EE Notes

Difference between macroeconomics and microeconomics

Microeconomics Macroeconomics

The branch of economics that studies the The branch of economics that studies the
behaviour of an individual consumer, firm, behaviour of the whole economy, (both national
family and international)

Individual economic variables Aggregate economic variables

Applied to operational or internal issues Environment and external issues

Demand and Supply Aggregate Demand and Aggregate Supply

It assumes that all macro-economic variables It assumes that all micro-economic variables are
are constant constant

Theory of National Income, Aggregate

Theory of Product Pricing, Theory of Factor
Consumption, Theory of General Price Level,
Pricing, Theory of Economic Welfare.
Economic Growth.

Covers various issues like demand, supply, Covers various issues like, national income,
product pricing, factor pricing, production, general price level, distribution, employment,
consumption, economic welfare, etc. money etc.

Helpful in determining the prices of a product Maintains stability in the general price level and
along with the prices of factors of production resolves the major problems of the economy like
(land, labour, capital, entrepreneur etc.) inflation, deflation, reflation, unemployment and
within the economy poverty as a whole

It is based on unrealistic assumptions, i.e. In It has been analysed that 'Fallacy of Composition'
microeconomics it is assumed that there is a involves, which sometimes doesn't prove true
full employment in the society which is not at because it is possible that what is true for
all possible aggregate may not be true for individuals too

Difference between Factor Income and Transfer Income

Basis Factor Income Transfer Income

The income received by factors of
Meaning production for rendering factor services
in the production process.
Concept Factor Income is an earning concept.
Factor Income is included in both
Nature Domestic Income and National Income of
an economy.
The income received by an individual
without rendering any productive
service in return.
Transfer Income is a receipt concept.
Transfer Income is neither included in
Domestic Income nor in the National
Income of a
n economy.
 Factor Income is received by the factors
Transfer Income is received by the
Recipient of production, i.e., labour, land, capital,
households and the government.
and enterprise.
Scholarship, Unemployment Allowance,
Example Wages, Rent, Interest, and Profit.
Gifts, Old Age Pensions.

Difference between Final Good and Intermediate Good

Difference between Consumption Good and Capital Good

Basis Consumption Goods Capital Goods

Consumption goods are the goods
Meaning that satisfy the wants and needs of a
consumer directly.
Consumption goods directly satisfy
Satisfaction of
human wants and thus have a direct
Human Wants
demand in the market.
Most consumption/consumer goods,
Expected Life except durable goods have limited
expected life.
Production Consumption goods do not promote
Capacity the production capacity of a firm.
Capital goods are physical assets that
an organization uses in the process of
production to manufacture products
and services that consumers will use
later.
Capital goods indirectly satisfy human
wants and thus have derived demand.
Generally, capital goods have an
expected life of more than one year.
Capital goods help a firm in raising
production capacity.
Difference between Depreciation and Capital Loss

Barter Exchange and Its Limitations

The Barter system of the economy refers to the exchange of goods and services without the use of
money. For instance, if a carpenter needs rice and wheat to prepare food for his family, he or she
will trade the farmer some goods or services of equivalent value for the rice and wheat.
Limitations/Drawbacks of the Barter Exchange System:

• Lack of Common Measure of Value: One of the disadvantages of the Barter system is having no
common unit to measure the worth of goods and services. Hence, the problem arises with the
proportion of goods to be shared.
• Lack of Double Coincidence of Wants: It is unlikely that two people want to exchange their
products or services at the same time. If one needs a product, it is possible that the other person
might not have the demand for the product offered in return.
• Problems in Storing Wealth: Unlike money, it is difficult to store goods and services for a longer
duration of time. Products must be consumed within a specific time frame. Hence, there is
difficulty in storing wealth in the Barter system.
• Division of Certain Products is not possible: A trader cannot divide certain goods such as shoes,
animals, cupboards, etc in half. Therefore, coming at a common rate of exchange becomes
difficult.
• Lack of Specialization: In the Barter system, a high specialization is difficult to achieve.
• Difficulty in Making Future Payments: Having a debt contract for future payments is difficult to
make in the Barter System.
GDPmp - Gross Domestic Product at market price refers to the market value of final goods and
servicess produced within the domestic territory of a country during the period of an accounting
year, inclusive of depreciation.
GDPmp = GDPfc + NIT (Net Indirect Tax)
NNPfc - Net National Product at factor price is the sum total of factor incomes earned by normal
residents of a country during the period of an accounting year.
NNPfc = NNPmp - NIT

Evolution of Money
Money is anything that is generally accepted as a mode for payment of goods & services and
repayment of loans & debts such as taxes, etc., in a particular nation or country. The term money
covers everything, like currency notes, coins, cheques, etc., to carry out all economic transactions
and settle claims. Money has evolved through various stages. The stages are as follows:
1. Commodity Money - In the ancient trade or barter system, any commodity that was demanded
or selected with the consent of both parties and has some value was used as money. For
example, wheat, clothes, fur, metal, salt, etc., were used as money. But after the introduction
of commodity money, gold or silver coins were used as money.
2. Metallic Money - With the progress of the trade, commodity money was converted
into metallic money. Metals like silver, copper, gold, etc., were commonly used as they are easy
to use and their quantity can be easily determined.
3. Paper Money - It was very difficult and unsafe to carry gold and silver coins from place to place,
therefore, paper money was invented. The invention of paper money was the most important
stage of money evolution. It is controlled and regulated by the Reserve Bank of India (the
Central Bank).
4. Credit Money - Credit money was invented along with paper money; people keep a part of their
cash or savings as bank deposits and withdraw them with the help of cheques as per their needs
or requirements. The cheque (credit money or bank money) is not money in reality but
performs all the functions similar to money.
5. Plastic Money - Plastic money is the latest type of money in the form of debit and credit cards.
The main aim of plastic money is to reduce the need of carrying cash everywhere to make
transactions.

Money Supply
The money supply is the sum total of all of the currency and other liquid assets in a country's
economy on the date measured. The money supply includes all cash in circulation and all bank
deposits that the account holder can easily convert to cash.
Functions of Money
1. Primary functions of money:
a. Money as an Exchange Medium - Money can be used for any or all transactions wherein
goods or services are purchased or sold.
b. A measure of Value - Money can be treated as the parameter of measuring the value of a
product or service. The money also follows a standard and is accepted worldwide even
though the currency does differ from one country to another.

2. Secondary Functions of Money:

a. Store of Value - Being crucial functions of money, it can be stored or conserved. One can
store it for future purposes, and it is economical as well as convenient to store money.
 b. Standard of Deferred Payments - Money can be used conveniently for deferred payments
which need to be paid by individuals. It has become the standard for payments made
presently or in the future. For instance, if someone borrows a certain amount from another
individual, they need to repay the amount with interest. With money in purview, it is
convenient to pay the interest or make deferred payments.
c. Transfer of Value - One can sell or purchase goods in the domestic or international market
with money as a standard tool.

Law of Demand
Law of demand states that there is an inverse relation between the price of a commodity and its
quantity demanded, assuming all other factors affecting demand remain constant. It means that
when the price of a good falls, the demand for the good rises and when price rises, the demand falls.
Law of demand may be explained with the help of the following demand schedule and demand
curve:

Causes of Law of Demand:

• Income effect: When the price of a commodity falls, the real income of the consumer, i.e., his
purchasing power increases. As a result, he can now buy more of a commodity. This causes
increase in the quantity demanded of the good whose price falls.
• Substitution effect: When the price of a commodity falls, it becomes relatively cheaper than
others. This induces the consumer to substitute this cheaper commodity for the other goods
which are relatively expensive. This causes increase in quantity demanded of the commodity
whose price has fallen.

Exceptions to Law of Demand:

• Giffen goods - They are products that are substandard or inferior goods when compared to luxury
products. As their cost increases, the quantity demanded will also increase.
• Veblen Goods - Veblen goods are the ones whose demand increases with their price. They
become more valuable with their price rise. Like a high-priced gold necklace, it's more desirable
to the customer than the one with lower costs. A cell phone model with a high cost has more
demand in the market.
• Price Change Exception - There might be a situation when the price of a product or service
increases and is subjected to future growth. So, the customers may buy more of it to avoid further
cost increment. Eventually, there are times when the price of a product is about to decrease.
Consumers may temporarily stop the purchase to avail of the future benefits of price decrement.
• Necessary Goods - The Demand for essential goods stays intact even if there’s a price rise. People
can’t stop purchasing the products of regular necessities. For example, if the cost of salt
increases, consumers won't be able to afford it.
• Luxury Goods - In such cases, even if the price increases, the consumer won't stop consumption.
Cigarettes and alcohol typically come in this category.
• Income Change - If a family's income increases, they may choose to buy a specific product in
more quantity, no matter the price. Again, if the family's income decreases, they can select to
reduce product consumption to an extent.
Supply - Supply in economics is defined as the total amount of a given product or service a supplier
offers to consumers at a given period and a given price level. It is usually determined by market
movement. For instance, a higher demand may push a supplier to increase supply.

Law of Supply
It states that, all other factors being constant, as the price of a good or service increases, the quantity
of that good or service that suppliers offer will increase, and vice versa. In plain terms, this law
means that as the price of an item goes up, suppliers will attempt to maximize their profits by
increasing the number of that item that they sell.
Factor affecting Law of Supply

• Price and demand forecasts - Many businesses base their production plans on forecasts of future
demand and pricing, not just on what customers are currently buying. Furthermore, if a product's
price is expected to increase, businesses may hold back stock so they can make a larger profit in
the future.
• Production costs - The law of supply assumes that companies can increase profits by selling more
goods or services when prices rise, which provides them with an incentive to increase the supply.
But if the price rises reflect increased production costs, that may not be true. On the other hand,
if production costs fall and prices remain stable, profits increase and so does the incentive to
supply more pizzas.
• Competition - New suppliers may enter the market even if prices are not increasing and demand
is stable. Often, these new suppliers aim to offer products at lower prices than existing providers.
• Technology - Technology can enable companies to make and sell more products at a lower cost,
thus increasing the available supply.
• Transportation - Transportation delays or rising shipping costs can affect a company's ability to
increase its supply of goods. If goods can't move from warehouses to retail shelves, they can't be
purchased by customers and don't count toward the market supply.
• Availability of raw materials and labour - A business may want to increase the supply of a
product but unable to do so because it can't purchase the raw materials or hire the people
required to produce it.

Circular Flow of Income

• It is defined as the flow of payments and receipts for goods, services, and factor services between
the households and the firm sectors of the economy.
• A simple economy assumes that there exist only two sectors, i.e., Households and Firms.
• Households are consumers of goods and services and the owners of the factors of production
(land labour, capital, and enterprise).
• Firm sector produces goods and services and sells them to households.
• Households provide the firms with the factors of production, namely Land (Natural Resources),
Labour, Capital, and Enterprise that generates goods and services, and consumers spend their
income on the consumption of these goods and services.
• The firms then make factor payments to households in the form of rent, wages, interest, and
profit.

Concept of Cost
It refers to the amount of payment made to acquire any goods and services. In a simpler way, the
concept of cost is a financial valuation of resources, materials, risks, time and utilities consumed to
purchase goods and services.

• Total Cost – It refers to the overall cost of production, which includes both fixed and variable
components of the cost. In economics, the total cost is described as the cost that is required to
produce a product.
• Average Cost – It refers to the per-unit cost of production, which is calculated by dividing the
total cost of production by the total number of units produced. In other words, it measures the
amount of money that the business has to spend to produce each unit of output.
• Marginal cost – It is the increase or decrease in the cost of producing one more unit or serving
one more customer.
 • Life Cycle Cost - It is the total cost associated with an asset starting from its initial cost to its end
of life. It is the total cost of ownership over the life of an asset.
• Sunk Cost - It is a cost that has already been incurred and cannot be recovered.

Difference between Commercial and Central Bank

Commercial Bank Central Bank

An institution that performs different functions

An apex body that controls, operates,
like accepting deposits, making investments
regulates, and directs a country’s banking and
with the motive of earning profits, and granting
monetary structure.
loans.

A commercial bank can be owned and governed The central bank is usually owned and governed
by the private sector or government sector. by the government.

A commercial bank does not have the power to The central bank has a sole monopoly on issue
issue currency. of currency.

The basic aim of a commercial bank is The central bank does not have a profit motive
maximisation of profits. and works in the public interest.

A commercial bank directly deals with the The central bank does not directly deal with the
public. public.

There are a huge number of commercial banks

There is only one central bank in a country. For
in a country. For example, different commercial
example, the central bank of India is the
banks in India are the State Bank of India,
Reserve Bank of India.
Canara Bank, Punjab National Bank, etc.

Functions of Central Bank

• Regulator of Currency - The main function of the central bank is to print currency notes and RBI
has the sole right in the country for this operation. RBI prints money of all denominations apart
from 1 rupee note and coins. It is the ministry of finance that issues 1 rupee note and coins.
• Banker and Advisor to the Government - This role of the central bank is of a fiscal agent to the
government where the RBI keeps the deposits of both central and state governments. It also
makes payments on behalf of the government, along with buying and selling foreign currencies.
 The various functions of a reserve bank as an advisor are to tender useful suggestions to the
government regarding monetary policies and other economic matters.
• Custodian of Commercial Banks (Banker’s Bank) - As per law, commercial banks need to keep a
reserve that is equal to a certain percentage of the NDTL (net demand and time liabilities). These
reserves help commercial banks clear cheques by transferring funds from one bank to another.
The resee bank facilitates these transactions as it acts as a custodian and lender of cash reserves
to the commercial banks.
• Custodian and Manager of Foreign Exchange Reserves - To keep the rates of foreign exchange
stable, the reserve bank buys and sells foreign currencies at international prices. If the supply of
foreign currency decreases in the economy, RBI sells them at foreign exchanges, and in case of
surplus supply, it buys them. RBI is also an official reservoir of foreign currencies and gold. RBI
sells gold to monetary authorities of other countries at fixed prices.
• Lender of the Last Resort - The RBI grants accommodation to commercial banks, financial
institutions, bill brokers, etc. in the form of collateral advances or re-discounts. This step is taken
in times of stress so that the financial structure of the country is saved from collapsing. This
lending is done on the basis of government securities, treasury bills, government bonds, etc.
• Controller of Credit - The Reserve bank of India controls the credit created by commercial banks.
The credit flow in the country is regulated by means of two methods; quantitative method and
qualitative method. RBI applies tight monetary policies when it observes that there is enough
supply of money which may cause an inflationary situation. It squeezes the money supply to keep
inflation in check.

Functions of Commercial Bank

• Accepting Deposits – Commercial banks accept deposits from their customers in the form of
saving, fixed, and current deposits.
• Savings Deposits – Savings deposits allow a customer to credit funds towards their accounts for
up to a certain limit. These deposits are preferred by individuals with a fixed income, utilized to
create savings over time.
• Fixed Deposits – Fixed deposits come with a predetermined lock-in period. Fixed deposits are
also referred to as time deposits as the funds are deposited for a specific time frame.
• Current Deposits – Current deposits allow account holders to deposit and withdraw money
whenever necessary. In some cases, current accounts also offer overdrafts until a pre-specified
limit to individuals and businesses.
• Providing Loans – One of the main functions of commercial banks is providing credit to
organizations and individuals, and profit from the earned interest. Usually, banks retain a small
reserve for their expenses while offering the remaining amount to customers as various types of
short and long-term credits.
• Credit Creation – A unique function of commercial banks is credit creation. Instead of offering
liquid cash, banks create a line of credit and transfer the loan to a business or commercial body
all at once.
Types of Inflation
Inflation refers to a monetary phenomenon where price rises due to increase of money in circulation
and is not accompanied by such an increase in output. Inflation may be classified
On the basis of its Cause:
i. Demand Pull Inflation - This is when the aggregate demand in an economy exceeds the
aggregate supply. This increase in the aggregate demand might occur due to an increase in
the money supply or income or the level of public expenditure.
ii. Cost Push Inflation - Cost push inflation is caused by an increase in production cost, which
may be due to following three factors:
a. an increase in wages
b. an increase in profit margin
c. imposition of heavy commodity taxes

On the basis of its Rate of inflation as:

i. Creeping Inflation - When prices increase slowly, without increase in supply of products (up
to 03% per annum) it is called creeping inflation.
ii. Running Inflation - If the price rises at the rate of 10-20 per cent per annum, it is referred as
running inflation.
iii. Galloping Inflation or Hyper Inflation- If it exceeds 20 [er cent per annum, it may be
described as ‘galloping inflation’.

Measures to Control Inflation

1. Monetary Measures
a. Credit Control – Central Bank raises the bank rates, sells securities in the open
market, raises the reserve ratio, and adopts a number of selective credit control
measures, such as raising margin requirements and regulating consumer credit.
b. Demonetisation
c. Issue of New Currency
2. Fiscal Measures
a. Reduction in Unnecessary Expenditure by Govt
b. Increase in taxes
c. Increase in savings by Citizens

Fiscal Policy
Fiscal policy is defined as the policy under which the government uses the instrument of taxation,
public spending and public borrowing to achieve various objectives of economic policy. Simply put,
it is the policy of government spending and taxation to achieve sustainable growth. The word fiscal
has been derived from the word ‘fisk’ which means public treasury or Govt funds. A healthy fiscal
policy is important to control inflation, increase employment and maintain the value of money.
 The government has two variables to influence fiscal policy:

1. Taxation- regulating which the government increases or decreases the disposable cash in
the hands of the public.

2. Government spending- using which the government invests in public infrastructural works
and other social welfare schemes that directly or indirectly influence the state of the
economy.

Objectives of the Fiscal Policy:

1. Higher Economic Growth

2. Price Stability
3. Reduction in Inequality

Components of the Fiscal Policy of India:

1. Government Receipts
2. Government Expenditure
3. Public Debt

Monetary Policy
Monetary policy is adopted by the monetary authority of a country that controls either the interest
rate payable on very short-term borrowing or the money supply. The policy often targets inflation
or interest rate to ensure price stability and generate trust in the currency. The monetary policy in
India is carried out under the authority of the Reserve Bank of India.
Main Objectives of Monetary Policy

• Simply put the main objective of monetary policy is to maintain price stability while keeping in
mind the objective of growth as price stability is a necessary precondition for sustainable economic
growth.
• In India, the RBI plays an important role in controlling inflation through the consultation process
regarding inflation targeting. The current inflation-targeting framework in India is flexible.

Quantitative Tools of Monetary Policy (Quantity and Volume of Money)

• Bank Rate Policy: Also known as the discount rate, bank rates are interest charged by the RBI for
providing funds and loans to the banking system. An increase in bank rate increases the cost of
borrowing by commercial banks which results in the reduction in credit volume to the banks and
hence the supply of money declines. An increase in the bank rate is the symbol of the tightening
of the RBI monetary policy. As of 31 December 2021, the bank rate is 4.25 %.
• Statutory Liquidity Ratio (SLR): All financial institutions have to maintain a certain quantity of
liquid assets with themselves at any point in time of their total time and demand liabilities. This
 is known as the Statutory Liquidity Ratio. The assets are kept in non-cash forms such as precious
metals, bonds, etc. As of December 2019, SLR stands at 18.25%.
• Open Market Operations: An open market operation is an instrument which involves
buying/selling of securities like government bond from or to the public and banks. The RBI sells
government securities to control the flow of credit and buys government securities to increase
credit flow.
• Cash Reserve Ratio (CRR): Cash Reserve Ratio is a specified amount of bank deposits which banks
are required to keep with the RBI in the form of reserves or balances. The higher the CRR with
the RBI, the lower will be the liquidity in the system and vice versa. As of 31st December 2019,
the CRR is at 4%.
• Repo Rate - Repo Rate is the rate at which the country's central bank, which is RBI in India, lends
money to commercial banks during financial crisis. In other words, commercial banks borrow
money from the Reserve Bank of India by selling securities or bonds with an agreement to
repurchase the securities on a certain date at a predetermined price.

Qualitative Tools of Monetary Policy (Credit Control)

• Change in Marginal Requirement - The term "margin" refers to the percentage of a loan that is
not offered or financed by the bank. A change in the loan size can be caused by a change in the
marginal requirement. This device is used to boost credit supply for necessary sectors while
discouraging it for non-essential ones. This can be accomplished by raising the marginal of
unneeded sectors while lowering the marginal of other sectors in need.
• Regulation of Consumer Credit - Consumer credit supply is regulated by the instalment of sale
and hire purchase of consumer goods. Features such as instalment amount, down payment, loan
period, and so on are all pre-determined, which aids in the control of credit and inflation in the
country.
• Credit Ceiling - With this instrument, RBI issues prior information or direction that loans to the
commercial bank will be given up to a certain limit. In this case, a commercial bank will be tight
in advancing loans to the public. They will allocate loans to limited sectors. A few examples of
credit ceiling are agriculture sector advances and priority sector lending.
• Direct Action - The central bank (RBI) can punish and impose sanctions on banks for not following
the guidelines provided under the monetary policy.

Business Cycle
• The Business Cycle refers to the vast economic fluctuations in trade, production, and general
economic activities.
• It is also known as the boom-bust Cycle or Economic Cycle.
• If we look at it conceptually then, the Business Cycle refers to the up and down movements of
the GDP and refers to widespread expansions and contractions in the level of Economic booming
and activities.
• The Business Cycle graph is never constant. Depending on the Economic standout, the rise and
fall of the curve occur.
5 Phases of Business Cycle
i. Depression - During depression, there is pessimism in the market, which is reflected in the
persistent lack of demand. To adjust with the decreased demand, management introduces
economic measures like stoppage of waste, introduction of greater efficiency, cutting of
wages or even retrenchment of staff to reduce cost of production per unit. Thus, ultimately,
they will be able to reduce prices. Lower prices reduce profit margin. So, it will have
cascading effect on other sectors and ultimately, these sectors will also have lack of demand.
ii. Phase of Recovery - Depression gives place to recovery. To create demand, they add value
to the existing products through technological innovations. Gradually, pessimism gives way
to optimism. There is greater demand for goods and services and consequently, there is
increased production. Prices start rising, so, wages, interest and profits too. Employment and
income increase which ultimately leads to increase in national income. There is increase in
investment, bank loans and advances, increase in the velocity of circulation of money due to
more brisk trade.
iii. Phase of Full Employment - The cumulative process of recovery continues till the economy
reaches full employment. It means all the available resources are fully employed. Wages,
interests and profits are high, output and employment are highest under the given
technological circumstances.
iv. Phase of Inflation - Beyond a level of full employment, rise in investment may lead to
increased pressure on resources. If any of the resources fails to deliver at the existing price
and asks for higher money, it distorts the cost calculation and then management realizes
that they have over-invested. The over-optimism paves way for pessimism, which leads to
recession.
v. Recession - The over-optimism of the boom gives way to pessimism characterized by feeling
of doubt and fear. Though the process of revival is generally very gradual but crash of the
boom is always sudden and sharp. Business expansion stops, orders are cancelled and
workers are laid off. This period is painful because of widespread unemployment.
Difference between Free Trade and Protectionism

Aspect Free Trade Protectionism

A policy that allows goods and

A policy that restricts imports through
services to flow between countries
Definition various measures to protect domestic
with minimal or no trade barriers,
industries from foreign competition.
such as tariffs, quotas, or subsidies.

Minimal or no trade barriers, Imposes trade barriers, including tariffs,

Trade Barriers promoting open markets and free import quotas, and subsidies to protect
competition. domestic industries.

Can lead to inefficiencies by protecting

Tends to promote economic efficiency
Economic less competitive domestic industries,
by allowing resources to be allocated
Efficiency potentially leading to higher prices and
based on comparative advantage.
reduced consumer choices.

May reduce competition in protected

Encourages competition, which can
industries, leading to less incentive for
Competition drive innovation, lower prices, and
innovation and efficiency
improve product quality.
improvements.

Generally, leads to lower consumer

Consumer May result in higher consumer prices
prices due to increased competition
Prices for protected domestic products.
and access to cheaper imports.

Can pose challenges for domestic

Provides protection to domestic
Domestic industries facing stiff foreign
industries but may hinder their
Industries competition but can encourage
competitiveness in the long term.
innovation and specialization.
 May lead to job displacement in less Tends to protect jobs in specific
Job Creation competitive industries but can create industries but may limit overall job
jobs in export-oriented industries. creation and economic growth.

Can lead to trade disputes, tensions,

Fosters positive international
International and trade wars when other countries
relations by promoting cooperation
Relations retaliate with their protectionist
and interdependence among nations.
measures.

May result in trade deficits or Often used to address trade imbalances

surpluses depending on comparative by restricting imports and promoting
Trade Balance
advantages and preferences for exports, potentially achieving a trade
certain goods. surplus.

Countries in the European Union,

Tariffs imposed by the United States on
NAFTA (before its transformation into
steel and aluminium imports, or China's
Examples the USMCA), and many World Trade
protectionist measures to support its
Organization (WTO) members
domestic industries.
practice free trade.

Difference between Balance of Payment and Balance of Trade

Basis Balance of Payment Balance of Trade

Balance of Payment is a statement of

all transactions
Balance of Trade refers to the
between entities in one country and
Meaning difference between the
the outside world
Export and Import of goods.
over a specified time period, such as
a quarter or a year.

Balance of Payment includes visible

items, invisible items, Balance of Trade includes only
Components
unilateral transfers, and capital visible items.
transfers.
 Basis Balance of Payment Balance of Trade

All transactions of capital nature are

It records transactions related to
Records included
goods only.
in the Balance of Payment.

Capital All transactions of capital nature are Transactions of capital nature are
Transfers included not included
/Transactions in the Balance of Payment. in the Balance of Trade.

Balance of Payment is a wider Balance of Trade is a narrow

Scope concept concept and is a part of
and includes Balance of Trade. Balance of Payment account.

Balance of Payment gives a clear view Balance of Trade gives a partial

Economic View of the view of the
country’s economic position. country’s economic status.

Both receipts and payment side of The result of Balance of Trade can
Result the Balance be favourable,
of Payment account tallies. or unfavourable or balanced.

Unfavourable BoP cannot be settled Unfavourable BoT can be settled

Settlement
out of favourable BoP. out of favourable BoT.

Dumping
Dumping is the sale of a good abroad at a price lower than the selling price of the same good, at the
same time, and in the same circumstances at home. Dumping may be classified into two categories:
1. International Dumping - It means occasional foreign sales below the home price or even
below the cost of production with some specific objective. Few such objectives are
mentioned below:
(i) In a market, prices are temporarily low because of a recession.
(ii) To establish a foothold in a foreign market.
(iii) To drive out an existing foreign competition or to force it to join a cartel.
(iv) To dispose of occasional domestic surplus, which might result from optimistic
production plans or from a decline in demand.
(v) To dispose of remnants at the end of the season, which are almost unsaleable
at home.
 (vi) To obtain badly needed foreign exchange. It is this kind of dumping which is
very disturbing for the importing countries.
2. Persistent Dumping - It means continuous sales abroad at prices lower than those charged
at home. It may be done due to difference in the demand curves for a particular
commodity in different countries. If, for instance, the domestic demand curve is inelastic
and the foreign demand curve is highly elastic, it will be profitable for the producer to
charge a comparatively lower price and sell larger volume in the foreign market.

Subsidy
A subsidy is a benefit given to an individual, business, or institution, usually by the government. It
can be direct (such as cash payments) or indirect (such as tax breaks). The subsidy is typically given
to remove some type of burden, and it is often considered to be in the overall interest of the public,
given to promote a social good or an economic policy.

Difference between Tax and Subsidy

Aspect Tax
A mandatory payment imposed by
the government on individuals or
Definition businesses, usually based on income,
profits, consumption, or specific
activities.
Subsidy
A financial incentive provided by the
government to individuals,
businesses, or industries to encourage
or support certain activities or
behaviours.

Generate government revenue and Allocate government funds to

Purpose discourage or reduce the taxed encourage or support a particular
activity. activity or industry.

Generally, leads to an increase in the

Tends to reduce the price of goods or
price of goods or services, as the tax
Effect on Price services, making them more
is often passed on to consumers in
affordable for consumers.
the form of higher prices.

Typically reduces the demand for the
Impact on
taxed goods or services, as higher
Demand
prices can discourage consumption.
Increases demand for subsidized
goods or services, as lower prices
make them more attractive.

Can reduce the supply of taxed goods
or services if businesses find them
Impact on Supply
less profitable due to higher
production costs.
Encourages an increase in the supply
of subsidized goods or services as
businesses are incentivized to produce
more.

Generates revenue for the Requires government expenditure to

Government
government, which can be used to provide the subsidy, resulting in a
Revenue
fund public services and programs. budgetary cost.
 Income tax, sales tax, excise tax, Agricultural subsidies, renewable
Examples value-added tax (VAT), and carbon energy subsidies, and healthcare
tax are examples of taxes. subsidies are examples of subsidies.

Taxes often discourage certain Subsidies encourage desired

Impact on behaviours or activities, such as behaviours or industries, such as
Behaviour smoking (via sin taxes) or carbon promoting clean energy or supporting
emissions (via carbon taxes). small farmers.

Can be used for income Can lead to redistribution by

redistribution by taxing higher supporting specific groups or
Redistribution
incomes at higher rates and industries, but its effects on income
providing social welfare programs. distribution can vary.

Subsidies may be favoured by certain

Taxes can be politically contentious,
Political interest groups or industries and can
as they can lead to opposition from
Considerations be used for political support or
affected groups and voters.
economic development.

Law of Variable Proportion

It is referred to as the law which states that when the quantity of one factor of production is
increased, while keeping all other factors constant, it will result in the decline of the marginal
product of that factor.
Law of variable proportion is also known as the Law of Proportionality. When the variable factor
becomes more, it can lead to negative value of the marginal product.

Stages of Law of Variable Proportion

1. First Stage or Stage of Increasing returns: In this stage, the total product increases at an
increasing rate. This happens because the efficiency of the fixed factors increases with
addition of variable inputs to the product.
2. Second Stage or Stage of Diminishing Returns: In this stage, the total product increases at a
diminishing rate until it reaches the maximum point. The marginal and average product are
positive but diminishing gradually.
3. Third Stage or Stage of Negative Returns: In this stage, the total product declines and the
marginal product becomes negative.

Law of Equi-Marginal Utility

Law of Equi-Marginal Utility explains the relation between the consumption of two or more products
and what combination of consumption these products will give optimum satisfaction. Marginal Utility is
the additional satisfaction gained by consuming one more unit of a commodity.
Law of Diminishing Marginal Utility
The law of diminishing marginal utility explains that as a person consumes an item or a product, the
satisfaction or utility they derive from the product wanes as they consume more and more of that
product. For example, an individual might buy a certain type of chocolate for a while. Soon, they
may buy less and choose another type of chocolate or buy cookies instead because the satisfaction
they were initially getting from the chocolate is diminishing.
In economics, the law of diminishing marginal utility states that the marginal utility of a good or
service declines as more of it is consumed by an individual. Economic actors receive less and less
satisfaction from consuming incremental amounts of a good.
Market and Its Types
A market can be characterised as where a couple of parties can meet, which will expedite the trading
of products and services. The parties involved in the market activities are the sellers and the buyers.
Types of market
1. Monopoly - A monopolistic market is a market formation with the qualities of a pure market. A
pure monopoly can only exist when one provider gives a specific service or a product to
numerous customers. In a monopolistic market, the imposing business organisation, or the
controlling organisation, has the overall control of the entire market, so it sets the supply and
price of its goods and services. For example, the Indian Railway, Google, Microsoft, and
Facebook.
2. Oligopoly - An oligopoly is a market form with a few firms, none of which can hold the others
back from having a critical impact. The fixation or concentration proportion estimates the piece
of the market share of the biggest firms. For example, commercial air travel, auto industries,
cable television, etc.
3. Perfect competition - Perfect competition is an absolute sort of market form wherein all end
consumers and producers have complete and balanced data and no exchange costs. There is an
enormous number of makers and customers rivalling each other in this sort of environment.
For example, agricultural products like carrots, potatoes, and various grain products, the
securities market, foreign exchange markets, and even online shopping websites, etc.
4. Monopolistic competition - Monopolistic competition portrays an industry where many firms
offer their services and products that are comparative (however somewhat flawed) substitutes.
Obstructions or barriers to exit and entry in monopolistic competitive industries are low, and
the choices made of any firm don’t explicitly influence those of its rivals. The monopolistic
competition is firmly identified with the business technique of brand separation and
differentiation. For example, hairdressers, restaurant businesses, hotels, and pubs.
5. Monopsony - A monopsony is a market situation wherein there is just a single purchaser, the
monopsonist. Just like a monopoly, a monopsony additionally has an imperfect market
condition. The contrast between a monopsony and a monopoly is basically in the distinction
between the controlling business elements. A solitary purchaser overwhelms a monopsonist
market while a singular dealer controls a monopolised market. Monopsonists are normal to
regions where they supply most of the locale’s positions in the regional jobs. For example, a
company that collects the entire labour of a town. Like a sugar factory that recruits labourers
from the entire town to extract sugar from sugarcane.
6. Oligopsony - An oligopsony is a business opportunity for services and products that is
influenced by a couple of huge purchasers. The centralisation of market demand is in only a
couple of parties that gives each a generous control of its vendors and can adequately hold
costs down. For example, the supermarket industry is arising as an oligopsony with a worldwide
reach.
7. Natural monopoly - A natural monopoly is a kind of a monopoly that can exist normally because
of the great start-up costs or incredible economies of scale of directing a business in a particular
industry which can bring about huge barriers to exit and entry for possible contenders. An
organisation with a natural monopoly may be the main supplier of a service or a product in an
industry or geographic area. For example, the utility service industry is a natural monopoly. It
consists of supplying water, electricity, sewer services, and distribution of energy to towns and
cities across the country.
Difference between International Trade and Internal Trade
Aspect Internal Trade International Trade

Trade carried out within the

Trade carried out beyond the geographical
Meaning geographical limits of the country
limits of the country is international trade.
is called internal trade.

Payment is made in the country's

Payment Payment is made in foreign currency.
local currency.

Transportation of
Roadways and Railways Airways and Waterways
Goods

Nature of Homogeneous in terms of culture, Heterogeneous in terms of culture, tastes

Consumers tastes and preferences. and preferences.

Because of the imposition of tariffs and

Movement of Goods and services can move
quotas on goods and services, there is a
good freely within the country.
restriction on the movement of goods.

Countries
Only one country is involved A minimum of two countries are involved
Involved

Language Barrier No Yes

Cultural
No Yes
Differences

Production Function
Production is a process that business uses to convert inputs into outputs. Production Function is the
relationship between physical inputs (land, labour, capital, etc.) and physical outputs (quantity
produced). It is a technical relationship (not an economic relationship) that studies material inputs
on one hand and material outputs on the other hand. Material inputs include variable and fixed
factors of production.
In a standard equation, the Production function is represented by Q, Labour (Variable element) is
represented by L, and Capital (Fixed element) is represented by K.
Product and its Types
1. Total Product - Total Product (TP) refers to the total quantity of goods that the firm produced
during a given course of time with the given number of inputs. For example, if 6 labours
produce 10 kg of wheat, then the total product is 60 kg. A company can increase TP in the
short term by focusing primarily on the variable components.
2. Average Product - Average Product refers to output per unit of a variable input. AP is
calculated by dividing TP by units of the variable factor. For example, if the total product is
60 kg of wheat produced by 6 labours (variable inputs), then the average product will be
60/6, i.e., 10 kg.
3. Marginal Product - Marginal Product refers to the addition to the total product when one
more unit of a variable factor is employed. It calculates the extra output per additional unit
of input while keeping all other inputs constant.

Elasticity of Demand
A change in the price of a commodity affects its demand. We can find the elasticity of demand, or
the degree of responsiveness of demand by comparing the percentage price changes with the
quantities demanded
Elasticity of demand is the responsiveness of the quantity demanded of a commodity to changes in
one of the variables on which demand depends.
The variables on which demand can depend on are price of the commodity, prices of related
commodities, consumer’s income, etc.
Types of Elasticity of Demand
1. Price Elasticity - The price elasticity of demand is the response of the quantity demanded to
change in the price of a commodity. It is assumed that the consumer’s income, tastes, and
prices of all other goods are steady. It is measured as a percentage change in the quantity
demanded divided by the percentage change in price.
 2. Income Elasticity - The income elasticity of demand is the degree of responsiveness of the
quantity demanded to a change in the consumer’s income.

3. Cross Elasticity - The cross elasticity of demand of a commodity X for another commodity Y,
is the change in demand of commodity X due to a change in the price of commodity Y.

Foreign Exchange
• Foreign exchange, also known as forex, is the conversion of one country's currency into another.
The value of any particular currency is determined by market forces related to trade, investment,
tourism, and geopolitical risk.
• The rate at which the domestic currency can be exchanged for the foreign currency is known
as Foreign Exchange Rate. In simple terms, the foreign exchange rate is the price paid in the
domestic currency (₹) for buying a unit of foreign currency.
• The market in which domestic currency is traded for others is the “Foreign Exchange Market”.
Demand for Foreign Exchange

• Import of Goods and Services - In the case of the Import of goods and services from a foreign
country the payment is made by the importer (the person who imports goods and services) in
foreign currency; thus, creating a demand for foreign exchange in India’s Foreign Exchange
Market.
• Unilateral Transfers Sent Abroad - These are the transfers made by the person for free. It
includes the transfer of gifts and grants sent by the government or a person to other countries.
• Tourism - To pay for expenses incurred during international tours, tourists require a foreign
exchange, which creates demand for it. Foreign tourists will create a demand for foreign
exchange in India’s foreign exchange markets.
• Investments - When investments are made by India in other countries foreign exchange is
required. Therefore, demand for foreign exchange is created while making investments abroad.
• Lending Abroad - If India provides loans to foreign countries, India will demand foreign exchange.
• Repayment of Interest and Loans - If loans along with interest are paid to foreign lenders, there
is a need for foreign exchange. It results in an increase in the demand for foreign exchange.
• Purchase of assets abroad - There is a demand for foreign exchange to make payments for the
purchase of assets like land, shares, bonds, etc., abroad.
• Speculation - When people earn money from the appreciation of currency it is called speculation.
For this purpose, they need foreign exchange. For example, If an Indian resident through analysis
expects the price of the US Dollar to be high in the future, he/she will buy more US Dollars today.
The main goal of speculation is to earn profits when the dollar becomes expensive.
Functions of Foreign Exchange Market

• Transfer function - It facilitates transfer of purchasing power across different countries of the
world.
• Credit function - It facilitates credit for international trade. Bills of exchange, with maturity period
of three months, are generally used.
• Hedging function - It facilitates protection against risks of foreign exchange fluctuations, etc.
Exporters and importers enter into agreement to sell and buy goods on some future date at the
current prices and exchange rate.
What is Economics
1. Economics is a social science that studies the production, distribution, and consumption of
goods and services.
2. Economics also analyzes the reasons why and how consumers make buying choices.
3. It also analyzes the forces determining prices, including the prices of goods and services and the
prices of the resources used to produce them.
4. Economics analyzes how scarce resources can be used to increase wealth and human welfare.
5. It also looks at how people act, based on the idea that people act rationally and try to get the
most value or benefit.

Relationship between Microeconomics and Macroeconomics

1. Microeconomics and Macroeconomics are interdependent on each other.
2. For example, the determination of general price level which is a subject matter of
Macroeconomics basically depends on the theory of relative price of products and factors,
which is a Microeconomic concept.
3. On the other hand, profit of a firm is a Microeconomic concept but it cannot be understood
unless one has complete knowledge of aggregate demand and general price level. Large
aggregate demand implies that the profit of a firm is going to be huge.

Why Engineering Students should study Economics?

Engineering, in general, is an application of science, which is used in development or improvement
of products and services, which ultimately benefit the society.
It improves the efficiency and the productivity, that means getting same output with less input or
more output with same input which is subject matter of Economics.
Thus, engineers also confront with the problem of choices in their professional life as economists
do.
Again, all engineering activities are performed in certain economic environment and an engineer
need to be familiar with such economic environment to work efficiently.
Career of a practising engineer is going to be significantly affected by his ability to deal with
economic aspect.
Understanding of economic principles and their application in engineering activities is crucial for
engineers of a developing country like India, which is reeling under low labour productivity.

Role of Science, Engineering and Technology in Economic Development

1. Innovation and Research:
• Scientific Research - Advances in science lead to new discoveries and technologies.
Funding scientific research contributes to innovation in various fields, from medicine and
agriculture to energy and materials science.
• Engineering Innovation - Engineers apply scientific principles to solve real-world problems,
leading to the development of new products, processes, and technologies that enhance
efficiency and effectiveness.
2. Technological Advancements:
• Technology Development - Continuous advancements in technology, driven by engineering
and scientific breakthroughs, result in improved production processes, communication
systems, transportation methods, and more.
• Digital Transformation - The evolution of information technology and the internet has
revolutionized industries, enabling automation, connectivity, and data-driven decision-
making.
3. Productivity Improvement:
• Automation and Efficiency - Engineering solutions, often enabled by technological
innovations, lead to automation and increased efficiency in manufacturing, services, and
various sectors.
• Industrial Revolution: Historical examples, such as the Industrial Revolution, highlight how
engineering and technological advancements have transformed economies and elevated
productivity.
4. Infrastructure Development:
• Engineering in Infrastructure - Civil and structural engineering contribute to the planning
and construction of critical infrastructure such as roads, bridges, airports, and utilities,
fostering economic development by connecting regions and facilitating trade.
5. Healthcare and Medicine:
• Medical Research and Technology - Advances in medical science and technology lead to
the development of new treatments, pharmaceuticals, and medical devices, improving
healthcare outcomes and contributing to economic well-being.
6. Agricultural Innovation:
• Biotechnology - Science and technology, especially biotechnology, play a crucial role in
agricultural innovation, leading to improved crop yields, disease resistance, and sustainable
farming practices.
7. Environmental Sustainability:
• Green Technologies - Engineering and technology contribute to the development of
sustainable solutions, such as renewable energy technologies and eco-friendly
manufacturing processes, addressing environmental concerns.

Applications of Price Elasticity

1. Price elasticity as a guide for setting prices - If price elasticity for a particular commodity is
more than unit, it means that with the unit increase in price, the demand will decrease more
than unit. In that circumstance, it is advisable to keep the price low. Ultimately lower prices will
be able to garner higher total turnover and vice versa.
2. Price elasticity as a guide for shifting tax burden in case of indirect tax - If price elasticity for a
particular commodity is less than unit, it means with the unit increase in price, the demand will
decrease less unit. In that situation, if an indirect tax is levied on that product, the producer can
shift larger burden of the tax to the customer and vice versa.
3. Discount sales - While giving discounts, firms take into consideration price elasticity of demand
for the good. Whether discounts would attract enough additional customers to offset the lower
revenues per unit.
Income Elasticity of Demand
Ratio between proportionate change in demand due to proportionate change in income is called
income elasticity of demand (eY ).

where, Q = Original demand of a commodity

Y = Original consumer’s income
dQ = Change in demand
dY = Change in income
If, eY < 0, it is inferior good.
eY > 0, it is normal good.
eY > 1, it is luxury good,
eY < 1, it is necessity good

Cross Elasticity of Demand

Proportionate change in demand of commodity M due to proportionate change in the price of
another commodity N is called cross elasticity of demand.

where QM = Original demand of a commodity M

PN = Original price of commodity N
dQM = Change in demand of commodity M
dPN = Change in price of commodity N
If Ed * = + ve, then commodities are substitute.
Ed * = – ve, then commodities are complementary.
Ed * = 0, then commodities are not at all related

Significance of Price Elasticity of Demand in Business Decision-Making

1. Determining Pricing Strategies - Businesses use price elasticity to set optimal prices. If demand
is elastic (elasticity > 1), reducing prices can lead to a proportionately larger increase in quantity
demanded, potentially increasing total revenue.
2. Revenue Maximization - For inelastic demand (elasticity < 1), raising prices might result in
higher total revenue since the percentage decrease in quantity demanded is less than the
percentage increase in price.
3. Market Segmentation - Understanding price elasticity helps businesses identify different
market segments. Elastic segments may respond to discounts and promotions, while inelastic
segments may be less price-sensitive.
4. Product Life Cycle - Different stages of a product's life cycle may have varying elasticity. During
the introduction phase, demand may be more elastic as consumers are more price-sensitive.
Significance of Cross Elasticity of Demand in Business Decision-Making
1. Complementary Goods vs. Substitute Goods - Positive cross elasticity indicates that the goods
are substitutes, meaning an increase in the price of one lead to an increase in the demand for
the other. Negative cross elasticity suggests the goods are complementary.
2. Pricing and Revenue Decisions - Businesses can use cross elasticity to set prices strategically. If
two goods are substitutes, a reduction in the price of one may attract consumers from the
other, impacting revenue.
3. Supply Chain Management - Cross elasticity helps businesses understand the dynamics
between different products in their portfolio. This insight is crucial for inventory management
and production planning.
4. Market Positioning - By analyzing cross elasticity, businesses can position their products in the
market. If their product is a substitute for a competitor's, they may adjust marketing strategies
to highlight the advantages.

Difference between labour intensive and capital-intensive technology and which

kind of technology would be more suitable for the Indian economy
Labor-Intensive Technology – It refers to a production process that relies heavily on human labor
for the execution of tasks. In such systems, a significant portion of the work is performed manually,
and the role of machinery is limited.
Characteristics:

• High dependence on human effort.

• Low usage of machinery and automation.
• Lower upfront investment in capital equipment.
• Typically associated with lower production costs per unit of output.
Examples - Cottage industries, handcrafting, small-scale agriculture.
Capital-Intensive Technology – It involves a production process where the use of machinery,
automation, and advanced technology is predominant. Human labor plays a more supervisory or
technical role, while machines handle the majority of tasks.
Characteristics:

• High reliance on machinery and technology.

• Higher upfront investment in capital equipment.
• Increased output per unit of labor.
• Generally associated with higher production costs per unit of output but often results in
economies of scale.
Examples - Automated manufacturing, large-scale industrial production, advanced robotics.
Suitability for the Indian Economy:
1. Labor Abundance - India has a large population, and labor is relatively abundant. Labor-
intensive technologies may be more suitable in sectors where there is a surplus of labor, such
as agriculture and certain manufacturing industries.
2. Skill Levels - The skill levels of the workforce also influence the choice of technology. If the
workforce possesses higher skills, capital-intensive technology might be more viable, as workers
can efficiently operate and maintain advanced machinery.
3. Development Goals - The stage of economic development and the goals set by policy makers
matter. In the initial stages of development, labor-intensive methods may be emphasized to
absorb the large labor force. As the economy progresses, a shift towards capital-intensive
technologies might occur for increased efficiency and productivity.
4. Global Competitiveness - To compete globally, industries may need to adopt a mix of both labor
and capital-intensive technologies. While labor-intensive methods can be cost-effective,
capital-intensive technologies enhance productivity and quality.
5. Sector-Specific Considerations - Different sectors within the Indian economy may require
different approaches. For instance, labor-intensive methods may be suitable for certain
agricultural practices, while capital-intensive technologies could enhance efficiency in
manufacturing.

Factors for deciding location of a firm abroad

1. Market Access and Demand - Evaluate the proximity to target markets and assess the demand
for your products or services in the chosen location. Choose a location that provides strategic
access to your target customer base.
2. Regulatory Environment - Understand the regulatory environment of potential locations.
Assess the ease of doing business, compliance requirements, and any legal constraints that may
impact the company's operations.
3. Infrastructure and Connectivity - Consider the quality of infrastructure, transportation
networks, and logistics facilities. Accessibility to major transportation hubs (ports, airports,
highways) is crucial for efficient supply chain management.
4. Labor Market - Evaluate the availability and skill level of the local workforce. Consider the cost
of labor, language proficiency, and cultural compatibility. Assess whether the workforce
possesses the skills required for your industry.
5. Cost of Doing Business - Analyze the overall cost of doing business, including labor costs,
utilities, taxes, and real estate. Compare these costs across potential locations to identify the
most cost-effective option.
6. Political Stability and Risk - Assess the political stability and risks associated with potential
locations. Consider factors such as government stability, political climate, and potential
geopolitical issues that may impact business operations.
7. Cultural Factors - Evaluate the cultural fit between the company and the chosen location.
Consider language barriers, cultural nuances, and the adaptability of your products or services
to local preferences.
8. Market Saturation and Competition - Analyze the level of market saturation and the intensity
of competition in potential locations. Consider whether there are established competitors and
assess the market dynamics.
9. Access to Suppliers - Consider the proximity to suppliers and the availability of raw materials.
Evaluate the reliability and efficiency of the local supply chain to support your manufacturing
or service delivery.
10. Incentives and Support - Investigate any incentives, grants, or support programs offered by the
local government to attract foreign investment. These could include tax breaks, subsidies, or
grants.
11. Risk Management - Conduct a comprehensive risk assessment, including economic risks,
currency exchange risks, and any environmental or natural disaster risks that may affect
business continuity.
12. Future Growth Potential - Consider the long-term growth potential of the chosen location.
Assess factors such as economic projections, population trends, and the overall business
environment for sustained growth.

Factors to consider while launching a new commodity in the market

1. Market Research - Understand the current demand and potential trends for the commodity.
Identify the target market and assess consumer needs and preferences.
2. Competitive Landscape - Analyze existing competitors and develop a unique value proposition.
Differentiate the commodity from competitors to gain a competitive edge.
3. Regulatory Compliance - Ensure compliance with regulations governing production, marketing,
and safety standards. Obtain necessary certifications for quality assurance.
4. Supply Chain Management - Secure a stable and cost-effective supply chain for raw materials.
Assess the reliability of suppliers and ensure scalability to meet demand.
5. Quality Control - Implement stringent quality control measures throughout production.
Maintain consistent quality to build customer trust and loyalty.
6. Pricing Strategy - Determine production costs and develop a competitive pricing strategy.
Consider market dynamics, perceived value, and profitability.
7. Distribution Channels - Choose appropriate distribution channels to reach the target market
efficiently. Select channels that align with consumer behaviors and preferences.

Salient Features of Indian Economy

1. Large Population Pressure
• India has the largest population, surpassing China just recently in April 2023.
• India, at present, is going through the second phase of demographic transition.
• The chief cause of rapid population growth was steep fall in death rate due to increased
medical facilities while birth rate remained very high due to prevalent social values.
• If India has to get benefit of the demographic dividend (the economic growth potential that
can result from shifts in a population’s age structure), it has to concentrate on education
and health to its young population. Else it will have to face demographic burden.
2. Income and Trade
• Underdeveloped economies are marked by the existence of low per capita income.
• The per capita income of India in 2010 was $3,400 which is less than half of the per capita
income of China.
 • The per capita income of USA is fourteen times more than the same for India. Indian
economy has grown at a faster rate than the developed economies.
• There is sense of relief as average annual per cent growth of Gross Capital Formation (GCF)
has increased by almost double in India between 1990-2000 and 2000-2010.
3. High Dependence in Agriculture
• Though contribution of agriculture to the overall Gross Domestic Product (GDP) of the
Indian economy has decreased from about 30 per cent in 1990-91 to less than 15 per cent
in 2011-12, agriculture yet forms the backbone.
• Roughly, half of the workforce is still engaged in agriculture for its livelihood. Being both a
source of livelihood and food security for a vast majority of low income, poor and
vulnerable sections of society, its performance assumes greater significance in view of the
proposed National Food Security Bill and the ongoing Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) Scheme.
• India is still home to the largest number of poor and malnourished people in the world, a
higher priority to agriculture will achieve the goals of reducing poverty and malnutrition as
well as of inclusive growth quicker than any other sector.
• From time to time, several technological packages have been introduced in agriculture as
Green Revolution, Yellow Revolution, White Revolution, Blue Revolution and now it is
‘Biodiesel Plant’. However, benefits of all these revolutions have remained limited due to
poverty of farmers at the micro level and inadequate credit facility, depletion in ecology,
intensive use of inputs, lowering of underground water table, insufficient supply of
electricity, poor storage facility, inadequate rural connectivity, etc.
• More recently, nano-technological experiments in agriculture are being done. Even after
examination and getting approval by the authorized bodies, farmers need help of experts
in case of some operational problem specific to a particular geographical situation.
4. Education
• Government of India has emphasized on education and has made huge strides in this area
since independence. It has a large network of public funded education facility but being
one of the youngest countries of the world.
• Government of India has given reemphasis on education and skill formation in recent years.
Number of schools, colleges and universities has increased phenomenally.
• Percentage of gross enrolment ratio in primary education is very good in fact comparable
to developed countries. The achievement is reflected in large pool of English-speaking
professionals and university pass-outs.
• Indian engineers and management graduates are very much in demand throughout the
world. However, there are some challenges before the education system - increasing cost,
quality of education and challenge to enhance employability among the educated
unemployed.
5. Health
• Total expenditure on health in India as percentage of its GDP in 2010 is also comparable to
developing countries but far below than USA and UK.
• Percentage of population with both parameters has increased over last twenty years.
• However, apart from numbers, the issue is of quality also which must be given emphasis.
Access to improved water sources is important but availability of water for the whole year
is another issue which is equally important.
 • Same applies to other parameters also such as number of doctors per million populations,
etc.
• Birth per women has shown deceleration in the developing countries including India and
increasing trend in USA.
6. Employment
• India has a large reservoir of labour force, second only to China but rate of growth of the
labour force is more in India (15.44) than China (10.39) between 2000 and 2010 but less
than Pakistan and Bangladesh which has grown by 38.9 and 26.2 respectively.
• Young Dependency Ratio (YDR) 12 is also very high in all, India, Pakistan and Bangladesh
which shows significant young segment in the total population.
• Labour productivity, in general, is low which is both a cause and an effect of low level of
living and working conditions.
• Low labour productivity is the result of low level of health, education and training of
workers, motivation for work and lack of institutional set-up, etc.
• However, growth rate of labour productivity increased almost six times in India between
1990-92 and 2008-10 while it was very low or negative in developed countries during the
same period. In India, open unemployment is low because poor people cannot afford to
remain unemployed.
• Open unemployment is more for educated persons due to lack of employability.
• After liberalization there is no lack of capital, so there may be lack of entrepreneurial skill
or employable skill among educated youth.
7. Environmental Pollution and Degradation
• Growing environmental pollution may be the result of non-sustainable technology or
production process, reckless use of natural resources and existence of poverty.
• Carbon dioxide emissions in total million metric tonnes have increased both in developed
and developing countries.
• Natural resource rent may be used to finance development of such technologies.
8. Business Environment
• Globalization and opening up of the economies have enhanced cross boundary business
operations.
• Business houses are expanding their activities throughout the world to achieve cost
effectiveness or to expand their markets.
• India has improved its efficiency in most of the parameters but time taken in contract
enforcement is grey area which needs proactive action.
9. Science and Technology
• After liberalization and opening up of the economy, the geographic boundaries of the
countries has blurred and the economic boundaries has become insignificant.
• Market has become very competitive. Companies are relying on improved technology as a
survival strategy. In this scenario, developing technology is going to be one of the
prerequisites for any country, which wants to develop rapidly.
• Though, India has large pool of scientific and technical manpower but it is far behind in
terms of R&D and innovation, not only from the developed countries but also from China.
10. Poverty and Malnutrition
 • Poverty is defined as the situation in which an individual fails to earn sufficient income for
his survival. It is, generally, calculated in terms of money
• Banks estimate of percentage of people staying below $2 a day in India.
• At present, existing poverty in India is a combination of natural and artificial poverty. The
recent high growth rate of the Indian economy will take care of natural poverty but special
care will have to be taken of artificial poverty.
• Malnutrition is reflected from the indicator such as percentage of birth of low weight babies
which is quite high in India. The National Food Security Act 2013 may be able to solve the
problem up to certain extent.
11. Status of Information and Communication
• Advent of information and communication technology (ICT) has revolutionized the means
of communication. Average annual growth rate of user is very high.
• However, number of users of different means of Information and Communication can also
be taken as an indicator of economic development.
• India has achieved competency in software development which makes a lion’s share in its
total service export.
12. Infrastructure
• Infrastructure is the prerequisite for the development of an economy. It provides support
to the factors of production, which ultimately contributes to the development of an
economy.
• Long strides have been taken after Independence.
• Public-private partnership is becoming appropriate mode for construction and operation
of infrastructure services such as highways and airports.
• Some other measures such as infrastructure surcharge can be imposed for financing
infrastructural projects. Bharat Nirman Programme, a new programme for rural
infrastructure in the 11th five-year plan of India, has been launched by the government of
India.

Five-Year Plan
A Five-Year Plan in India refers to a series of comprehensive economic and social development plans
implemented by the government of India. These plans, each covering a span of five years, are
formulated by the Planning Commission (now replaced by NITI Aayog) with the primary objective of
achieving targeted socio-economic outcomes and fostering balanced growth across various sectors
of the economy. The planning process in India began with the First Five-Year Plan, which
commenced in 1951.
The Five-Year Plans in India continued until the 12th Plan (2012-2017). However, the approach
underwent a paradigm shift with the discontinuation of the Planning Commission in 2014 and the
introduction of a new institution, NITI Aayog, which focuses on cooperative federalism and
participative governance rather than centralized planning.
NITI Aayog, or the National Institution for Transforming India, is a policy think tank and a premier
planning body of the Government of India. It was established on January 1, 2015, to replace the
Planning Commission, with the aim of fostering cooperative federalism and providing a platform for
collaborative and participative governance. NITI Aayog operates as a non-constitutional, non-
statutory body.

Objectives of Five-Year Plans in India:

1. Economic Development: This is the main objective of planning in India. Economic Development
of India is measured by the increase in the Gross Domestic Product (GDP) of India and Per Capita
Income
2. Increased Levels of Employment: An important aim of economic planning in India is to better
utilise the available human resources of the country by increasing the employment levels.
3. Self Sufficiency: India aims to be self-sufficient in major commodities and also increase exports
through economic planning. The Indian economy had reached the take-off stage of
development during the third five-year plan in 1961-66.
4. Economic Stability: Economic planning in India also aims at stable market conditions in addition
to the economic growth of India. This means keeping inflation low while also making sure that
deflation in prices does not happen. If the wholesale price index rises very high or very low,
structural defects in the economy are created and economic planning aims to avoid this.
5. Social Welfare and Provision of Efficient Social Services: The objectives of all the five-year plans
as well as plans suggested by the NITI Aayog aim to increase labour welfare, social welfare for
all sections of the society. Development of social services in India, such as education, healthcare
and emergency services have been part of planning in India.
6. Regional Development: Economic planning in India aims to reduce regional disparities in
development. For example, some states like Punjab, Haryana, Gujarat, Maharashtra and Tamil
Nadu are relatively well developed economically while states like Uttar Pradesh, Bihar, Orissa,
Assam and Nagaland are economically backward. Others like Karnataka and Andhra Pradesh
have uneven development with world class economic centres in cities and a relatively less
developed hinterland. Planning in India aims to study these disparities and suggest strategies
to reduce them.
7. Comprehensive and Sustainable Development: Development of all economic sectors such as
agriculture, industry, and services are one of the major objectives of economic planning.
8. Reduction in Economic Inequality: Measures to reduce inequality through progressive taxation,
employment generation and reservation of jobs has been a central objective of Indian economic
planning since independence.
9. Social Justice: This objective of planning is related to all the other objectives and has been a
central focus of planning in India. It aims to reduce the population of people living below the
poverty line and provide them access to employment and social services.
10. Increased Standard of Living: Increasing the standard of living by increasing the per capita
income and equal distribution of income is one of the main aims of India’s economic planning.

Features of Five-Year Plans in India:

1. Fixed Duration - Each plan covers a fixed period of five years. This time frame allows for the
setting of specific targets and periodic evaluations of progress.
2. Sectoral Allocation of Resources - Resources are allocated among different sectors such as
agriculture, industry, services, and social sectors based on the priorities outlined in the plan.
3. Perspective Planning - Plans involve long-term perspective planning to address both short-term
and long-term developmental goals. This involves forecasting and anticipating future needs.
4. Decentralized Planning - While the central government plays a crucial role, the plans also
encourage decentralized planning involving states and local bodies to ensure effective
implementation and local relevance.
5. Plan Evaluation and Revision - Regular evaluations are conducted to assess the progress of the
plan. Based on feedback and changing circumstances, plans may be revised or modified.
6. Flexibility - Plans are designed with a degree of flexibility to adapt to changing economic
conditions, global trends, and unforeseen challenges.
7. Integrated Approach - An integrated approach is adopted, recognizing the interdependence of
various sectors. The plans aim for balanced growth across agriculture, industry, and services.
8. Resource Mobilization - Mobilizing financial resources through taxation, borrowing, and
international aid is a crucial aspect. Plans outline strategies for resource mobilization to fund
developmental activities.

Five Year Highlights

Plan
• The First Five Year Plan laid the thrust of economic development in India.
• It was presented by the first Indian Prime Minister, Jawaharlal Nehru to
the Parliament of India.
• K.N Raj, a young economist, argued that India should "hasten slowly" for the
First Five-
first two decades.
Year Plan
(1951-56) • It mainly addressed the agrarian sector, including investment in dams and
irrigation. Ex- Huge allocations were made for Bhakhra Nangal Dam.
• It was based on the Harrod Domar Model and emphasised increasing savings.
• By the end of 1956, five Indian Institutes of Technology were established.
• The target growth rate was 2.1% and the achieved growth rate was 3.6%.
• The Second Five Year Plan stressed rapid industrialisation and the public
sector.
• It was drafted and planned under the leadership of P.C Mahalanobis.
Second Five
• It emphasised quick structural transformation.
Year Plan
(1956-61) • The government-imposed tariffs on imports to protect domestic industries
under this plan.
• The target growth rate was 4.5% and the actual growth rate was slightly less
than expected, 4.27%.
• The focus was on agriculture and improvement in the production of wheat.
• States were entrusted with additional development responsibilities. Ex- States
were made responsible for secondary and higher education.
• Panchayat elections were introduced to bring democracy to the grassroots
Third Five level.
Year Plan • The target growth rate was 5.6% and the actual growth rate only achieved
(1961-66) 2.4%
• This indicated a miserable failure of the Third Plan, and the government had to
declare "Plan Holidays" (1966-67, 1967-68, and 1968-69). The Sino-Indian War
and the Indo-Pak War, which caused the Third Five Year Plan to fail, were the
primary causes of the plan holidays.
 • It was introduced under the Prime Ministership of Indira Gandhi and
attempted to correct the previous failures.
• Based on Gadgil Formula, a great deal of emphasis was laid on growth with
Fourth Five-
stability and progress towards self-reliance.
Year Plan:
(1969-74) • The government nationalised 14 major Indian Banks and the Green
Revolution boosted agriculture.
• The Drought Prone Area Programme was also launched.
• The target growth rate was 5.6%, but the actual growth rate was 3.3%.
• It laid stress on increasing employment and poverty alleviation (garibi hatao).
• In 1975, the Electricity Supply Act was amended, enabling the central
government to enter into power generation and transmission.
Fifth Five- • The Indian National Highway System was introduced.
Year Plan • The Minimum Needs Programme introduced in the first year of this plan,
(1974-78) aimed to provide basic minimum needs. MNP was prepared by D.P. Dhar.
• The target growth rate was 4.4% and the actual growth rate turned out to be
4.8%
• In 1978, the newly elected Morarji Desai government rejected this plan.
Rolling Plan (1978-80)
This was a period of instability. The Janata Party government rejected the fifth five-year Plan
and introduced a new Sixth Five-Year Plan. This, in turn, was rejected by the Indian National
Congress in 1980 upon Indira Gandhi's re-election.
A rolling plan is one in which the effectiveness of the plan is evaluated annually and a new plan
is created the following year based on this evaluation. As a result, throughout this plan, both the
allocation and the targets are updated.
• It underlined the beginning of economic liberation by eliminating price
controls.
• It was seen as the end of Nehruvian Socialism.
Sixth Five
• To prevent overpopulation, family planning was introduced.
Year Plan
(1980-85) • On the recommendation of the Shivaraman Committee, the National Bank for
Agriculture and Rural Development was established.
• The target growth rate was 5.2% and the actual growth rate was 5.7%,
implying that it was a success.
• This plan was led by the Prime Ministership of Rajiv Gandhi.
• It laid stress on improving Industrial productivity levels through the use of
technology.
• Other objectives included increasing economic productivity, increasing the
production of food grains and generating employment by providing Social
Seventh Five Justice.
Year Plan • The outcome of the Sixth Five-Year Plan provided a robust base for the
(1985-90) success of the seventh five-year plan.
• It emphasised anti-poverty programmes, the use of modern technology, and
the need to make India an independent economy.
• It focused on attaining prerequisites for self-sustained growth by 2000.
• The target growth rate was 5.0%. However, the actual growth rate grew to
reach 6.01%
Annual Plans (1990-92)
The Eight Five Year Plan was not introduced in 1990 and the following years 1990-91 and 1991-
92 were treated as Annual Plans. This was largely because of the economic instability. India
faced a crisis of foreign exchange reserves during this time. Liberalisation, Privatisation,
Globalisation (LPG) was introduced in India to grapple with the problem of the economy under
prime minister P.V Narasimha Rao.
• The Eighth Plan promoted the modernisation of Industries.
• India became a member of the World Trade Organisation on 1 January 1995.
• The goals were to control population growth, reduce poverty, generate
Eighth Five employment, strengthen the development of infrastructure, manage tourism,
Year Plan focus on human resource development etc.
(1992-97) • It also laid emphasis on involving the Panchayats and Nagar Palikas through
decentralisation.
• The target growth rate was 5.6% but the actual growth rate was an incredible
6.8%.
• It marked India's fifty years since Independence and Atal Bihari Vajpayee led
the prime ministership.
• It offered support for social spheres to achieve complete elimination of
poverty and witnessed the joint efforts of public and private sectors in
guaranteeing economic development.
Ninth Five • The focus was also to balance the relationship between rapid growth and the
Year Plan quality of life for the people.
(1997-2002) • The objectives, further included, empowering socially disadvantaged classes,
developing self-reliance and primary education for all children in the country.
• Strategies included enhancing the high rate of export to gain self-reliance,
efficient use of scarce resources for rapid growth etc.
• The target growth rate was estimated at 7.1% but its actual growth rate fell
shorter to 6.8%
• The features of this plan were to promote inclusive growth and equitable
development.
• It intended for an 8% GDP growth per year.
Tenth Five
• It aimed at reducing the poverty by half and creating employment for
Year Plan
(2002-07) 80million people. Further, it aimed to reduce regional inequalities.
• It also emphasised reducing the gender gaps in the field of education and
wage rates by 2007.
• The target growth rate was 8.1% while the actual growth was 7.6%.
• The Eleventh Plan was significant in its aim to increase enrolment in higher
education and focused on distant education as well as IT institutes. Ex: The
Right to Education Act was introduced in 2009, and came into effect in 2010,
making education free and compulsory for children aged between 6-14 years.
Eleventh Five • Its main theme was rapid and more inclusive growth.
Year Plan
• It is aimed at environmental sustainability and reduction in gender inequality.
(2007-2012)
• C.Rangarajan prepared the Eleventh Five Year Plan.
• The focus was also laid on providing clean drinking water for all by 2009.
• The target rate was 9% and the actual growth rate was 8%.
 • The last Five Year Plan had "Faster, More Inclusive and Sustainable Growth" as
its theme.
• The plan aimed at strengthening infrastructure projects, and providing
electricity supply in all villages.
Twelfth Five
• It also aimed at removing the gender and social gap in admissions at school
Year Plan
and improved access to higher education.
(2012-17)
• Further, it aspired to enhance the green cover by 1 million hectares each year
and to create new opportunities in the non-farming sector.
• The target growth rate was 9% but in 2012, National Development Council
approved a growth rate of 8% for this twelfth plan.

Factors for deciding price a product in the different types of market

1. Monopoly
• Market Power - Monopolies have exclusive control over the supply of a product or service
in a market. As the sole provider, they have substantial market power, allowing them to set
prices without direct competition. Monopolies can choose prices that maximize their
profits, taking into account consumer demand and elasticity.
• Elasticity of Demand - Monopolies consider the elasticity of demand for their product –
how much quantity demanded changes in response to a change in price. If the demand for
the monopoly's product is inelastic (consumers are less responsive to price changes), the
monopoly may set higher prices to maximize revenue.
2. Oligopoly
• Collusion and Game Theory - Oligopolies consist of a small number of large firms that
dominate the market. Pricing decisions often involve collusion, where firms cooperate to
set prices, or strategic interactions based on game theory. Firms must consider the
potential actions and reactions of competitors when setting prices, leading to complex
strategic decision-making.
• Brand Differentiation - Oligopolistic firms may differentiate their products through
branding, features, or quality. Pricing decisions are influenced by the perceived value of the
product and the impact on market share. High-quality brands may command premium
prices.
3. Perfect Competition
• Price Taker - Firms in a perfectly competitive market are price takers, meaning they accept
the prevailing market price as given. Firms adjust their production levels to maximize profit
at the market price. Individual firms have no influence on the market price.
• Homogeneous Products - Products are identical in perfect competition, and consumers
view them as perfect substitutes. Price becomes the primary competitive factor, and firms
focus on optimizing production and minimizing costs.
4. Monopolistic Competition
• Product Differentiation - Monopolistic competition involves differentiated products where
firms seek to distinguish their offerings through features, branding, or quality. Pricing
decisions consider the perceived value of the product, and firms may engage in non-price
competition.
 • Elasticity of Substitutes - The availability of close substitutes impacts pricing decisions in
monopolistic competition. If substitutes are readily available, firms may need to adjust
prices to stay competitive and retain or attract customers.
• Advertising and Promotion - Firms in monopolistic competition often invest in advertising
and promotion to create product differentiation. Marketing strategies influence consumer
perceptions, and firms may charge premium prices for perceived quality.

Liberalization, Privatization and Globalization (LPG)

LPG stands for Liberalization, Privatization, and Globalization. These are three strategies that were
adopted by the Government of India in 1991 under its New Economic Policy. The LPG reforms were
introduced under the leadership of Prime Minister Shri P V Narasimha Rao and Finance Minister Dr.
Manmohan Singh. The LPG reforms were measures undertaken to improve the economic condition
of India. The LPG reforms transformed the way India as an economy works and opened the country
up to the world for trade and commerce.
1. Liberalization
Objective - Liberalization refers to the easing of government regulations and restrictions on
economic activities. The primary goal is to promote economic freedom, encourage competition, and
facilitate the growth of the private sector.
Key Measures in India:

• Industrial Licensing - The dismantling of the industrial licensing regime, allowing businesses
more freedom to set up and expand without government approvals.
• Trade Liberalization - Reduction of trade barriers, simplification of import-export procedures,
and lowering of tariffs to encourage international trade.
• Financial Sector Reforms - Deregulation of interest rates, opening up the banking and financial
sector to private players, and allowing foreign direct investment (FDI) in various industries.
Impact on India:

• Economic Growth - Liberalization contributed to higher economic growth rates, making India
one of the fastest-growing major economies.
• Increased Competition - Opening up various sectors led to increased competition, efficiency
improvements, and better consumer choices.
• Foreign Investment - Liberalization attracted foreign investment, fostering technological
advancements and capital inflow.
2. Privatization
Objective - Privatization involves reducing the government's involvement in the ownership and
management of state-owned enterprises. The aim is to enhance efficiency, improve accountability,
and reduce the burden on public finances.
Key Measures in India:

• Disinvestment - Selling partial or full stakes in state-owned enterprises to private investors.

• Strategic Sales - Transferring management control along with ownership to private entities.
• Public-Private Partnerships (PPPs) - Collaborative projects between the government and
private sector to develop infrastructure and provide public services.
Impact on India:

• Efficiency Gains: Privatization aimed to bring in efficiency, innovation, and better management
practices to formerly state-run enterprises.
• Revenue Generation: Disinvestment generated funds for the government and reduced the
financial burden of sustaining loss-making public enterprises.
• Improved Services: Introduction of private players often led to improved service quality and
customer satisfaction.
3. Globalization:
Objective: Globalization involves integrating a country's economy with the global economy through
increased trade, investment, and cultural exchange. The goal is to leverage international markets
and resources for mutual benefit.
Key Measures in India:

• Trade Liberalization - Opening up the economy to international trade by reducing barriers,

tariffs, and quotas.
• Foreign Direct Investment (FDI) - Allowing foreign investment in various sectors to attract
capital, technology, and expertise.
• Technology Transfer - Embracing global technologies and practices to enhance
competitiveness.
Impact on India:

• Increased Exports and Imports - Globalization led to a surge in both exports and imports,
expanding market access for Indian businesses.
• Foreign Direct Investment - India attracted significant FDI, contributing to economic
development and infrastructure projects.
• Cultural Exchange - Globalization facilitated cultural exchange, exposure to diverse ideas, and
the adoption of global best practices.

GDP and how it is measured

Gross Domestic Product (GDP) is a key economic indicator that represents the total value of all goods
and services produced within a country's borders over a specific period of time. It is a
comprehensive measure of a nation's economic activity and is often used to gauge the overall health
and size of an economy.
There are three primary methods for measuring GDP, each providing a different perspective on
economic activity. These methods are often referred to as the production approach, the
expenditure approach, and the income approach.
1. Production Approach (or Output Method):

• This method calculates GDP by summing the value of all goods and services produced by
various industries within the country during a specific time period.
 • Equation: GDP = Gross Value of Output - Value of Intermediate Consumption
2. Expenditure Approach:

• This method calculates GDP by summing all expenditures made in the economy. It is often
represented as the total spending on final goods and services.
• Equation: GDP = Consumption + Investment + Government Spending + (Exports – Imports)
Consumption (C): Spending by households on goods and services.
Investment (I): Spending on business capital, residential construction, and inventory changes.
Government Spending (G): Spending by the government on goods and services.
Exports (X): Value of goods and services sold to other countries.
Imports (M): Value of goods and services purchased from other countries.
3. Income Approach:

• This method calculates GDP by summing all incomes earned by individuals and businesses
within the country.
• Equation: GDP = Compensation of Employees + Gross Profits + Taxes - Subsidies on Production
and Imports
Compensation of Employees: Wages and salaries paid to workers.
Gross Profits: Profits earned by businesses before deducting taxes and other expenses.
Taxes - Subsidies on Production and Imports: Net taxes on production and imports.

How knowledge of engineering and ology may be used to improve life at slum
1. Infrastructure Development
• Water and Sanitation: Implementing efficient and sustainable water supply systems,
sewage treatment, and waste disposal infrastructure.
• Housing: Designing low-cost, durable, and energy-efficient housing solutions using
innovative materials and construction techniques.
• Urban Planning: Applying urban planning principles to optimize the use of limited space
and improve living conditions in densely populated areas.
2. Energy Access:
• Renewable Energy: Introducing solar power and other renewable energy sources to
provide reliable and sustainable energy access.
• Energy-Efficient Technologies: Implementing energy-efficient appliances and technologies
to reduce energy consumption and costs.
3. Information and Communication Technology (ICT):
• Digital Connectivity: Providing internet access and digital literacy programs to empower
residents with information and communication tools.
• Mobile Applications: Developing applications for healthcare, education, and community
services to enhance accessibility and efficiency.
4. Healthcare:
• Mobile Clinics: Designing and implementing mobile healthcare units to reach underserved
areas.
• Telemedicine: Using technology to connect residents with healthcare professionals
remotely.
 • Medical Device Innovation: Developing low-cost medical devices to improve diagnostic
and treatment capabilities.
5. Education:
• E-Learning Platforms: Introducing digital platforms for remote learning and skill
development.
• Low-Cost Devices: Providing affordable devices for educational purposes, fostering digital
literacy.
6. Waste Management:
• Recycling Facilities: Establishing recycling centers to manage and repurpose waste
materials.
• Waste-to-Energy Technologies: Implementing technologies that convert waste into energy
to address energy needs.
7. Community Empowerment:
• Community Platforms: Creating digital platforms for community engagement, information
sharing, and collective decision-making.
• Skill Development Programs: Offering technology-based vocational training programs to
enhance employability.
8. Transportation:
• Accessible Transportation: Designing affordable and accessible public transportation
systems to connect slums with urban centers.
• Pedestrian Infrastructure: Creating safe pedestrian pathways and crossings.
9. Security and Safety:
• CCTV and Monitoring Systems: Implementing surveillance systems to enhance security in
the community.
• Emergency Response Apps: Developing mobile applications for quick access to emergency
services.
10. Environmental Sustainability:
• Green Spaces: Integrating green spaces and rooftop gardens to improve air quality and
provide recreational areas.
• Water Harvesting: Implementing rainwater harvesting systems for sustainable water
supply.

Green Revolution, White revolution, Reasons for their success and how we can
replicate them
Green Revolution:
The Green Revolution refers to a series of research, development, and technology transfer initiatives
that took place in the mid-20th century, primarily between the 1960s and 1980s. It aimed to
increase agricultural productivity and food production through the introduction of high-yielding
varieties of crops, irrigation methods, and modern farming techniques.
Reasons for Success:
1. High-Yielding Varieties (HYVs): The development and widespread adoption of high-yielding
varieties of staple crops, such as wheat and rice, significantly increased agricultural productivity.
2. Irrigation Infrastructure: Expansion of irrigation systems provided consistent water supply,
enabling multiple cropping seasons and reducing dependence on rainfall.
3. Chemical Inputs: The use of fertilizers and pesticides helped optimize soil fertility and protect
crops from pests and diseases, contributing to increased yields.
4. Mechanization: Introduction of modern machinery and farm equipment, such as tractors and
harvesters, improved efficiency and reduced the labor required for farming.
5. Government Support: Policies and support from governments, including subsidies, credit
facilities, and extension services, played a crucial role in promoting and sustaining the Green
Revolution.
White Revolution
The White Revolution, also known as Operation Flood, was a successful dairy development program
implemented in India during the 1970s and 1980s. It aimed to increase milk production, improve
the dairy industry, and enhance the livelihoods of dairy farmers.
Reasons for Success:
1. Cooperative Model: The establishment of dairy cooperatives, such as Amul, created a
collaborative and organized structure, allowing farmers to collectively manage production,
processing, and marketing.
2. Artificial Insemination: The introduction of artificial insemination techniques improved the
quality of dairy cattle, leading to increased milk production.
3. Cold Chain Infrastructure: The development of a cold chain infrastructure, including milk
chilling and processing units, ensured the preservation of milk quality and extended the shelf
life of dairy products.
4. Marketing Strategies: Effective marketing and branding strategies, such as the "Amul model,"
helped create a strong market presence for dairy products and increased consumer demand.
5. Government Support: Government support in the form of subsidies, technical assistance, and
policy initiatives played a crucial role in the success of the White Revolution.
Replication
1. Adaptation to Local Context: Success depends on adapting strategies to suit the specific needs,
agro-climatic conditions, and socio-economic factors of the target region.
2. Technology Transfer: Effective transfer and adoption of relevant technologies are crucial. This
involves providing training, infrastructure, and support to farmers.
3. Inclusive Policies: Policies that support small and marginal farmers, ensure sustainable
practices, and address environmental concerns are essential for long-term success.
4. Community Participation: Involving local communities, farmers, and stakeholders in decision-
making processes ensures ownership and sustainability of initiatives.
5. Financial Support: Adequate financial support through subsidies, credit facilities, and
investment in infrastructure is necessary for the widespread adoption of new practices.
6. Research and Development: Continuous research and development efforts to address
emerging challenges, such as climate change and resource constraints, are vital for the success
of agricultural and dairy initiatives.
Change after advent of IT and Globalisation
1. Communication and Connectivity:
• IT: Advances in communication technologies, including the internet, email, and social
media, have facilitated instant global communication.
• Globalization: Increased connectivity has led to a global network where individuals,
businesses, and governments can communicate and collaborate across borders.
2. Access to Information:
• IT: The internet has democratized access to information, making knowledge more
accessible to people around the world.
• Globalization: Information sharing and exchange have become integral to global trade,
diplomacy, and cultural exchange.
3. Economic Integration:
• IT: E-commerce and digital platforms have enabled businesses to reach global markets,
breaking down traditional barriers to entry.
• Globalization: Trade agreements and economic policies have fostered greater economic
integration, leading to the growth of global supply chains.
4. Job Market and Workforce Dynamics:
• IT: Remote work facilitated by IT has changed the dynamics of the job market, enabling a
more distributed and flexible workforce.
• Globalization: Companies can tap into a global talent pool, leading to increased
competition and diversity in the job market.
5. Innovation and Technological Advancements:
• IT: Continuous innovation in IT has led to advancements in artificial intelligence, machine
learning, and automation, transforming industries.
• Globalization: Collaborative research and development across borders have accelerated
technological advancements.
6. Education and Skill Development:
• IT: E-learning platforms and digital resources have transformed education, providing access
to educational materials globally.
• Globalization: A globalized job market has increased the demand for diverse skills and
competencies.

Sustainable Development
Sustainable development is a holistic and inclusive approach to societal progress that seeks to
meet the needs of the present without compromising the ability of future generations to meet
their own needs. It involves balancing economic, social, and environmental considerations to
create a harmonious and equitable society. Sustainable development is often guided by the
pursuit of achieving the United Nations Sustainable Development Goals (SDGs), which address key
global challenges, including poverty, inequality, climate change, environmental degradation,
peace, and justice.
Key Principles of Sustainable Development:
1. Environmental Stewardship: Conserving and protecting ecosystems, biodiversity, and natural
resources. Promoting sustainable consumption and production patterns.
2. Social Equity: Ensuring social inclusivity and reducing disparities in access to resources and
opportunities. Fostering social cohesion, diversity, and cultural preservation.
3. Economic Prosperity: Encouraging inclusive economic growth that benefits all segments of
society. Promoting responsible business practices and ethical corporate behavior.
4. Inter-generational Equity: Considering the needs and well-being of future generations in
present decision-making. Avoiding practices that deplete resources or harm the environment
in the long term.
5. Global Collaboration: Recognizing the interconnectedness of global challenges and fostering
international cooperation. Promoting knowledge-sharing and technology transfer to address
common issues.

Role of Engineers in Achieving Sustainable Development:

1. Life Cycle Cost Analysis: Engineers perform life cycle cost analyses to assess the total cost of a
project or product over its entire lifespan. This approach considers not only the initial costs of
design and construction but also operating, maintenance, and disposal costs. Sustainable
development involves choosing options with lower overall life cycle costs, taking into account
environmental and social impacts.
2. Environmental Impact Assessment (EIA): Engineers conduct EIAs to evaluate the potential
environmental consequences of a project. This includes assessing the impact on air and water
quality, biodiversity, and ecosystems. Sustainable development in engineering economics
involves quantifying and considering these environmental impacts in decision-making
processes.
3. Resource Efficiency: Sustainable engineering economics emphasizes resource efficiency,
encouraging engineers to design processes and products that minimize resource consumption.
This includes optimizing material use, reducing energy consumption, and minimizing waste
generation.
4. Incorporating Renewable Energy: Sustainable engineering economics promotes the integration
of renewable energy sources into projects. Evaluating the economic viability of renewable
energy options, such as solar or wind power, helps reduce reliance on finite resources and
minimize environmental impact.
5. Green Building Practices: Sustainable development in engineering economics includes the
adoption of green building practices. This involves designing structures that are energy-
efficient, use environmentally friendly materials, and create healthier indoor environments.
The economic analysis considers both the initial costs and long-term benefits of green building
features.
6. Carbon Footprint Calculation: Engineers calculate and consider the carbon footprint of
projects, assessing the total greenhouse gas emissions associated with a particular activity. This
helps in identifying opportunities for emission reduction and incorporating carbon-conscious
decisions into economic evaluations.
7. Circular Economy Principles: Engineers apply circular economy principles, emphasizing the
reuse, recycling, and repurposing of materials. This approach reduces waste generation and
contributes to a more sustainable economic model.
Business Risk
Business risk is the exposure a company or organization has to factor(s) that will lower its profits or
lead it to fail. Anything that threatens a company's ability to achieve its financial goals is considered
a business risk. There are many factors that can converge to create business risk. Sometimes it is a
company's top leadership or management that creates situations where a business may be exposed
to a greater degree of risk. Business risk usually occurs in one of four ways: strategic risk, compliance
risk, operational risk, and reputational risk.
Sometimes the cause of risk is external to a company. Because of this, it is impossible for a company
to completely shelter itself from risk. However, there are ways to mitigate the overall risks
associated with operating a business; most companies accomplish this by adopting a risk
management strategy.
Business risk is influenced by a number of different factors including:

• Consumer preferences, demand, and sales volumes

• Per-unit price and input costs
• Competition
• The overall economic climate
• Government regulations

Macro Environment for the Promotion of Entrepreneurship

The macro environment for the promotion of entrepreneurship refers to the external factors and
conditions that influence and shape the overall entrepreneurial ecosystem at a broader level.
1. Government Policies and Regulations: Government policies, regulations, and initiatives
significantly impact entrepreneurship. Policies that support ease of doing business, reduce
bureaucratic hurdles, and provide incentives for startups can foster entrepreneurship.
2. Economic Conditions: The overall economic health of a country, including factors like GDP
growth, inflation rates, and interest rates, influences entrepreneurship. A stable and growing
economy often provides a favorable environment for startups.
3. Access to Finance: Availability of capital and financial resources is crucial for entrepreneurial
ventures. Macro factors such as interest rates, the banking system, and the availability of
venture capital influence the funding landscape for startups.
4. Technological Landscape: Advances in technology, the presence of innovation hubs, and a
supportive technological infrastructure create an environment conducive to entrepreneurial
activities, especially in tech-driven sectors.
5. Market Conditions and Consumer Behavior: The size and characteristics of the market, as well
as consumer behavior, influence the opportunities available for entrepreneurs. A dynamic and
evolving market can create space for new ventures.
6. Globalization and Trade Policies: Access to global markets, international collaborations, and
trade policies influence the growth and expansion opportunities for entrepreneurial ventures.
Globalization opens up avenues for scaling businesses beyond national borders.