National Income Overview

National Income

• National income represents the total monetary value of all final goods and services produced within a nation's economy over a year.
• Savings are defined as income set aside for future needs, which involves foregoing current consumption.
• Investment involves the creation of capital assets through mobilization of savings, such as machinery and equipment.
• Trade cycles denote fluctuations in business activity, characterized by inflation (ups) and depression (downs).
• Economic growth signifies a quantitative increase in real national income over time.
• Economic development includes qualitative progress reflecting improvements in education, health, and overall well-being.

Economic Growth vs. Economic Development

• Economic growth focuses on the increase in national income; economic development incorporates broader dimensions affecting people's quality of life.
• Economic growth is a narrow, unidimensional, and reversible concept, while economic development is broader, multi-dimensional, and irreversible.
• Economic growth can occur without development; however, development cannot occur in the absence of growth.

Introduction to Economics

• Economics is classified as a social science, derived from the Greek term "Oikonomia," which means household management.
• It examines how humans satisfy unlimited wants with limited resources.

Types of Economic Systems

• Major systems include capitalism, socialism, and mixed economies.

Kautilya's Economic Perspective

• Kautilya emphasized the significance of the state in wealth acquisition and governance.
• He authored the "Arthashastra," a foundational text on political economy.

Definitions of Economics

• Adam Smith: Economics is a "science of wealth," advocating for non-interventionism and emphasizing capital accumulation.
• Lionel Robbins: Economics examines the relationship between unlimited wants and limited resources with alternate uses.
• Alfred Marshall: Economics studies individual and social actions relevant to material well-being.

Classification of Wants

• Economic wants require monetary expenditure (food, medicine), while non-economic wants can be satisfied without money (air, sunshine).
• Wants can be individual (personal needs) or collective (social needs) and vary with age, gender, season, and culture.

Goods and Services

• Goods have material existence and fulfill wants (e.g., chalk); services fulfill wants immaterially (e.g., teaching).
• Utility refers to a commodity's ability to satisfy human wants.

Value

• Value in use refers to the usefulness of a commodity, while value in exchange pertains to its worth in monetary terms.

Water-Diamond Paradox

• Highlights the disparity between high value-in-use commodities like water and high exchange value items like diamonds.

Wealth Characteristics

• For a commodity to be classified as wealth, it must possess utility, be scarce, transferable, and external.

Income Types

• Fixed income remains stable (rent, wages); fluctuating income varies (profits); monetary income is in cash; real income reflects purchasing power.

Economic Activities

• Production involves creating utility through factors of production: land, labor, capital, and entrepreneurship.
• Distribution involves dividing income among society's segments based on production factors.
• Exchange denotes monetary transactions, while consumption refers to the use of goods and services.

Macro-Economics

• Focuses on aggregates, including total employment, national income, and general price levels, studying overall economic performance.
• Kenneth Boulding described macroeconomics as analyzing national scales rather than individual components.

Summary

• This compilation of economic principles, definitions, and characteristics emphasizes the systematic understanding of wealth, income, and the various facets of economics as a behavioral science.