/v\A CRO ECOl'-/ O M IC S

CH. -1: 50/vtE 'BASIC CtJNCEPTS OF /vtACR.<'JECONO/vtICS

• Types of goods
1. Final Goods
2. Intermediate goods
3. Consumer goods
4. Capit al goods

Final Goods Intermediat e Goods ~ ,

1. Are those goods which have cross t he 1. Are those goods whidi ,hav.i"no cross
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boundary li ne of production and ready the boundary line~ f p'(odaction, value
for use by t heir fin al use rs . is sti ll to be add~tl ttf fJtese goods, and
are not ready{ ft!ir 'u~ ' by their final
users.
2. These goods are not resold and useo as 2. These ma\i be resold by the firms and
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raw material. use ~.,.
;,-aw materia .
3. Val ue is not to be added t o these 3. -Xlalu'e !$~ Vet to be added to these
II ~nd~. '
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goods.
~ he~ goods are not included in th e
I 4. These goods are included in estimation '
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of national product or national income. estimation of nationa l product o r
5. Sugar purchased by household . national incom e.
i Sugar purchased by retailer.

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• Consumer expendit tif\e,-:s

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,,, on'Sllmption expenditure
• Producer expe~~itLI_(e = ~ estment expenditure
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• lntermediat_e e~ eri'diture = Intermediate consumption
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' GOODS

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'~,\ FINAL GOODS INrFR/vtE VIA rE GOODS
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C.oil\,s l,{vu.er goocis ccrp [te1L goocis

CONSUMER GOODS:- These are those goods which are directly used for satisfaction of human wants.

Consumer goods are classified into four categories:-

 sAN AY c LAs.ses
=-
h·ch ca n be used fo r severa l ye ar s and are
l. Durable co nsumer goods:- Th ese are t ho se goods w r
of relat 11,ely , igh value.
E.g _T. V. Car Fun Iture etc. h" h n be used for a period o f o ne
- t h e goods w ic ca
2. Semi- durable con sumer good s:- Th -=~e are os
year or shg, tly more.
E g : clothes, furniture etc. d hich are u sed u p in a
d . These are t hose goo s w
3. Non-du ra ble or si ngle use co nsum er goo s.-
s1ngle act o f consumpt ion.
E g ink. gas. m tlk etc . h ant s
Serv ices Serv1ce>s arc t hose' no n-material goods which directly satisfy uma n w ·
4
[ g . Doctor, La\-VVPr etc

a ds are not capital goods.

• 1\11 capital {!nod '- arc produc<'r goods, but a II pro d uce r go

IN VESTMENT

't mc,ms .iud1tron m, de l ::) -,1ock o f I ap1tal ch, ring a period .

Ith 1', l ,\ O com~ 011 '! h -

• l-1 , 1.: 1 11\ 1•<..tr1,,nt

• llVt'ntOI . ,, esll' l ' Ill

FIXF D INVESTM ENT: It m ea ns rn vest~ent in fixed ca pit al

... OR
Increase in t hE stock of fixed ;;issPt swrth the producers d uring an account ing vea r s.

f IXED NVESTM f NT= CAl'ITAL STOCK AT TH E END CAPITAL STOCK IN BEGI N N ING

2 INVENTOR Y INVESTNtENT: It refers to investment In stock o f ra w material, se mi -fini sh ed

goods ar d finish ed lloocJ s.
OR
Change in inventory stock during an acco unting year is call ed inve nto ry investmen t .

• INVENTORY INV ESTM EN r=INVENTOER Y STOCK AT T HE EN D - INVENTORY STOCK IN

THE BFGI NNI NG.

3. GROSS INVESTM ENT:- It means t hat expend iture only fo r purchase of f ixed asset s p lus
expenditure on t he inventory stock during the y ea r .

., GROSS INVESTME NT= FI XE D INVESTM ENT + INVENTO RY INVESTM ENT

OR
= N ET INVESTM ENT + D EPRICIATION

• N ET INVESTM ENT= GROSS INVESTMENT - DEPRICIATION

DEPRICIATION :- It mea ns that loss o f value o f fixed assets d ue t o usage ,tim e and norm al w ear and t ea r .
 = = = = -~ = = == = = = = - =-= = ~ ~
S -&il!A Y CLASS SS
DEPRICIATION REVENUE FUND :-lt is provision of f und to cope with depreciation losses. These fu nds are
used for the replacement of fix ed assets. W hen t hey are worn out or when they become o bsolete and
out dated.

CAPITAL LOSS :- It refers t o loss in value of the fixe d assets due t o unforeseen obsolescence , nature
calamities, theft s, accidents etc.

INTERSECTORAL FLOWS:- <'."l.

" REAL FLOW: ("' , '~ ~"'
It ref ers to the flow of goods and serv ice amo ng different sectors of thetec~ -o my.
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Goods & Services - - - - - - - - - =st,,. 1't.. ,

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Household Sector ducer Sector

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Factor Service
(Land, Labou r, Capital, Entreprene ur)

MONEY FLOW: ~
It refers to t he flow of 'mo~v,"'a\ong different sectors of economy.
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\. Factor Payment
Rf nt , interest , wages, profit)
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H~ tiold Sector
~~, -·· Producer Sector

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Payment for Goods & Service:>---- - - - '\
 ·s Ar--:UAY C,LAss ss

Circular flow: - Circula r fl ow of in come shows th e linkages amon g t he economic secto r {ho usehold and
producer) .How mo ney flow among t he sect or of eco nomy.

Income Expen ~e
~------ ◄ ---~~
MARKET FOR FACTOR OF PRODUCTION ..
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t
HOUSEHOLD SECTOH '·1,i oDUCER SECTOR
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Expe nditure
M ARKET FOR GOODS AND srnv1ct\~,;i>;.
'\ :! Revenue
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Th ere is a flow of income t o househo ld sect or in th e ~ti;!J~ factor income i.e. rent, w ages, interest and
profi_t fro m_th e _!,ii.m . House ho ld makes pay meru, to: ~~~8ducin g sec_tor for goods and se rvi ces . Firm
rece ive its income from th e househ old 1n ret rn l1!ira tri~ good s and serv ice s. The produ cing sector makes
fa ct or paym ent to t he hou se hold sector for: th
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acto r se rvices.