Important Economics notes & Questions
Q1. What is the effect of Deficit financing?
घाटा वित्तपोषण के क्या प्रभाव है?
a) Deflation/ अपस्फीति
b) Recession/ मंदी
c) Inflation/ मुद्रास्फीति
घाटा वित्तपोषण के क्या प्रभाव है?
a) Deflation/ अपस्फीति
b) Recession/ मंदी
c) Inflation/ मुद्रास्फीति
d) Depression/ अवसाद
Ans.(c)
Q2. The Slack Season in the Indian Economy is?
भारतीय अर्थव्यवस्था में मंद अवधि क्या है?
a) Feb – Apr/ फरवरी - अप्रैल
b) Mar – Apr/ मार्च - अप्रैल
c) Jan – June/ जनवरी - जून
d) Sep – Dec/ सितंबर - दिसंबर
Ans.(c)
भारतीय अर्थव्यवस्था में मंद अवधि क्या है?
a) Feb – Apr/ फरवरी - अप्रैल
b) Mar – Apr/ मार्च - अप्रैल
c) Jan – June/ जनवरी - जून
d) Sep – Dec/ सितंबर - दिसंबर
Ans.(c)
Q3. Development expenditure of the Central government does not include?
केंद्र सरकार के विकास व्यय में क्या शामिल नहीं है?
a) Expenditure on economic services/ आर्थिक सेवाओं पर व्यय
b) Defence expenditure/ रक्षा व्यय
c) Grant to states/ राज्यों को अनुदान
d) Expenditure on social and community services/ सामाजिक और सामुदायिक सेवाओं पर व्यय
Ans.(b)
केंद्र सरकार के विकास व्यय में क्या शामिल नहीं है?
a) Expenditure on economic services/ आर्थिक सेवाओं पर व्यय
b) Defence expenditure/ रक्षा व्यय
c) Grant to states/ राज्यों को अनुदान
d) Expenditure on social and community services/ सामाजिक और सामुदायिक सेवाओं पर व्यय
Ans.(b)
Q4. "The Board of Financial Supervision " was constituted to have mandate over
"वित्तीय पर्यवेक्षण बोर्ड" का गठन किसके तहत जनादेश प्राप्त करने के लिए किया गया था-
a) Only commercial banks/ केवल वाणिज्यिक बैंक
b) Only financial institutions/ केवल वित्तीय संस्थान
c) Only non - banking financial companies/ केवल गैर बैंकिंग वित्तीय कंपनियों
d) All of these/ उपरोक्त सभी
Ans.(d)
"वित्तीय पर्यवेक्षण बोर्ड" का गठन किसके तहत जनादेश प्राप्त करने के लिए किया गया था-
a) Only commercial banks/ केवल वाणिज्यिक बैंक
b) Only financial institutions/ केवल वित्तीय संस्थान
c) Only non - banking financial companies/ केवल गैर बैंकिंग वित्तीय कंपनियों
d) All of these/ उपरोक्त सभी
Ans.(d)
Q5. The balance of the payments deficit in India can be eased by
भारत में भुगतान घाटे का संतुलन किसके द्वारा आसान हो सकता है-
a) conserving the foreign exchange reserves/ विदेशी मुद्रा भंडार का संरक्षण
b) promotion of exports/ निर्यात का प्रचार
c) liberalisation of imports/ आयात का उदारीकरण
d) export promotion and import substitute/ निर्यात पदोन्नति और आयात विकल्प
Ans.(d)
भारत में भुगतान घाटे का संतुलन किसके द्वारा आसान हो सकता है-
a) conserving the foreign exchange reserves/ विदेशी मुद्रा भंडार का संरक्षण
b) promotion of exports/ निर्यात का प्रचार
c) liberalisation of imports/ आयात का उदारीकरण
d) export promotion and import substitute/ निर्यात पदोन्नति और आयात विकल्प
Ans.(d)
Q6. Why is the Inflation described as a regressive form of taxation?
मुद्रास्फीति को कराधान के एक प्रतिकूल रूप के रूप में क्यों वर्णित किया जाता है
a) It results into devaluation of currency / इसका परिणाम मुद्रा अवमूल्यन है
b) It affects exports & makes imports attractive/ यह निर्यात को प्रभावित करता है और आयात को आकर्षक बनाता है
c) It affects the poor & vulnerable sections more/ यह गरीब और कमजोर वर्गों को और अधिक प्रभावित करता है
d) It may cause recession/ यह मंदी का कारण बन सकता है
Ans.(c)
मुद्रास्फीति को कराधान के एक प्रतिकूल रूप के रूप में क्यों वर्णित किया जाता है
a) It results into devaluation of currency / इसका परिणाम मुद्रा अवमूल्यन है
b) It affects exports & makes imports attractive/ यह निर्यात को प्रभावित करता है और आयात को आकर्षक बनाता है
c) It affects the poor & vulnerable sections more/ यह गरीब और कमजोर वर्गों को और अधिक प्रभावित करता है
d) It may cause recession/ यह मंदी का कारण बन सकता है
Ans.(c)
Q7.What could be the Demand pull factors for inflation?
मुद्रास्फीति के लिए मांग खींचने के कारक क्या हो सकते है
a) Boost in agricultural output/ कृषि उत्पादन में बढ़त
b) Developmental expenditure / विकास व्यय
c) Risee in industrial output/ औद्योगिक उत्पादन में वृद्धि
d) Balanced budget/ संतुलित बजट
Ans.(b)
मुद्रास्फीति के लिए मांग खींचने के कारक क्या हो सकते है
a) Boost in agricultural output/ कृषि उत्पादन में बढ़त
b) Developmental expenditure / विकास व्यय
c) Risee in industrial output/ औद्योगिक उत्पादन में वृद्धि
d) Balanced budget/ संतुलित बजट
Ans.(b)
Q8.Who compute the National Income in India?
भारत में राष्ट्रीय आय की गणना कौन करता है
a) Central Statistical Organisation / केंद्रीय सांख्यिकीय संगठन
b) Ministry of Finance/ वित्त मत्रांलय
c) Planning Commission/ योजना आयोग
d) None of these/ इनमे से कोई नहीं
Ans.(a)
भारत में राष्ट्रीय आय की गणना कौन करता है
a) Central Statistical Organisation / केंद्रीय सांख्यिकीय संगठन
b) Ministry of Finance/ वित्त मत्रांलय
c) Planning Commission/ योजना आयोग
d) None of these/ इनमे से कोई नहीं
Ans.(a)
Q9.KYC (Know Your Customer) regulations have been introduced in financial transactions under which regulation?
KYC (KYC) विनियमन किस नियम के तहत वित्तीय लेनदेन में लागू किए गए हैं?
a) Prevention of Money Laundering Act / मनी लॉंडरिंग अधिनियम की रोकथाम
b) Banking Companies Act/ बैंकिंग कंपनियां अधिनियम
c) Companies Act/ कंपनी अधिनियम
d) None of these/ इनमे से कोई नहीं
Ans.(a).
KYC (KYC) विनियमन किस नियम के तहत वित्तीय लेनदेन में लागू किए गए हैं?
a) Prevention of Money Laundering Act / मनी लॉंडरिंग अधिनियम की रोकथाम
b) Banking Companies Act/ बैंकिंग कंपनियां अधिनियम
c) Companies Act/ कंपनी अधिनियम
d) None of these/ इनमे से कोई नहीं
Ans.(a).
Q10."Inflation increases the average level of prices". What does this statement refers to?
“मुद्रास्फीति कीमतों के औसत स्तर को बढ़ाती है’”. यह कथन क्या संदर्भित करता है
1. The price of commodities exceeds income./ वस्तुओं की कीमत आय से अधिक है
2. In real terms, the Money supply grows at a higher rate than the Gross Domestic Product./ वास्तविक रूप में, सकल घरेलू उत्पाद की तुलना में मुद्रा आपूर्ति उच्च दर से बढ़ती है
a) Only 1/ केवल 1
b) Only 2 / केवल 2
c) Both 1 and 2 / 1 और 2 दोनों
d) Neither 1 nor 2/ न 1 और न ही 2
Ans.(b)
“मुद्रास्फीति कीमतों के औसत स्तर को बढ़ाती है’”. यह कथन क्या संदर्भित करता है
1. The price of commodities exceeds income./ वस्तुओं की कीमत आय से अधिक है
2. In real terms, the Money supply grows at a higher rate than the Gross Domestic Product./ वास्तविक रूप में, सकल घरेलू उत्पाद की तुलना में मुद्रा आपूर्ति उच्च दर से बढ़ती है
a) Only 1/ केवल 1
b) Only 2 / केवल 2
c) Both 1 and 2 / 1 और 2 दोनों
d) Neither 1 nor 2/ न 1 और न ही 2
Ans.(b)
Q11. Economic Survey sees Financial Year 2019 GDP growing at-
Answer- 7.0-7.5%
Answer- 7.0-7.5%
Q12. Economic Survey sees average crude oil prices rising __________ in FY 2019.
Answer- 12%
Answer- 12%
Q13. How much GVA growth has been seen in FY17?
Answer- 6.1 per cent
Answer- 6.1 per cent
Q14. GST data shows growth of ________ in the number of indirect taxpayers.
Answer- 50%
Answer- 50%
Q15. By how much percent Real GDP has been notified this FY?
Answer- 6.75%
Answer- 6.75%
Q16. Average Financial Year 2018 CPI inflation seen at-
Answer- 3.7%
Answer- 3.7%
Q17. By how much Services Growth has been seen at-
Answer- 8.3%
Answer- 8.3%
Q18. Agriculture, industry and services sectors are expected to grow at the rate of __________, ________, and ____________ respectively in 2017-18.
Answer- 2.1%, 4.4%, and 8.3%
Answer- 2.1%, 4.4%, and 8.3%
Q19. By how much Industries Growth has been seen at-
Answer- 4.4%
Answer- 4.4%
Q20. GDP growth has averaged ___________ for the period from 2014-15 to 2017-18, which is the highest among the major economies of the world.
Answer- 7.3%
Answer- 7.3%
Q21. The ratio of domestic saving to GDP has reached 29.2 percent in 2013 to a peak of 38.3 percent in 2007, before falling back to _______ percent in 2016.
Answer- 29 percent
Answer- 29 percent
Q22. The foreign exchange reserves has grew by ________ on a year-on-year basis from the end of December 2016 to end of December 2017.
Answer- 14.1%
Answer- 14.1%
Q23. What is the meaning of GVA?
Answer- Gross Value Added
Answer- Gross Value Added
Q24. The survey points out that India can be rated as among the best performing economies in the world as the average growth during last three years is around -------------- points higher than global growth and nearly 3 percentage points higher than that of Emerging Market and Developing Economies.
Answer- 4 percent
Answer- 4 percent
Q25. It was pointed out that the ROSL has increased exports of readymade garments (man-made fibers) by about 16 per cent but not of others. What is the meaning of "L" in ROSL?
Answer- Levies
Answer- Levies
Q26. The survey pointed out that tax departments in India have gone in for contesting against in several tax disputes but also with a low success rate which is below ____________ per cent.
Answer- 30 per cent
Answer- 30 per cent
Q27. A preliminary analysis of the Goods and Services Tax (GST) data reveals that there has been a _________ increase in the number of indirect taxpayers, besides a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises and want to avail themselves of ITC.
Answer- 50%
Answer- 50%
Q28. ITC stands for-
Answer- Input Tax Credits
Answer- Input Tax Credits
Q29. Name the states which has the greatest number of GST registrants.
Answer- Maharashtra, UP, Tamil Nadu and Gujarat
Answer- Maharashtra, UP, Tamil Nadu and Gujarat
Q30. Which state have/has seen the highest increase in the number of tax registrants compared to the old tax regime?
Answer- Uttar Pradesh (UP) and West Bengal (WB)
Answer- Uttar Pradesh (UP) and West Bengal (WB)
Q31. India‘s internal trade in goods and services (excludes non-GST goods and services) is actually even higher and is about ____________ of GDP.
Answer- 60%
Answer- 60%
A Brief Notes On Five Year Plan
1st Plan: 1951-56 :
• Priority giving to Agriculture and Irrigation.
• “Harrod Domar” growth model adopted.
• This is the only plan in which Prices Fell.
• Priority giving to Agriculture and Irrigation.
• “Harrod Domar” growth model adopted.
• This is the only plan in which Prices Fell.
2nd Plan: 1956-61 :
• PC Mahalanobis prepared this Plan. Priority given to basic and heavy industries.
• Bhilai, Rourkela and Durgapur Steel Plants, ONGC, Ranchi Heavy Engg. Corporation, Neyveli Lignite Corporation,
• PC Mahalanobis prepared this Plan. Priority given to basic and heavy industries.
• Bhilai, Rourkela and Durgapur Steel Plants, ONGC, Ranchi Heavy Engg. Corporation, Neyveli Lignite Corporation,
Multi-purpose projects - Nagarjuna Sagar, Bhakra Nangal, Hirakud started during this Plan.
• Deficit financing started in this plan.
• “Socialist pattern of society” is accepted as a goal.
• Deficit financing started in this plan.
• “Socialist pattern of society” is accepted as a goal.
3rd Plan : 1961-66 :
• This plan was a failure. Food output fell, i.e., became negative.
• Bokaro Steel Plant in 1964.
• Sever drought in 100 years, occurred in 1965-66.
• China’s and Pakistan’s innovations.
• Rupee devalued in June 1966 (devaluation was first done in 1949).
• This plan was a failure. Food output fell, i.e., became negative.
• Bokaro Steel Plant in 1964.
• Sever drought in 100 years, occurred in 1965-66.
• China’s and Pakistan’s innovations.
• Rupee devalued in June 1966 (devaluation was first done in 1949).
DURING 1966-69: THREE ANNUAL PLANS, PLAN HOLIDAY
• Green Revolution in 1966 Kharif.
• 14 Banks nationalized in July 1969
• Green Revolution in 1966 Kharif.
• 14 Banks nationalized in July 1969
4th Plan - Aim : 1969-74 :
• Poverty Removal, Growth with stability with distributive justice, self-reliance
• Gadgil Formula : It was followed since 4th plan for central assistance for state plans. This formula was modified by NDC in Dec. 1991 when Pranab Mukherjee was the Chairman of Planning Commission. Hence, it became Gadgil -Mukherjee formula since 8th Plan : “Planning from below”
• started from 4th Plan.
• “Garibi Hatao” slogan in 1971 Elections
• Privy purses were abolished in 4th Plan
• Poverty Removal, Growth with stability with distributive justice, self-reliance
• Gadgil Formula : It was followed since 4th plan for central assistance for state plans. This formula was modified by NDC in Dec. 1991 when Pranab Mukherjee was the Chairman of Planning Commission. Hence, it became Gadgil -Mukherjee formula since 8th Plan : “Planning from below”
• started from 4th Plan.
• “Garibi Hatao” slogan in 1971 Elections
• Privy purses were abolished in 4th Plan
5th Plan - Aim : 1974-79 :
• Poverty removal became distinct objective for the first time.
• DP Dhar drafted.
• “Minimum Needs Programme” launched.
• Command Area Development Programme was started in 1974-75 to utilise water in major and medium irrigation projects in an optimum manner.
• Oil crisis : 1973 Sept.
• 20 point programme replaced 5th plan discontinued 1 year in advance.
• Poverty removal became distinct objective for the first time.
• DP Dhar drafted.
• “Minimum Needs Programme” launched.
• Command Area Development Programme was started in 1974-75 to utilise water in major and medium irrigation projects in an optimum manner.
• Oil crisis : 1973 Sept.
• 20 point programme replaced 5th plan discontinued 1 year in advance.
6th Plan: 1978-83 :
• Proposed by Janata Party but it was defeated in elections and could implement Rolling Plan for 2 years for 1978-80. Prof. DT Lakdawala was the Dy. Chairman, Planning Commission.
• The idea “Rolling Plan” was taken from Japan.
• “Rolling Plan” concept coined by Gunnar Myrdal.
• “Hindu rate of Growth” crossed from 5th plan. This concept was coined by Prof. Raj Krishna (Growth Rate 3% to 3.5%).
• Proposed by Janata Party but it was defeated in elections and could implement Rolling Plan for 2 years for 1978-80. Prof. DT Lakdawala was the Dy. Chairman, Planning Commission.
• The idea “Rolling Plan” was taken from Japan.
• “Rolling Plan” concept coined by Gunnar Myrdal.
• “Hindu rate of Growth” crossed from 5th plan. This concept was coined by Prof. Raj Krishna (Growth Rate 3% to 3.5%).
6th Plan: Aim 1980-85:
• Poverty eradication.
• IRDP, TRYSEM, NREP launched during this Plan.
• Visakhapatnam Steel Plant (Andhra Pradesh), Salem (TamilNadu) Bhadravathi Steel Plants were built.
• Poverty eradication.
• IRDP, TRYSEM, NREP launched during this Plan.
• Visakhapatnam Steel Plant (Andhra Pradesh), Salem (TamilNadu) Bhadravathi Steel Plants were built.
7th Plan: 1985-90 :
• Food, Work, Productivity, “Jawahar Rozgar Yojana”launched in April 1989’.
• Vakil and Brahmananda’s wage good strategy adopted in the 7th Plan.
• Food, Work, Productivity, “Jawahar Rozgar Yojana”launched in April 1989’.
• Vakil and Brahmananda’s wage good strategy adopted in the 7th Plan.
8th Plan : 1992-97 :
• Indicative planning : Based on the model of John.W.Muller.
• This plan achieved highest growth rate of 6.8%.
• “Indicative planning” implemented first in France in 1947–50.
• Indicative planning : Based on the model of John.W.Muller.
• This plan achieved highest growth rate of 6.8%.
• “Indicative planning” implemented first in France in 1947–50.
9th Plan - Aim : 1997-2002
• Human resources development, growth with social justice and equality agricultural rural development, important role to private sector.
• Human resources development, growth with social justice and equality agricultural rural development, important role to private sector.
10th Plan: 2002-07 :
• Growth rate target 87%, achieved 7.8%
• Highest in the entire planning era : 5 crore employment, largest allocation to energy.
• Growth rate target 87%, achieved 7.8%
• Highest in the entire planning era : 5 crore employment, largest allocation to energy.
11th Plan : 2007-12:
• Theme : “Faster and more Inclusive Growth”
• Total proposed outlay : ` 36,44,718 Crores (doubled)
• Union Government ` 21,56,571 Crores (59.2%).
• States ` 14,88,147 Crores (40.8%).
• Approach paper to 11th Plan approved by the Planning Commission on 18-10-2006.
• 52nd National Development Council approved the Draft Plan on 09-12-2006.
• 54th National Development Council approved in its meeting on 19-12-2007
• 55th National Development council meet held on 24-07-2010.
• Central Gross Budgetary Support. ` 14,21,711 Crores.
• This is centre’s support to plan.
• Midterm Review of the 11th plan is done by Planning Commission on 23-03-2010, and the 11th plan growth target is reduced from 9% to 8.1%. (It projects the growth rate for 20-09-10, 20-10-11, 20-11-12 as 7.2%, 8.5% and 9% respectively. Also to increase the outlay on infrastructure sector from the present $ 500 billion in 11th Plan to $ 1 Trillion in 12th Plan).
• Theme : “Faster and more Inclusive Growth”
• Total proposed outlay : ` 36,44,718 Crores (doubled)
• Union Government ` 21,56,571 Crores (59.2%).
• States ` 14,88,147 Crores (40.8%).
• Approach paper to 11th Plan approved by the Planning Commission on 18-10-2006.
• 52nd National Development Council approved the Draft Plan on 09-12-2006.
• 54th National Development Council approved in its meeting on 19-12-2007
• 55th National Development council meet held on 24-07-2010.
• Central Gross Budgetary Support. ` 14,21,711 Crores.
• This is centre’s support to plan.
• Midterm Review of the 11th plan is done by Planning Commission on 23-03-2010, and the 11th plan growth target is reduced from 9% to 8.1%. (It projects the growth rate for 20-09-10, 20-10-11, 20-11-12 as 7.2%, 8.5% and 9% respectively. Also to increase the outlay on infrastructure sector from the present $ 500 billion in 11th Plan to $ 1 Trillion in 12th Plan).
12th Plan : 2012-17 :
• This plan’s focus is on instilling “inclusive growth”.
• The plan is concentrated to encourages the development of India’s agriculture, education, health and social welfare through government spending.
• It is also expected to create employment through developing India’s manufacturing sector and move the nation higher up the value chain.
• Our PM Narendar Modi, however, warned that maintaining fiscal discipline is important as well.
• This plan’s focus is on instilling “inclusive growth”.
• The plan is concentrated to encourages the development of India’s agriculture, education, health and social welfare through government spending.
• It is also expected to create employment through developing India’s manufacturing sector and move the nation higher up the value chain.
• Our PM Narendar Modi, however, warned that maintaining fiscal discipline is important as well.
DEMAND
Demand:- Quantity of the commodity that a consumer is able and willing to purchase in a given period and at a given price.
Demand:- Quantity of the commodity that a consumer is able and willing to purchase in a given period and at a given price.
Demand Schedule:- It is a tabular representation which shows the relationship between price of the commodity and quantity purchased.
Demand Curve:- It is a graphical representation of demand schedule.
Individual Demand:- Demand by an individual consumer.
Demand Curve:- It is a graphical representation of demand schedule.
Individual Demand:- Demand by an individual consumer.
Factors Affecting Individual Demand For a Commodity/Determinants of Demand:-
1. Price of the commodity itself
2. Income of the consumer
3. Price of related goods
4. Taste and Preference
5. Expectations of future price change
1. Price of the commodity itself
2. Income of the consumer
3. Price of related goods
4. Taste and Preference
5. Expectations of future price change
Law of Demand:- Other things remains constant, demand of a good falls with rise in price and vice versa .
Changes in Demand:-
They are of two types:
1) Change in Quantity Demanded (Movement along the same demand curve)
2) Change in Demand (Shifts in demand)
They are of two types:
1) Change in Quantity Demanded (Movement along the same demand curve)
2) Change in Demand (Shifts in demand)
1) Change in Quantity Demanded: -
Demand changes due to change in price of the commodity alone, other factors remain constant; are of two types;
A) Expansion of demand : More demand at a lower price
B) Contraction of demand : Less demand at a higher price
Demand changes due to change in price of the commodity alone, other factors remain constant; are of two types;
A) Expansion of demand : More demand at a lower price
B) Contraction of demand : Less demand at a higher price
2) Change in demand:-
Demand changes due to change in factors other than price of the commodity, are of two types:
A) Increase in demand:- more demand due to change in other factors, price remaining constant.
B) Decrease in demand:- less demand due to change in other factors, price remaining constant.
Demand changes due to change in factors other than price of the commodity, are of two types:
A) Increase in demand:- more demand due to change in other factors, price remaining constant.
B) Decrease in demand:- less demand due to change in other factors, price remaining constant.
Causes of Increase in Demand:-
1. Increase in Income.
2. Increase/ favorable change in taste and preference.
3. Rise in price of substitute good.
4. Fall in price of complementary good.
Note: Increase in income causes increase in demand for normal good
1. Increase in Income.
2. Increase/ favorable change in taste and preference.
3. Rise in price of substitute good.
4. Fall in price of complementary good.
Note: Increase in income causes increase in demand for normal good
Causes of Decrease in Demand:
1. Decrease in Income.
2. Unfavorable/Decrease in taste and preference
3. Decrease in price of substitute good.
4. Rise in price of complementary good.
Note: Decrease in income causes Decrease in demand for normal good
1. Decrease in Income.
2. Unfavorable/Decrease in taste and preference
3. Decrease in price of substitute good.
4. Rise in price of complementary good.
Note: Decrease in income causes Decrease in demand for normal good
Type of Goods
Substitute Goods:- Increase in the price of one good causes increase in demand for other good. E.g., tea and Coffee
Complementary Goods:- Increase in the price of one good causes decrease in demand for other good. E.g:- Petrol and Car
Normal Good:- Goods which are having positive relation with income. It means when income rises, demand for normal goods also rises.
Inferior Goods:- Goods which are having negative relation with income. It means less demand at higher income and vice versa.
Normal goods - the quantity demanded of such commodities increases as the consumer’s income increases and decreases as the consumer’s income decreases. Such goods are called normal goods.
Giffen goods - a Giffen good is an inferior good which people consume more of as price rises, violating the law of demand.. In the Giffen good situation, cheaper close substitutes are not available. Because of the lack of substitutes, the income effect dominates, leading people to buy more of the good, even as its price rises.
Veblen good : Often confused with Giffen goods, Veblen goods are goods for which increased prices will increase quantity demanded. However, this is not because the consumers are forced into buying more of the good due to budgetary constraints (as in Giffen goods). Rather, Veblen goods are high-status goods such as expensive wines, automobiles, watches, or perfumes. The utility of such goods is associated with their ability to denote status. Decreasing their price decreases the quantity demanded because their status- denoting utility becomes compromised.
Complementary Goods:- Increase in the price of one good causes decrease in demand for other good. E.g:- Petrol and Car
Normal Good:- Goods which are having positive relation with income. It means when income rises, demand for normal goods also rises.
Inferior Goods:- Goods which are having negative relation with income. It means less demand at higher income and vice versa.
Normal goods - the quantity demanded of such commodities increases as the consumer’s income increases and decreases as the consumer’s income decreases. Such goods are called normal goods.
Giffen goods - a Giffen good is an inferior good which people consume more of as price rises, violating the law of demand.. In the Giffen good situation, cheaper close substitutes are not available. Because of the lack of substitutes, the income effect dominates, leading people to buy more of the good, even as its price rises.
Veblen good : Often confused with Giffen goods, Veblen goods are goods for which increased prices will increase quantity demanded. However, this is not because the consumers are forced into buying more of the good due to budgetary constraints (as in Giffen goods). Rather, Veblen goods are high-status goods such as expensive wines, automobiles, watches, or perfumes. The utility of such goods is associated with their ability to denote status. Decreasing their price decreases the quantity demanded because their status- denoting utility becomes compromised.
FORMS OF MARKET AND PRICE DETERMINATION
Market: Market is a place in which buyers and sellers come into contact for the purchase and sale of goods and services.
Market structure: refers to number of firms operating in an industry, nature of competition between them and the nature of product.
Market structure: refers to number of firms operating in an industry, nature of competition between them and the nature of product.
Types of market
a) Perfect competition. b) Monopoly.
c) Monopolistic Competition d) Oligopoly.
a) Perfect competition: refers to a market situation in which there are large number of buyers and sellers. Firms sell homogeneous products at a uniform price.
b) Monopoly market: Monopoly is a market situation dominated by a single seller who has full control over the price.
c) Monopolistic competition: It refers to a market situation in which there are many firms who sell closely related but differentiated products.
d) Oligopoly: is a market structure in which there are few large sellers of a commodity and large number of buyers.
a) Perfect competition. b) Monopoly.
c) Monopolistic Competition d) Oligopoly.
a) Perfect competition: refers to a market situation in which there are large number of buyers and sellers. Firms sell homogeneous products at a uniform price.
b) Monopoly market: Monopoly is a market situation dominated by a single seller who has full control over the price.
c) Monopolistic competition: It refers to a market situation in which there are many firms who sell closely related but differentiated products.
d) Oligopoly: is a market structure in which there are few large sellers of a commodity and large number of buyers.
Features of perfect competition:
1. Very large number of buyers and sellers.
2. Homogeneous product.
3. Free entry and exit of firms.
4. Perfect knowledge.
5. Firm is a price taker and industry is price maker.
6. Perfectly elastic demand curve (AR=MR)
7. Perfect mobility of factors of production.
8. Absence of transportation cost.
9. Absence of selling cost.
1. Very large number of buyers and sellers.
2. Homogeneous product.
3. Free entry and exit of firms.
4. Perfect knowledge.
5. Firm is a price taker and industry is price maker.
6. Perfectly elastic demand curve (AR=MR)
7. Perfect mobility of factors of production.
8. Absence of transportation cost.
9. Absence of selling cost.
Features of monopoly:
1. Single seller of a commodity.
2. Absence of close substitute of the product.
3. Difficulty of entry of a new firm.
4. Negatively sloped demand curve(AR>MR)
5. Full control over price.
6. Price discrimination exists
7. Existence of abnormal profit.
1. Single seller of a commodity.
2. Absence of close substitute of the product.
3. Difficulty of entry of a new firm.
4. Negatively sloped demand curve(AR>MR)
5. Full control over price.
6. Price discrimination exists
7. Existence of abnormal profit.
Features of monopolistic competition
1. Large number of buyers and sellers but less than perfect competition.
2. Product differentiation.
3. Freedom of entry and exit.
4. Selling cost.
5. Lack of perfect knowledge.
6. High transportation cost.
7. Partial control over price.
1. Large number of buyers and sellers but less than perfect competition.
2. Product differentiation.
3. Freedom of entry and exit.
4. Selling cost.
5. Lack of perfect knowledge.
6. High transportation cost.
7. Partial control over price.
Main features of Oligopoly.
1. Few dominant firms who are large in size
2. Mutual interdependence.
3. Barrier to entry.
4. Homogeneous or differentiated product.
5. Price rigidity.
1. Few dominant firms who are large in size
2. Mutual interdependence.
3. Barrier to entry.
4. Homogeneous or differentiated product.
5. Price rigidity.
Features of pure competition
1. Large number of buyers and sellers.
2. Homogeneous products.
3. Free entry and exit of firm.
1. Large number of buyers and sellers.
2. Homogeneous products.
3. Free entry and exit of firm.
What are selling cost?
Ans.: Cost incurred by a firm for the promotion of sale is known as selling cost. (Advertisement cost)
Ans.: Cost incurred by a firm for the promotion of sale is known as selling cost. (Advertisement cost)
What is product differentiation?
Ans: It means close substitutes offered by different producers to show their output differs from other output available in the market. Differentiation can be in colour, size packing, brand name etc to attract buyers.
Ans: It means close substitutes offered by different producers to show their output differs from other output available in the market. Differentiation can be in colour, size packing, brand name etc to attract buyers.
What do you mean by patent rights?
Ans:- Patent rights is an exclusive right or license granted to a company to produce a particular output under a specific technology.
Ans:- Patent rights is an exclusive right or license granted to a company to produce a particular output under a specific technology.
What is price discrimination?
Ans: - It refers to charging of different prices from different consumers for different units of the same product.
Ans: - It refers to charging of different prices from different consumers for different units of the same product.
Indian Economy And It's Features
1.Organized Sector: The sector which carries out all activity through a system and follows the law of the land is called organized sector. Moreover, labour rights are given due respect and wages are as per the norms of the country and those of the industry. Labour working organized sector get the benefit of social security net as framed by the Government. Certain benefits like provident fund, leave entitlement, medical benefits and insurance are provided to workers in the organized sector. These security provisions are necessary to provide source of sustenance in case of disability or death of the main breadwinner of the family without which the dependent will face a bleak future.
1.Organized Sector: The sector which carries out all activity through a system and follows the law of the land is called organized sector. Moreover, labour rights are given due respect and wages are as per the norms of the country and those of the industry. Labour working organized sector get the benefit of social security net as framed by the Government. Certain benefits like provident fund, leave entitlement, medical benefits and insurance are provided to workers in the organized sector. These security provisions are necessary to provide source of sustenance in case of disability or death of the main breadwinner of the family without which the dependent will face a bleak future.
2.Unorganized Sector: The sectors which evade most of the laws and don’t follow the system come under unorganized sector. Small shopkeepers, some small scale manufacturing units keep all their attention on profit making and ignore their workers basic rights. Workers don’t get adequate salary and other benefits like leave, health benefits and insurance are beyond the imagination of people working in unorganized sectors.
3.Public Sector: Companies which are run and financed by the Government comprises the public sector.After independence India was a very poor country. India needed huge amount of money to set up manufacturing plants for basic items like iron and steel, aluminium, fertilizers and cements. Additional infrastructure like roads, railways, ports and airports also require huge investment. In those days Indian entrepreneur was not cash rich so government had to start creating big public sector enterprises like SAIL(Steel Authority of India Limited), ONGC (Oil & Natural Gas Commission).
4.Private Sector: Companies which are run and financed by private people comprise the private sector.Companies like Hero Honda, Tata are from private sectors.
Sectors of Economy : Primary, Secondary, Tertiary, Quaternary and Quinary
Primary activities
Primary activities are directly dependent on environment as these refer to utilisation ofearth’s resources such as land, water, vegetation, building materials and minerals. It, thus includes, hunting and gathering, pastoral activities, fishing, forestry, agriculture, and mining and quarrying.
People engaged in primary activities are called red-collar workers due to the outdoor nature of their work.
Primary activities are directly dependent on environment as these refer to utilisation ofearth’s resources such as land, water, vegetation, building materials and minerals. It, thus includes, hunting and gathering, pastoral activities, fishing, forestry, agriculture, and mining and quarrying.
People engaged in primary activities are called red-collar workers due to the outdoor nature of their work.
Secondary activities
Secondary activities add value to natural resources by transforming raw materials into valuable products. Secondary activities, therefore, are concerned with manufacturing, processing and construction (infrastructure) industries.
People engaged in secondary activities are called blue collar workers.
Secondary activities add value to natural resources by transforming raw materials into valuable products. Secondary activities, therefore, are concerned with manufacturing, processing and construction (infrastructure) industries.
People engaged in secondary activities are called blue collar workers.
Tertiary activities
Tertiary activities include both production and exchange. The production involves the ‘provision’ of services that are ‘consumed. Exchange, involves trade, transport and communication facilities that are used to overcome distance.
Tertiary jobs = White collar jobs.
Tertiary activities include both production and exchange. The production involves the ‘provision’ of services that are ‘consumed. Exchange, involves trade, transport and communication facilities that are used to overcome distance.
Tertiary jobs = White collar jobs.
Quaternary activities
Quaternary activities are specialized tertairy activities in the ‘Knowledge Sector’ which demands a separate classification. There has been a very high growth in demand for and consumption of information based services from mutual fund managers to tax consultants, software developers and statisticians. Personnel working in office buildings, elementary schools and university classrooms, hospitals and doctors’ offices, theatres, accounting and brokerage firms all belong to this category of services. Like some of the tertiary functions, quaternary activities can also be outsourced. They are not tied to resources, affected by the environment, or necessarily localised by market.
Quaternary activities are specialized tertairy activities in the ‘Knowledge Sector’ which demands a separate classification. There has been a very high growth in demand for and consumption of information based services from mutual fund managers to tax consultants, software developers and statisticians. Personnel working in office buildings, elementary schools and university classrooms, hospitals and doctors’ offices, theatres, accounting and brokerage firms all belong to this category of services. Like some of the tertiary functions, quaternary activities can also be outsourced. They are not tied to resources, affected by the environment, or necessarily localised by market.
Quinary activities
Quinary activities are services that focus on the creation, re-arrangement and interpretation of new and existing ideas; data interpretation and the use and evaluation of new technologies. Often referred to as ‘gold collar’ professions, they represent another subdivision of the tertiary sector representing special and highly paid skills of senior business executives, government officials, research scientists, financial and legal consultants, etc. Their importance in the structure of advanced economies far outweighs their numbers.The highest level of decision makers or policy makers perform quinary activities.
Quinary = Gold collar professions.
Quinary activities are services that focus on the creation, re-arrangement and interpretation of new and existing ideas; data interpretation and the use and evaluation of new technologies. Often referred to as ‘gold collar’ professions, they represent another subdivision of the tertiary sector representing special and highly paid skills of senior business executives, government officials, research scientists, financial and legal consultants, etc. Their importance in the structure of advanced economies far outweighs their numbers.The highest level of decision makers or policy makers perform quinary activities.
Quinary = Gold collar professions.
FINANCE COMMISSION OF INDIA
A finance commission is set up every five years by the President under Article 280 of the Constitution. Finance Commission of India came into existence in 1951.It was formed todefine the financial relations between the centre and the state. These recommendations cover a period of five years. The commission also lays down rules by which the centre should provide grants-in-aid to states out of the Consolidated Fund of India. It is also required to suggest measures to augment the resources of states and ways to supplement the resources of panchayats and municipalities.
A finance commission is set up every five years by the President under Article 280 of the Constitution. Finance Commission of India came into existence in 1951.It was formed todefine the financial relations between the centre and the state. These recommendations cover a period of five years. The commission also lays down rules by which the centre should provide grants-in-aid to states out of the Consolidated Fund of India. It is also required to suggest measures to augment the resources of states and ways to supplement the resources of panchayats and municipalities.
Composition of the Fourteenth Finance Commission
The Fourteenth Finance Commission has been set up under the Chairmanship of Dr.Y.V.Reddy
[Former Governor Reserve Bank of India].
Other Members of the Commission are:
The Fourteenth Finance Commission has been set up under the Chairmanship of Dr.Y.V.Reddy
[Former Governor Reserve Bank of India].
Other Members of the Commission are:
• Ms. SushmaNath [Former Union Finance Secretary],
• Dr.M.Govinda Rao [Director, National Institute for Public Finance and Policy, New Delhi].
• Dr.SudiptoMundle, Former Acting Chairman, National Statistical Commission.
• Prof Abhijit Sen (Member, Planning Commission) is the part timeMember of the Fourteenth Finance.
• Commission. Shri Ajay Narayan Jha is the Secretary, Fourteenth Finance Commission.
• Dr.M.Govinda Rao [Director, National Institute for Public Finance and Policy, New Delhi].
• Dr.SudiptoMundle, Former Acting Chairman, National Statistical Commission.
• Prof Abhijit Sen (Member, Planning Commission) is the part timeMember of the Fourteenth Finance.
• Commission. Shri Ajay Narayan Jha is the Secretary, Fourteenth Finance Commission.
Qualifications of the Members
The Chairman of the Finance Commission is selected among people who have had the experience of public affairs. The other four members are selected from people who:
The Chairman of the Finance Commission is selected among people who have had the experience of public affairs. The other four members are selected from people who:
• Are, or have been, or are qualified, as judges of High Court, or
• Have knowledge of Government finances or accounts, or
• Have had experience in administration and financial expertise;
• Have special knowledge of economics
Procedure and Powers of the Commission:
The Commission has the power determine their own procedure and:
• Have knowledge of Government finances or accounts, or
• Have had experience in administration and financial expertise;
• Have special knowledge of economics
Procedure and Powers of the Commission:
The Commission has the power determine their own procedure and:
• Has all powers of the civil court as per the Court of Civil Procedure, 1908.
• Can summon and enforce the attendance of any witness or ask any person to deliver information or produce a document, which it deems relevant.
• Can ask for the production of any public record or document from any court or office.
• Shall be deemed to be a civil court for purposes of Sections 480 and 482 of the Code of Criminal Procedure, 1898.
• Can summon and enforce the attendance of any witness or ask any person to deliver information or produce a document, which it deems relevant.
• Can ask for the production of any public record or document from any court or office.
• Shall be deemed to be a civil court for purposes of Sections 480 and 482 of the Code of Criminal Procedure, 1898.
Tenure of the 14th Finance Commission:
The Finance Commission is required to give its report by 31st October, 2014.Its recommendations will cover the five year period commencing from 1st April, 2015.
The Finance Commission is required to give its report by 31st October, 2014.Its recommendations will cover the five year period commencing from 1st April, 2015.
Among the major recommendation
• It includes the centre to share 42% of the divisible pool of tax to the states which is 10% more than the present share.
• It recommended doing away with the distinction between unconditional and conditional transfers.
• Previously the transfers were a mix of conditional and unconditional funds, where the conditional transfers is given for serving some specific purpose. Here the state having the flexibility to utilize the conditional transfers as per the needs.
• The commission, on deciding the share of states has done away with the component of previous commission namely, fiscal discipline. Instead it introduced two new components that are changes in population between 1971 and 2011 and giving credit to the success in retaining forest cover.
• The commission along with recommended on implementation of Goods and Services Tax and laid out a fiscal road map for the economy.
• It recommended doing away with the distinction between unconditional and conditional transfers.
• Previously the transfers were a mix of conditional and unconditional funds, where the conditional transfers is given for serving some specific purpose. Here the state having the flexibility to utilize the conditional transfers as per the needs.
• The commission, on deciding the share of states has done away with the component of previous commission namely, fiscal discipline. Instead it introduced two new components that are changes in population between 1971 and 2011 and giving credit to the success in retaining forest cover.
• The commission along with recommended on implementation of Goods and Services Tax and laid out a fiscal road map for the economy.
Study Notes on Types of Goods in Economy
Complementary Goods
Definition: Two or more goods that satisfy the wants or needs when consumed jointly or production of one good automatically triggers the production of other good. Satisfaction is greater when both goods are consumed together. (What are Substitute Goods?)
Complementary Goods
Definition: Two or more goods that satisfy the wants or needs when consumed jointly or production of one good automatically triggers the production of other good. Satisfaction is greater when both goods are consumed together. (What are Substitute Goods?)
Features of Complement Goods:
•Such goods have negative cross elasticity of demand. They will have a perfectly inelastic demand.
•Goods cannot function without each other.
•Dependent Nature & non-interchangeable
•Such goods have negative cross elasticity of demand. They will have a perfectly inelastic demand.
•Goods cannot function without each other.
•Dependent Nature & non-interchangeable
Examples of Complement Goods:
•Car & Petrol/Diesel
•Printers and ink cartridges
•DVD players and DVDs
•Computer hardware and software,
•Flashlight and battery
•Car & Petrol/Diesel
•Printers and ink cartridges
•DVD players and DVDs
•Computer hardware and software,
•Flashlight and battery
Giffen Goods
What are Giffen Goods?
A giffen good is an inferior good (a good that people buy more of when their income goes down) with the unique characteristic that an increase in price actually increases the quantity of the good that is demanded. This provides the unusual result of an upward sloping demand curve. The Giffen goods which fail with Law of Demand. Giffen goods are goods that are substitutes for a more expensive good, that people buy more of when they cannot afford a superior good.( Funny example is China made IPhone).
So what is Law of Demand Actually? How Giffen goods fail?
To understand Giffen goods, you must understand both the substitution effect and the income effect.
•Substitution effect: When the price of a good decreases, there is more consumption of this good. This is always positive.
•Income effect: When the price of a good falls, the total expenditure (or portion of your income spent on this good) changes. This can be positive or negative.
A negative income effect will only occur for inferior goods. For a Giffen good, the item is so inferior that if its price falls you will buy less of it (extremely negative income effect) and that if its price rises you will buy more of it (your income falls so you buy more inferior goods).
To understand Giffen goods, you must understand both the substitution effect and the income effect.
•Substitution effect: When the price of a good decreases, there is more consumption of this good. This is always positive.
•Income effect: When the price of a good falls, the total expenditure (or portion of your income spent on this good) changes. This can be positive or negative.
A negative income effect will only occur for inferior goods. For a Giffen good, the item is so inferior that if its price falls you will buy less of it (extremely negative income effect) and that if its price rises you will buy more of it (your income falls so you buy more inferior goods).
Veblen Goods
What are Veblen Goods in Economy?
Veblen goods provide the consumer greater satisfaction (or utility) as the price increases. A Veblen good is a good where demand rises as price rises. People think more expensive goods are better quality, and so people buy more. Studies suggest people do get more satisfaction from receiving expensive goods. It is possible that designer clothes or luxury cars may sometimes meet the criteria of Veblen goods. This is often termed the snob effect – people equate price to quantity. They are not inferior goods.
Fine Examples
•Luxury Cars
•Gucci bag
•Expensive Wines
The utility of such goods is associated with their ability to denote status. Decreasing their price decreases the quantity demanded because their status denoting utility becomes compromised.
•Luxury Cars
•Gucci bag
•Expensive Wines
The utility of such goods is associated with their ability to denote status. Decreasing their price decreases the quantity demanded because their status denoting utility becomes compromised.
Substitute Goods:
This means a good's demand is increased when the price of another good is increased. Conversely, the demand for a good is decreased when the price of another good is decreased. That is people search for cheaper alternative. These Goods are in complete Contrast with Complement Goods, Giffen Goods, Veblen Goods (What are Complement Goods, Giffen Goods & Veblen Goods?)
Characteristics of Substitute Goods:
•Born from concept of Competition.
•They can serve the same purpose/use.
•Provide needs in Many Ways to Consumers.
•They provide freedom to choose and pressure goods to supply at reasonable price.
•The increased demand for one of the goods will subsequently cause a decrease in demand for the other. For examples, If X and Y are substitutes if, when the price of X rises, the demand for Y rise.
•They have positive cross elasticity of demand.
Examples of Substitute Goods in Economy:
•Pepsi & Coca Cola Drinks
•Coffee and Tea
•Born from concept of Competition.
•They can serve the same purpose/use.
•Provide needs in Many Ways to Consumers.
•They provide freedom to choose and pressure goods to supply at reasonable price.
•The increased demand for one of the goods will subsequently cause a decrease in demand for the other. For examples, If X and Y are substitutes if, when the price of X rises, the demand for Y rise.
•They have positive cross elasticity of demand.
Examples of Substitute Goods in Economy:
•Pepsi & Coca Cola Drinks
•Coffee and Tea
Inferior Good: An inferior good means an increase in income causes a fall in demand. It has a negative YED.
Normal Good: This means an increase in income causes an increase in demand. It has a positive YED. Note a normal good can be income elastic or income inelastic.
Normal Good: This means an increase in income causes an increase in demand. It has a positive YED. Note a normal good can be income elastic or income inelastic.
Luxury Good. A luxury good means an increase in income causes a bigger % increase in demand. It means that the YED is greater than one. For example, high definition TV’s
would be luxury. When income rises, people spend a higher % of their income on the luxury good. (Note: A Luxury good is always a normal good but not vice versa.
Public Goods – goods with characteristics of non-rivalry and non-excludability, e.g. national defence. See: Public goods
Merit Goods. Goods which people may underestimate benefits of. Also often has positive externalities, e.g. education. See: Merit goods
Demerit Goods. Goods where people may underestimate costs of consuming it. Often has negative externalities, e.g. smoking, drugs. See: Demerit goods
Private goods – goods which do have rivalry and excludability. The opposite of a public good See: Private goods
Public Goods – goods with characteristics of non-rivalry and non-excludability, e.g. national defence. See: Public goods
Merit Goods. Goods which people may underestimate benefits of. Also often has positive externalities, e.g. education. See: Merit goods
Demerit Goods. Goods where people may underestimate costs of consuming it. Often has negative externalities, e.g. smoking, drugs. See: Demerit goods
Private goods – goods which do have rivalry and excludability. The opposite of a public good See: Private goods
Free Goods – A good with no opportunity cost, e.g. breathing air.
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