a mixed economy is the co-existence of both Public ani Private enterprises. They work together, The industries in Private Sector are man- aged and operated completely by the Private entrepreneurs. The private entrepre neurs are fully free to develop their industries and to start new industries in this sector, ‘On the other-hand there is Public Sector in which the enterprises are owned and managed by the State. Usually the basic industries like defence, equipment’s, atomi¢ ‘energy, telecommunication, heavy engineering etc. are allocated in the public sector where as the consumer goods industries, small and cottage industries, agricultue ele, are often given to the Private Sector, Besides i. the ie Also ensures to the Private Sector not to inter-venue it lpia tae ai ides several incentives and facilities for the development per gieapaen loning of the sector, so as to make the country’s economy atk economically strong and powerful, _ 2, State Control over Private Sector: ¥ the State imposes certain necess ee ary Measures to regu! rises relating to the private sector, so that they make undertake The Licensing System is conto and teeak ce ete instrument in the hands of the State s ‘Bulates the direction of private industrial investment a” MANY itteurline gai Econom)omics - 4 factories y comers enterpri se F its own and takes he Public economy blic and are man- entrepre- s in this med and , atomic ic sector riculture yenue in lopment conomy 37 Fconomics Production. The other measures of contol over private seotet which it generally mies are appropriate monetary and fiscal policies. As such the State gives them wyates and tax concessions and credit facilities at the reasonable rates, s9 26 ‘roourage the private entrepreneurs to invest thelr savings i the required and right direction. 4. Price Mechanism and State Directions: ‘Other important characteristics of a mixed evonomy may be its operation both by the price mechanism and the stale directives. In the public concern all economic Gecisions relating to production, prices, marketing and investments are taken by the sinte authorities. On the other-hand it is price mechanism which decides all the sector. The private entrepreneurs take important economic policy matters in private vr yaportant ezonomic decisions on the basis of the price and cost analysis of the mmeeket and with an object of realising maximum profits 4. Consumer's Sovereignty is Protected: tn a mixed economy the sovereignty of the consumers is almost protected which is not possible in a socialist economy. The consumers purchase commodi- vies freely from the market of their own choice which are produced by the private entrepreneurs according to the consumer's demand or preferences. The state sometimes imposes price contra} over the goods produced by the ‘against the ruthless exploitation private entrepreneurs so as 10 protect the consumers ederken by the capitalists or producers of the private sector ‘Besides this, the state also introduces public distribution mechanism followed by the rationing of essential. goods in short supply, so that the limited available goods may be fairly supplied and distributed among the people in the society: ‘5. Proper Protection is provided to Weaker Sections of the Society Specially Workers and Labourers: In the initial stage of Industrial Revolution, the producers oF capitalists, ruth- lessly exploited the working class. The state thus realised its responsibility to protect this class from exploitation by the industrialists and produesrs. It is with this view that the state has implemented a number of Labour Acts to and control the working conditions of labour, such laws are Minimum ‘Wages Act; Industrial Dispute ‘Act; The Workman's ‘Compensation Act; The Mater- nity Benefit Act; The Employees State Insurance Act; The ‘Employees Provident Fund Act ete,; provide protection to ‘the workers in respect of employment, injury ‘or casualty by accident, disease, maternity and old age benefits. ‘The state also takes ‘essential steps if there is any dispute arisen in the industry in the interest of the workers, 6. State Takes Measures to Control Monopoly and Concentration of Eco- nomic Powers in the Hands of Few:Economics rnonopotist uses his powers against the interes. ‘economy ; : wasabi tnd warts to realise maximum Profits Out Of his tn, ‘consumers i —- a core pocibe eier by reducing the otal Opt OF by raising y, prices of the commodity. : 1 results in the growing inequalities in the society and enlarging exploit, ‘of the workers. In 1969 MRTP Act was passed to control or festrict Monopolist ay, the concentration of economic power in the Indian economy. 7 Tt Reduces Economic Disparities: ‘4 Mixed Economy is often blamed for stimulating economic disparities in, country. But the states in such economies take necessary steps fo reduce inequaii of income and wealth, The growing inequalities of income usually may disparities of opportunities of education and jobs and may further generate clas, struggle between the rich and poor workers. Ultimately, the entire society may be divided into two major camps the rich ‘the poor or the ‘haves’ and the ‘have not’s”. It is with this view that a welfare always tries to reduce economic disparities through the proper fiscal and cred policies. With the elements or characteristics written above we can come to this conclu ‘that in a mixed economy both sectors-Public and Private work together, On the one hand there are Public and Private work together on the other-hand there a Public enterprises completely owned and managed by the state and the private concems fully organised and managed by the individual owners on the other. However, both the sectors still new a few restrictions to remove or minimise all other economic distortions and disparities existing in the economy; so as ‘0 develop those sectors according to the main stream of the economic developmen’. & Favourable for developed and under developed economies- Mixed economy ‘seems appropriate for developed and under developed countries ,therefore su) countries can opt mixed economy, J eanomiefeedom- In mixed economy thee is freedom of trade but es th economy. PARI MS 08 senda) ka Sie Le ‘Economics -1 ae ‘The ditt 1. The Pr is likely to c2 in Indian Eco! motive syste 2. The t nationalizatic private entre 3. The ‘performanes planning. ning and hBY OBE Wants ang ly materis een Es, bjection raised ty, ion between eos. ae do not 3, @.g., the many. y talk of welfare Robbins was on ept. It is purely rom age to age. be quantitatively s conductive to ‘guns, tanks and icive to welfare Juded from the Marshall’s defi- alm of ethics. ends. It is not good and whst e ? 1 behaviour as je uses” haracteristics of Robbins’ Definitio mt ited Wants or ends- Hum: N an wants i Ge Getistied, then automaticaly severnt ae ited in number, When- ge it is endless. With the progress in civilization it fa ia , Wants are developed. Again sev Maha selence foo. Hence, wants are ‘ever growing and never ending” ‘wants. They are material and non- material goods like ti _resourees ee, These resources are scarce © time, money lation to Se A commodity may be available in small quantity but if y demands, it then itis not scarce, Hence, the scarce means are the basis of pmnie problems, Because, ifall these means oF resourees ae nt sears then ll be no problem in economics. wre: All the scarce means can be used in more purpose. In other words, they can be used in several purposes. Far in- Sjand is very scarce, but land can be used for construction of buildings, on, playground otc. Likewise, all these economic resol are used for ‘purposes. Thus, in reality goods can te put to alternative uses of varying G) Alternative Use of Resoui (4) Economising Resources ecenomics is how to satisfy he unlimited wants with limited means which have alternative uses. Robbins de- bes this problem as the problem of ‘economising scarce means. In other words, 5 Cassel, “Economics the choice of making of an econore tivity. According € thus a stady of oti ‘The main problem o! ‘kind of economics ¢ science of Scarcity.” Economics 's js economising the resources: z ere " conomig resources leads t9 the Pro 1m of Choice- The problem of eco! a ous and means are es eae ‘Hence, the consumer will select ving to his preference Patter Thus, agessary. Henees Beonomics IS termed 38 2 kh and welfare defini- ‘nied correctly that Robbins’ ny discussed about the problems