Indian Economy

for UPSC
How Important is Economy for UPSC
References
• NCERT BOOKS
• Class 12th–Macroeconomics
• Class 11th–Indian Economic Development
• Class 10th–Understanding Economic Development
• Class 9th–Economics

• “Indian Economy” by Sankarganesh Karuppiah

• “Indian Economy” by Nitin Singhania
NEWSPAPERS & MAGAZINES
• The Hindu / The Indian Express
• Any Business Newspaper
• EPW
• IYB
• Yojana
• Kurukshetra
• Budget
• Economic Survey
Syllabus
• Introduction • Human Development
• Indian Tax Structure
• National Income Aggregates
• Public Finance
• Inflation and Deflation
• Capital Market
• Money and Banking • External sector & International
• Poverty Trade
• Employment • Planning
• Money Market • Inclusive Growth
• Miscellaneous –WTO, WB, IMF
Economics and Economy
• Economics is a Social Science that studies how products and services
are produced, distributed and consumed.

• Allocate the Resources (Individuals, Firms , Governments and Nations)

• Maximize Output

• Economy is Economics at play in a region, - Country. Example Indian

Economy.
Why Allocate
• Scarcity
Types of Economics

• Macro Economics (Study the behavior of the Entire Country)

“Price Theory”
• Micro Economics (individual Consumers / Individual Business )
Government
Firms External Sector
Households
“Income and Employment Thoery”
Difference between Micro and Macro Economics
Types of Economy
• Market Economy

• Non-Market Economy

• Mixed Economy
Factors of Production and Factor Incomes
• Land • Rent

• Labour • Wage

• Capital • Interest

• Entrepreneurship • Profit
Circular Flow of Income
Economic Agents
• The Governments

• The banks

• And Consumers
Positive Economics and Normative
Economics
• Positive Economics deals with “how the problems are actually solved
in real world” and make a real description based upon the actual data.

• Normative Economics deals with the opinion and suggestion of the

Economists an statements and are derived from the ideological
perspective. It cannot be verified with actual data.
Central Problem of Economics
Sectors of the Economy
• Primary Sector

• Secondary Sector

• Tertiary Sector

• Quaternary Sector

• Quinary Sector
Sectors of the Economy
• Primary Sector
• Raw Materials and Natural Resources.
• Agriculture, Forestry, Fishing, Animal Husbandry and Mining
etc.
• Secondary Sector
• All Manufacturing, Construction, Electricity, Gas, Water supply
and other Utility services
• Tertiary Sector
• Service Sector – IT Services, Transportation, Tourism, Storage,
Communication, Banking etc.
Sectors of the Economy
• Quaternary Sector
• Intellectual or Knowledge-based activities. Like
Consultancy and R&D etc.
• Quinary Sector
• Activities in this sector involve High level Decision
Making in – Government / Industry
Production Possibility Frontier / Curve
• PPF is a graphical
representation showing all the
possible options of output for
two goods that can
be produced using all factors
of production, where the
given resources are fully and
efficiently utilized per unit
time.
Marginal Rate of Transformation (MRT)
• It is Defined as the number of units of one good that must be forgone
to produce one unit of another Good.

• Characteristics of PPF
• Downward Sloping
• Concave shaped
• Inside points are inefficient.
Opportunity Cost
• The Cost of Next best Alternative forgone is known as the
“Opportunity Cost”

• Opportunity Cost = FO – CO

• FO = Return of Best Forgone Option

• CO = Return on Chosen option
Indifference Curve • An indifference curve connects
points on a graph representing
different quantities of two goods,
points between which a
consumer is indifferent.
• That is, any combinations of two
products indicated by the curve
will provide the consumer with
equal levels of utility, and the
consumer has no preference for
one combination or bundle of
goods over a different
combination on the same
curve. 
Properties of Indifference Curves
• Convex to origin
• Slop is called the Marginal rate of Substitution
• Downward Sloping
• Higher the indifference curve indicate the higher level of satisfaction
• It never touches X or Y axis.
• Two Curves Never Touches or intersect one another.
Budget Line
It is a graphical Representation of
all Possible combinations of two
goods which a consumer can
afford to buy with all his/her
available income.

It slopes downwards.
It is a Straight line.
It slope is called Price Ratio.
Market
• Determinants of Market • Different Types of Market
Structure. Structures

• Number of Buyers and Sellers. • Perfect Competition

• Freedom of Entry / Exit of • Monopoly
goods.
• Monopolistic Competition
• Nature of Commodities.
• Knowledge • Oligopoly
• Mobility of Goods. • Monopsony
Concept of Demand of Supply
• Demand
• Demand is the quantity of goods or
services that a consumer is willing
and able to buy.
• Law of Demand
• It states that there exists an inverse
relationship between the price and
Quantity demanded for goods.
Determinants of Demand
• Higher the prices, Lower will be the
demand.
• Price of Related Goods
• Supply
• Supply is the Quantity of a
commodity that a firm is willing
and is able to sell at a given price.
• Law of Supply
• Keeping other factors constant, if
price increases, supply of goods
also increases.
• (If the price increases, the
producers want to maximize
profits.)
Demand and Supply Curve
Types of Goods
• Substitute Goods
• Complementary Goods
• Normal Goods
• Inferior Goods
• Giffen Goods
• Veblen Goods
Types of Goods
• Substitute Goods
• If the Price of the substitute good increases, the
demand of the given commodity increase.

• Complementary Goods
• If the Price of the Complementary good increases, the
demand of the given commodity decreases.
Types of Goods
• Normal Goods
• Demand increases with increase in income.

• Inferior Goods
• Demand falls with increases in income.
Types of Goods
• Giffen Goods
• People consume more if price increases.
No Alternative
• Veblen Goods
• The increase in price encourages people to buy
more because of they think more expensive
products are better.
Elasticity
• Elasticity is the measure of change in the quantity of goods in
relation with the change in prices.

• Elastic and Inelastic Demand

• If there is a change in quantity demanded with the change in
prices, it is called Elastic Demand.
• Inelastic Demand Vice – Versa.
Elasticity

• Price Elasticity of Demand

Zero Price Elasticity of Demand: Whatever is the change in

price, there is absolutely no change in demand.
Invisible Hand and Paradox of Thrift
PYQ
1. Consider the following statements. (2021)
Other things remaining unchanged, market demand for a good might increase if
1. Price of its substitute increases.
2. Price of the its complement increases.
3. The good is an inferior good and income of the consumer increases.
4. Its price falls.
Which of the above statements are correct?
a) 1 and 4 only.
b) 2, 3 and 4
c) 1, 3 and 4
d) 1,2 and 3.
PYQ
1. If a commodity is provided free to the public by the government,
then (2018)
a) The opportunity cost is zero.
b) The opportunity cost is ignored.
c) The opportunity cost is transferred from the consumers of the product to
the tax paying public.
d) The opportunity cost is transferred from the Consumers of the product to
the Government.