6540cdaf59299200187fb522_##_Economy 01-Daily Class notes (1).pdf

DAILY CLASS NOTES NCERT: Indian Economy Lecture -01 Introduction  2 Introduction Prelims Syllabus: ❖ Economic and Social Development - Sustainable Development, Poverty, Inc...

DAILY CLASS NOTES NCERT: Indian Economy Lecture -01 Introduction  2 Introduction Prelims Syllabus: ❖ Economic and Social Development - Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc. Books to be Followed: ❖ Indian Economic Development - Class XI ❖ Introductory Microeconomics - Class XII ❖ Introductory Macroeconomics - Class XII ❖ NCERT WALLAH - Economy Importance of Economy:  3 Economy vs Economics: ❖ Economics as a discipline is the study of the choices. A person has unlimited wants but limited resources therefore there is a need to create a balance between both. A person makes different choices every moment such as what is more important and what is not. The process of management of unlimited wants with the limited or scarce resources available is called Economics. Economics is the study of how scarce resources are used to produce and meet demand. ❖ The Economy is the implementation of the theories of economics. The Economy is the study of ‘economics in action’. Example: Indian Economy, American Economy, etc. ❖ There are two branches of economics i.e. 1. Micro Economics 2. Macro Economics Micro Economics vs Macro Economics: Micro Economics Macro Economics ❖ Micro literally means small. ❖ Macro literally means large. ❖ The microeconomics takes into account ❖ Under macroeconomics, the economy small components of the economy. of the country is considered as a whole. ❖ It studies economics at the individual ❖ It studies economics at the aggregate level. level.  4 ❖ It studies individual, household, and ❖ It studies the decisions of the business decisions. Government and countries of the world. ❖ It is also called Price Theory. ❖ It is also called Income Theory. ❖ It is useful for individual investors. ❖ It is useful for Fiscal and Monetary Policy decisions. ❖ The Fiscal policy is the policies of the Government whereas the Monetary policy is the policies of the Central Bank of India i.e. Reserve Bank of India (RBI). Fundamental Questions of Economy: ❖ What to Produce and How Much to Produce? Under this, the item that is to be produced like a pen, car, etc., and the quantity of the product produced will be decided. It involves the problem of allocation of resources. ❖ How to Produce? Under this, the method or techniques of production i.e. through the use of labor or machines will be decided. An economy that largely uses labor for the production of goods is called a Labour Intensive Economy. Example: Since the population of Bangladesh is large, therefore mostly labor, that is available cheaply, is used for the production of goods. Hence, Bangladesh is a labor-intensive economy.  5 An economy that largely uses machinery for the production of goods is called a Capital Intensive Economy. ❖ For Whom to Produce? It deals with the problems of distribution of total production among the owners of the factors of production. Under this, whether the products will be produced for the rich or poor will be decided. Types of Economy: There are three types of Economy: 1. Socialist Economy 2. Capitalist Economy 3. Mixed Economy Socialist Economy Capitalist Economy Mixed Economy ❖ When the government, ❖ When the individual or ❖ When the government as i.e., the public sector the market, i.e., the well as the individuals decides the product to private sector decides and market decides the be produced, the the product to be product to be produced, quantity of the product produced, the quantity the quantity of the produced, the method of the product produced, product produced, the of production for the the method of production method of production product, and for whom for the product, and for for the product, and for the product is produced, whom the product is whom the product is then it is known as the produced, then it is produced, then it is Socialist Economy. known as the Capitalist known as the Mixed Economy. Economy.  6 ❖ There is government ❖ There is little interference ❖ It has features of both interference in the from the government in socialist as well as economy. the economy. capitalist economy. ❖ The role of the public ❖ The role of the private ❖ The role of both the sector is seen more in sector is seen more in the public and private sectors the Socialist Economy. Capitalist Economy. is seen in the Mixed Economy. ❖ Examples: North Korea, ❖ Examples: USA, Japan, ❖ Example: India, etc. Venezuela, Cuba, China, etc. etc. Production Possibility Frontier: ❖ Example: Suppose an individual has one acre of land and wants to produce wheat and rice on the land. Suppose that the maximum production of wheat and rice on one acre of land is 10 kg and 15 kg respectively. Now there are three choices available before him/her: 1. Choice 1: Produce only rice and not wheat. Suppose he produced 10 kg of rice and 0 kg of wheat (represented by A in the figure). 2. Choice 2: Produce only wheat and not rice. Suppose he produced 15 kg of wheat and 0 kg of rice (represented by B in the figure). 3. Choice 3: Produce both wheat and rice. Both of them could be produced equally or unequally (as the quantity of wheat/rice sown increases, the quantity of rice/wheat sown decreases) Suppose he produced 14 kg of wheat and 7 kg of rice (represented by C in the figure).  7 These three choices can be presented on the graph as follows: Case I: Points on the Curve: This is possible when all the resources are utilized at their utmost capacity by the individual. (Represented by A, B, and C in the figure) Case II: Points Inside the Curve: This is possible in case of improper use of resources by the individual. (Represented by E in the figure) Case III: Points Outside the Curve: The point outside the curve is not possible as 10 kg of rice and 15 kg of wheat is the maximum productivity of one acre of land with the present resources. (Represented by D in the figure) ❖ Production Possibility Frontier refers to the collection of all possible combinations that can be produced using given resources. Opportunity Cost or Economy Cost: ❖ It is the cost of the next best alternative foregone. ❖ Example: Suppose an individual has the choice of buying a laptop or mobile with the financial resources available. The individual decides to buy the mobile instead of the laptop. Here the opportunity cost will be the cost of the laptop. Positive and Normative Economics: ❖ In Positive Economics, we study how different mechanisms function in the economy. Anything can be proved right or wrong on the basis of facts or data given.  8 It tells us what is actually present in reality. Example: The Government of India announced Pradhan Mantri Garib Kalyan Yojana of Rs 1.70 Lakh Crore for the poor to help them fight the battle against coronavirus. Here since the figure of investment (Rs 1.70 lakh crore) is given, it could be verified whether the Government invested this much amount of money or not in the scheme. Hence, it is an example of Positive Economics. ❖ In Normative Economics, we decide whether these mechanisms are desirable or not. It tells what is desirable in the economy or what ought to be in the economy. Example: The Government should increase the quantity of free ration provided to the poor under the Pradhan Mantri Garib Kalyan Yojana. Here no facts are given rather it is a type of suggestion that the Government should at least do this for the poor. Hence, it is an example of Normative Economics. ❖ The Fiscal policy is the policies of the Government whereas the Monetary policy is the policies of the Central Bank of India i.e. Reserve Bank of India (RBI). ❖ Economics: Study of how scarce resources are used to produce and meet demand. ❖ Economy: Study of ‘economics in action’. ❖ Micro Economics: Study of economics at the individual level. ❖ Macro Economics: Study of economics at the aggregate level.  9 ❖ Socialist Economy: The government, i.e., the public sector decides the product to be produced, the quantity of the product produced, the method of production for the product, and for whom the product is produced. ❖ Capitalist Economy: Individual or the market, i.e., the private sector decides the product to be produced, the quantity of the product produced, the method of production for the product, and for whom the product is produced. ❖ Mixed Economy: The Government as well as the individuals and market decides the product to be produced, the quantity of the product produced, the method of production for the product, and for whom the product is produced. ❖ Production Possibility Frontier: Collection of all possible combinations that can be produced using given resources. ❖ Opportunity Cost/Economy Cost: Cost of the next best alternative foregone. ❖ Positive Economics: Study of how different mechanisms function in the economy. ❖ Normative Economics: Study of whether these mechanisms are desirable or not. 