ECONOMICS: CHAPTER – 1: INTRODUCTION

1. Economics: The Discipline

• Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.
• Economics studies how individuals, firms, governments, and the other organization within our society make choices and how these choices determine a society’s use of its resources.
• Economics is the discipline which studies how individual, society and governments makes their prioritised choices in the process of using the scarce resources to gratify the various needs and wants of life.

2. Economics And The Economy

• The relation between economics and economy, simply saying, is that of theory and practice.
• Economy is the economics at play in a certain region, the region is the best defined today as a country, a nation – the Indian Economy, the Russian Economy, the French Economy etc.   

3. Challenges Of The Economies

• The main challenge of the economy is to fulfil the needs of its population. Every population needs some goods and services for its survival and well-being.
• Similarly, the services people need may range of healthcare, drinking water supply, education, banking, insurance, airways, telephones, internet, etc.

4. Distribution Network Models       

• In the area of distribution network, we have three historically existing models-state, market and state-market mix.

5. Organizing An Economy

• One issue which has affected the history is how the production process in an economy should be organized.

1. Capitalistic Economy - In capitalistic economy he raised his voice against the heavy-handed government regulation of commerce and industry of the time which did not allow the economy to tap its full economic worth and reach the level of well-being.

2. State Economy - In state economy the decisions related to production, supply and prices were all suggested to be taken solely by the state only. Such economies were also known as Centralized Economy.

3. Mixed Economy - It is an economy where both private and public sector co-exist. The nature of Indian Economy is a mixed economy.

6. Role Of The State In An Economy

• In economic history of the world were three possible roles for the state/government in an economy i.e.

• As a regulator of the economy system, where the state takes important economic decisions, take sole responsibilities to get them implemented.
• As a producer and supplier of private goods and services which will be distributed among the needy according to the principles of market mechanism.
• As a producer or supplier of public goods or social goods which look essential from the perspective of social justice and well-being for the people. For examples Education, Healthcare, Drinking water etc.

7. Washington Consensus

• The term Washington Consensus was coined by the US economist John Williamson in 1989 under which he had suggested a set of policy reforms.
• The policy reforms included ten propositions.

8. Sectors Of An Economy

• The economic activities are broadly classified into three economy.

1. Primary Sector- It is directly use of natural resources as agriculture, forestry, fishing, fuels, metals, minerals and many other such functions come under the primary sector.

2. Secondary Sector- This sector is rightly called the manufacturing sector, which uses the produce of the primary sector as its raw materials.Examples are production of bread and biscuits, cakes, automobiles, textiles, etc.

3. Tertiary Sector- It’s also called as services sector. Education, banking, insurance, transportation, and tourism such services come under tertiary sector.

9. Types Of Economies

• There are three types of Indian economy, which are as follow

1. Agrarian Economy - An economy is called agrarian if its share of the primary sector is 50 per cent or more in the total output of the economy, In India almost 49 per cent of the population depends on the primary sector for their livelihood.

2. Industrial Economy - It contributes 50 per cent or more to the total produce value of an economy. Higher the contribution, higher is the level of industrialization.

3. Service Economy – An Economy where 50 per cent or more of the produced value comes from the tertiary sector is known as the service economy.

10. The Idea Of National Income   

• Income level is the most commonly used tool to determine the well-being and happiness of nations and their citizens.
• The human development index ultimately was heavily dependent on the level of income of an individual in a country.
• These four ways to calculate the income of the economy i.e. GDP, NDP, GNP, NNP.They all present a different story about the income of a nation.

1. GDP – Gross Domestic Product (GDP) is the value of the all final goods and services produced within the boundary of a nation during one year period.

• The equation used to calculate GDP is as follows:
• GDP = Consumption + Government Expenditures + Investment + Exports – Imports

2. NDP - Net Domestic Product (NDP) is the GDP calculated after adjusting the weight of the value of ‘depreciation’.

• The depreciation is officially referred to as the "capital consumption allowance."
• A common equation used to calculate NDP is as follows:
• NDP = Gross domestic product (GDP) – Depreciation

3. GNP – Gross National Product (GNP) is the GDP of a country added with its ‘income from abroad’.

• A common equation used to calculate GNP is as follows:
• GNP = GDP + Income from abroad

4. NNP – Net National Product (NNP) of an economy is the GNP after deducting the loss due to ‘depreciation’.

• The formula to derive it may be written like:
• NNP = GNP - Depreciation