GS Foundation UPSC CSE 2025/26 Economy Mindmaps PDF

GS MINDMAPS  Definition: How people, businesses, governments, and nations use limited resources to produce, distribute, and consume The Study goods/services....

GS MINDMAPS  Definition: How people, businesses, governments, and nations use limited resources to produce, distribute, and consume The Study goods/services. of Economics Key Concept: Human decision- making differs from robotic predictability; individual behavior varies, but group behavior shows patterns suitable for study. Part of social sciences (e.g., anthropology, sociology). Economics Studies human behavior, societal as a organization, and decision- Social making. Science: Uses scientific methods for analysis. Origin: “Micró” (Greek) = small. Focus: Individual agents (firms, consumers, workers). Individual decision-making and market interactions. Microecono Scope: Basics of mics: Resource allocation within specific markets. Economics Demand, supply, pricing. Key Aspects: Market structures and consequences of decisions. Origin: “Makros” (Greek) = large. Perspective: Entire economy. Total economic activity, inflation, unemployment, income Macroec distribution. Scope: onomics: Aggregates (total income, total output). National productivity, economic growth, price levels. Key Aspects: Sectors: consumer behavior (aggregate), firm behavior (total). Micro: Detailed, specific behavior (microscope view). Comparison: Macro: Broad, overall trends (telescope view). 1  Nature: Objective, fact-based. Goal: Describe, explain, predict Positive economic events using Economics: hypotheses, models. Positive and Examples: Verifiable statements Normative like "unemployment rate is 4%." Economics Nature: Subjective, value-based. Normative Goal: Make judgments, suggest Economics: policies based on beliefs. Examples: Statements like "India ought to curb unemployment." Goods: Tangible items (e.g., vegetables, vehicles). Services: Intangible items (e.g., haircuts, online courses). Terms Related Wants: Non-essential items (e.g., to Economics iPhones). Needs: Essential items for survival (e.g., food, shelter). Resources: Factors of production (land, labor, capital, entrepreneurship). Basics of Economics Meaning: Limited resources vs. unlimited demand. Scarcity: Focus: Allocation of scarce resources. Implication: Decision-making between alternatives. Choice: Analysis: Consequences of choices (present/future). Definition: Ratio of useful output to input. Efficiency: Goal: Allocative efficiency to minimize waste. Nature: Fair distribution (income, wealth). Equity: Concept: Normative; different from equality. Factors: Prosperity, quality of life, Nine Central income levels. Concepts in Economic Well-being: Economics Scope: Financial security, meeting needs, choice. Focus: Meeting current needs without harming the future. Sustainability: Concern: Preventing resource depletion/environmental damage. Importance: Constant economic flux. Change: Study: Causes and effects at various levels (structural, social). Definition: Interaction between consumers, firms, governments. Interdependence: Impact: Economic consequences due to interconnectedness. Meaning: Government market involvement. Intervention: Purpose: Address market failures (e.g., equity, sustainability). 2  Definition: Finite resources vs. infinite human wants. Significance: Central concept; without scarcity, economics would not exist. Scarcity Economic Good: Has a price, is limited, and rationed. Free Good: Abundant, no cost, and unlimited (e.g., air in rural areas). Nature: Due to scarcity, choices must be made. Economic Study: Focuses on Choice decision-making, assessing present/future consequences. Income Limitation: Leads to allocation decisions for goods/services. Definition: What is sacrificed to obtain something else. Opportunity Cost Example: Choosing an empanada over a chicken wrap means the wrap is the opportunity cost. Economic Goods: Scarce, have opportunity costs. Free Goods: No opportunity cost; Basic of abundant (e.g., clean air, sunlight). Economics Free Goods: No sacrifice needed, unlimited in supply. Economic Goods: Limited, require scarce resources, have opportunity costs (e.g., natural resources, manufactured items). Economic vs. Free Goods: Contextual Change: Goods can shift from free to economic depending on availability (e.g., land in early America vs. now). Government-Provided Goods: Economic goods provided free due to tax funding (e.g., roads, parks). Common Resources: Limited and can deplete (e.g., forests, rivers). Measure: Satisfaction from consumption. Total Utility: Overall satisfaction from a quantity. Types: Marginal Utility: Added satisfaction from one more unit. Principle: As consumption rises, Utility marginal utility decreases. Concept: Satisfaction from each additional unit consumed decreases over time. Origin: Carl Menger's 1871 "Principles of Economics." Law of Diminishing Example: Drinking multiple Marginal glasses of water—initially Utility satisfying, then less so. Consumer Behavior: Explains why the first unit has the highest value and subsequent units are valued less without price reduction. 3  Core Issue: Resources are scarce, wants are infinite → choices necessary. The Basic What to produce and in what Economic quantities? Allocation of scarce Problem resources. How to produce? Choosing between production methods Three Key Questions: (labor-intensive vs. capital- intensive). For whom to produce? Distribution of goods and services among the population. Ownership: Private. Market Method: Decision-Making: Price-driven; Approaches to consumer and firm interactions. Economic Questions Ownership: Public/government. Command Method: Decision-Making: Centralized government planning. Resource Ownership: Private sector. Decision-Making: Private; driven Free Market Economy: by market forces. Rationing: Price-based. Economic Systems Resource Ownership: Public sector. Basics of Economics Planned Economy: Decision-Making: Government- controlled. Rationing: Non-price; based on government plans. Free Market: Allocation through prices (supply/demand). Price Rationing: Outcome: Decides production, distribution, income. Rationing Methods Planned Economy: Government- led allocation. Non-Price Rationing: Outcome: Centralized control over economic activities. Overprovision of harmful goods (profit motive). Underprovision of merit goods (e.g., healthcare). Environmental/resource Pure Free Market: depletion. Inequality, vulnerable groups unsupported. Industry domination, potential Disadvantages inefficiency. of Systems Complex, inefficient resource allocation. No price system, arbitrary decisions. Pure Planned Economy: Low motivation, distorted incentives. Loss of personal freedom, potential government corruption. 4  Definition: Blend of market mechanisms and government planning. Private and public sectors share roles in ownership/decision- making. Characteristics: Balance varies by country; evolving into market-based mixed systems. Modern Economies Private Sector Role: Determines Key production/sales decisions. and Mixed Features of Systems Mixed Government Role: Manages public Market services (e.g., healthcare, Economies: infrastructure) and influences private sector through policies (e.g., regulations, taxes). USA/UK: Market-dominant, limited intervention. Nordic Countries: Focus on Examples: income redistribution. Japan: Coordination with private sector activities. Definition: Assignment of resources to uses; involves deciding "what/how much" and "how" to produce. Reallocation: Shifting resources based Resource Allocation on new priorities. and Income Distribution: Determines who receives produced goods and services. Output/Income Basics of Distribution: Redistribution of Economics Income: Changes in income/output allocation. Land: Natural resources (e.g., minerals, forests) → Income: Rent. Labor: Human effort (manual/intellectual) → Income: Wages. Factors of Production (FoP): Capital: Physical assets (machinery, tools) → Income: Interest. Entrepreneurship: Innovation, risk-taking → Income: Profit. Physical Capital: Man-made resources (machinery) for production. Human Capital: Skills, education, health enhancing productivity. Natural Capital: Environmental Types of Capital: resources essential for life/economy. Financial Capital: Investments generating monetary returns. Social Capital: Network-based resources facilitating support/access. 5