ECONOMICS FOR BUSINESS- FOR S1 MBA

Module-1
Micro economics: The word micro means a millionh !ar" Microeconomics is he sud#
o$ he small !ar or
com!onen o$ he whole econom# ha we are anal#%in&" For e'am!le we ma# (e
sud#in& an indi)idual $irm
or in an# !aricular indusr#" In Microeconomics we sud# o$ he !rice o$ he !aricular
!roduc or !aricular
$acor o$ he !roducion
Microeconomics - The sud# o$ he decisions o$ !eo!le and (usinesses and he ineracion
o$ hose decisions in
mar*es" The &oal o$ microeconomics is o e'!lain he !rices and +uaniies o$ indi)idual
&oods and ser)ices-
Because we can, ha)e e)er#hin&- we need o ma*e rade-o$$s and microeconomics hel!s
us ma*e hose
radeo$$s"-A socie# $aces . *e# radeo$$s:-
1- /hich &oods and ser)ices o !roduce-
0 1ow o !roduce hem- 1ow much la(or and in!us should a $irm use o !roduce a car"
./ho &es he &ood and ser)ices 2allocaion3-E'am!les: /or*ers need o choose how o
allocae heir ime
(eween la(or and leisure"-Firms need o choose how o allocae heir in)esmen
(eween human ca!ial and
machines"-1ouseholds need o choose how o allocae heir incomes (eween sa)in&s and
e'!endiure"
Micro economics-uses
1"1el!$ul in undersandin& he wor*in& o$ $ree mar*e econom#" The micro economics
hel!s us o undersand
he wor*in& o$ $ree mar*e econom#" I ells us as o how he !rices o$ he !roducs and
he $acors o$
!roducion are deermined" I hrows li&h as o how he &oods and ser)ices !roduced are
disri(ued amon& he
)arious !eo!le $or consum!ion hrou&h mar*e mechanism"
0" 1el!s in *nowin& he condiions o$ e$$icienc#" Microeconomics hel!s in e'!lainin& he
condiions o$
e$$icienc# in consum!ion- !roducion and in disri(uion o$ he rewards o$ $acors o$
!roducion" I hi&hli&hs
he $acors which are res!onsi(le $or he de!arure $rom achie)in& he o!imum
e$$icienc#" I su&&ess !olicies
also which hel! in he !romoion o$ economic e$$icienc# o$ he !eo!le /or*in& o$ he
econom# wihou
cenral conrol" The microeconomics re)eals how a $ree ener!rise econom# $uncions
wihou an# cenral
conrol"
." Sud# o$ wel$are econom#" Microeconomic in)ol)es he sud# o$ wel$are economics
4imiaions o$ Microeconomics
13 Assum!ion o$ $ull em!lo#men in he econom# which is unrealisic 5
203 Assum!ion o$ lasses $air !olic# which is no lon&er in !racice in an# counr# o$ he
world 5
2.3 I sudies !ar o$ he econom# and no he whole"
/ha is he di$$erence (eween micro and macro economics6
Microeconomics :(eha)ior o$ indi)idual economic unis li*e consumers- !roducers-
landowners- $amilies- ec"
1ow and wh# do he# ma*e he decisions he# ma*e6
Macroeconomics: anal#%es how he enire naional econom# !er$orms" I anal#%es
unem!lo#men- in$laion-
!rice le)els- ineres raes 2man# hin&s we a*e as &i)en in microeconomics3"
Macro economics is he sud# o$ (eha)ior o$ he econom# as a whole" I e'amines he
o)erall le)el o$ naions
ou !u- em!lo#men- !rice and $orei&n rade"
Macroeconomics is concerned wih a&&re&ae and a)era&e o$ enire econom#" e"&" In
Macro economics we
sud# a(ou $ores no a(ou ree
Macroeconomics 5 The sud# o$ he naional econom# and he &lo(al econom# and he
wa# ha economic
a&&re&aes &row and $lucuae" The &oal o$ macroeconomics is o e'!lain a)era&e !rices
and he oal
em!lo#men- income- and !roducion
/hile microeconomics sresses on he indi)idual $irms and consumer- macroeconomics
deals wih he whole
econom# as a sin&le uni"
he $ormer a*es ino consideraion he demand and su!!l# o$ he indi)idual &oods and
ser)ices- while he
laer a*es ino consideraion he a&&re&ae o$ demand and su!!l# o$ all &oods and
ser)ices
In microeconomics- he e+uili(rium occurs when he +uani# demanded e+uals he
+uani# su!!lied "In
macroeconomics- on he oher hand- e+uili(rium occurs when he a&&re&ae demand
e+uals a&&re&ae
Business En)ironmen 5 re$ers o he oali# o$ all he rele)an $orces e'ernal- o and
(e#ond he conrol o$ -an
indi)idual (usiness ener!rise and is mana&emen"
The ideolo&ical (elie$s o$ he rulin& class-7alue s#sems o$ he socie#-Rules 8
re&ulaions laid down (# he
&o)"-The monear# !olicies o$ he Cenral Ban*
There is a direc relaionshi! (eween success$ul mana&emen and he in$luence and
im!ac o$ en)ironmenal
chan&e
Chan&e is a !rocess o$ consan renewal and re&eneraion in e)er# concei)a(le s!here o$
socie#
Business or&anisaion as he cenral com!onen o$ he (usiness en)ironmen are naurall#
also su(9ec o
chan&e
The ineracion (eween he en)ironmen and a (usiness or&anisaion is an on&oin&
!rocess ha resuls in new
!ro(lems and new o!!oruniies
Technolo&ical inno)aion -:lo(alisaion -:rowh o$ !o)er#- Colla!se o$ emer&in&
mar*es -Shi$ $rom
manu$acurin& 9o(s o ser)ice 9o(s- New wa#s o$ doin& wor*
Business en)ironmen: ma9or #!es
1 Micro 5 En)ironmen- Mission and o(9eci)es o$ he or&anisaion -The or&anisaion and
is mana&emen -
e"&" mar*ein& - $inancial and !urchasin& mana&emen- Resources 5 human resources -
ca!ial and *now how
0 Mar*e en)ironmen- Consumers 5 needs - !urchasin& !ower and (eha)ior- Su!!liers-
Inermediaries -Com!eiors -O!!oruniies 8 hreas
. Macro 5 en)ironmen-Technolo&ical en)ironmen- Economic en)ironmen- Social
en)ironmen - ;h#sical
en)ironmen- Insiuional 5 !oliical en)ironmen- Inernaional en)ironmen
Business en)ironmen Ad)ana&e India:
< we ha)e a #oun& !o!ulaion=as* $orce well )ersed in En&lish lan&ua&e and are also
ma9or
conri(uors o world econom#-
< India is e'!eced o (ene$i $urher $rom he demo&ra!hic di)idend emanain& $rom a
hi&her
!ro!orion o$ he #oun& !o!ulaion"
< he IT ena(led ser)ices 2ITES3 ha)e !ro)ided 9o( o!!oruniies and will coninue o do
so -he
ser)ices secor in he counr# has (ene$ied $rom he a)aila(ili# o$ )as s*illed la(our a
com!eii)e raes -
< &rowh has also (een $ueled (# increased local demand- (ac*ed (# risin& ur(an and
rural
incomes"
The o! mo(ile o!eraors coninue o ro!e in millions o$ su(scri(ers e)er# monh wih
<
inno)ai)e a!!roaches and o$$ers-
<
<
The role o$ he !ri)ae secor and $orei&n in)esmen in he Indian econom# is increasin&"
The ru!ee is now con)eri(le on he curren accoun- and e'chan&e raes are mar*e-
deermined"
There has (een ra!id !ro&ress in im!lemenin& &o)ernmen commimen o he
dere&ulaion
!rocess"
Indusrial !olic# em!hasi%es (oosin& economic &rowh hrou&h encoura&in& he
&eneraion
o$ income and wealh"
The )as and &rowin& middle-class !o!ulaion !ro)ides a lar&e domesic mar*e" S*illed
man!ower and !ro$essional mana&ers are a)aila(le a moderae cos"
Ca!ial mar*es- he (an*in& in$rasrucure and he $inancial ser)ices secor are well
de)elo!ed
<
<
<
<
BUSINESS Ehics -The word ehics is deri)ed $rom he :ree* word ehos meanin&
characer and 4ain word
mores meanin& cusoms-To (eer undersand ehics le us undersand and conras he
de$iniion o$ ehics and
la-4aw is a consisen se o$ uni)ersal rules ha are widel# !u(lished- &enerall# acce!ed
and usuall# en$orced"
These rules descri(e he wa#s in which !eo!le are re+uired o ac in socie#" Ehics
de$ines wha is &ood $or he
indi)idual and $or socie# and esa(lishes he naure o$ duies ha !eo!le owe o onesel$
and ohers in socie#"
Ehics are he &uidin& !rinci!les" -/here he !ro!osed (usiness aci)i#= o!eraion o$ he
com!an# (orders
on he un*nown- he com!an# needs o a!!l# he ehics !rinci!le o decide on he
!ro9ec"-Ehics hel! ma*e
relaionshi!s muuall# !leasan and !roduci)e- im(i(es a sense o$ communi# amon&
mem(ers- a sense o$
(elon&in&ness o socie#"
MO>U4E-0
Theor# o$ consum!ion -The demand $or an# &ood is he amoun consumers wan o (u#
and are a(le o (u#
in a !aricular !eriod o$ ime" The (ranch o$ economics de)oed o he sud# o$ consumer
(eha)ior- es!eciall#
as i a!!lies o decisions relaed o !urchasin& &oods and ser)ices hrou&h mar*es
>eerminans o$ >emand- !rice- income- !rice o$ relaed &oods- e'!ecaion ase-
!o!ulaion- &o)" !olicies
ec"
>emand is he +uani# o$ &ood and ser)ices ha cusomers are willin& and a(le !urchase
durin& a s!eci$ied
!eriod under a &i)en se o$ economic condiions" The !eriod here could (e an hour- a da#-
a monh- or a #ear"
The condiions o (e considered include he !rice o$ &ood- consumer,s income- he !rice
o$ he relaed &oods-
consumer,s !re$erences- ad)erisin& e'!endiures and so on"
The demand schedule is a a(le ha shows he relaionshi! (eween he !rice o$ he &ood
and he +uani#
demanded" The demand cur)e is a &ra!h o$ he relaionshi! (eween he !rice o$ a &ood
and he +uani#
demanded" Ceeris ;ari(us: ?Oher hin& (ein& e+ual@
Three reasons wh# demand is downward slo!in&-
a" The su(siuion e$$ec-
(" The income e$$ec -
c" The law o$ diminishin& mar&inal uili#
1The su(siuion e$$ec 5 a lower !rice o$ a &ood causes a !erson o (u# more o$ ha
&ood insead o$
alernai)e &oods" I$ he !rice o$ Ni*e shoes increases- !eo!le will sar o (u# Adidas and
Ree(o* "
0 The income e$$ec The chan&e in he +uani# demanded caused (# a !rice chan&e,s
e$$ec on real
income which measure,s a !erson,s !urchasin& !ower" /hen he !rice o$ a &ood
decreases- #our real
income 2!urchasin& !ower3 increases- or Aou can now (u# more o$ e)er#hin&" 4e,s sa#
#ou (u# 0B
&allons o$ &as a wee*- and he !rice o$ &as is C0 a &allon" Aou,re s!endin& CBD a wee* on
&as "Now he
!rice o$ &as decreases o C1 a &allon" Aou can now (u# BD &allons o$ &as a wee* $or he
same amoun o$
mone#- or #ou can (u# 0B &allons o$ &as and more o$ oher &oods".The law o$
diminishin& mar&inal uili#
5
Uili# measures he wan-sais$#in& !ower o$ a &ood or ser)ice"
Mar&inal uili# is he addiional or incremenal sais$acion 2uili#3 a consumer recei)es
$rom ac+uirin& one
addiional uni o$ a !roduc"
Cardinal Uili# Anal#sis- A (asic $ormulaion o$ consumer demand heor# in)ol)es an
anal#sis o$ he oal
uili# and mar&inal uili# deri)ed $rom he consum!ion o$ a &ood"
:o under waer and hold #our (reah- *ee! holdin& i unil #ou hin* #ou will !ass ou"
Then come u! ou o$
he waer- ha $irs (reah is wonder$ul -- remendous uili#" Tha is uili# - he meein&
o$ a need or (ein&
sais$ied"
Mar&inal Uili# is he chan&e in uili# $rom one more &ood or ser)ice (ein& consumed"
So he amoun o$
uili# $rom he $irs cu! o$ co$$ee or ha $irs (reah is hu&e"
>iminishin& Mar&inal Uili# is he $ac ha each addiion &ood or ser)ice consumed
creaes a smaller and
smaller amoun o$ addiional uili#" In he e'am!les a(o)e- ha second cu! o$ co$$ee in
he mornin& or he
second (reah a$er he $irs will !ro)ide addiional sais$acion or need meein&- (u i
will no !ro)ide near as
much sais$acion 2uili#3 as he $irs one did" The hird cu! or hird (reah has e)en less
addiional sais$acion
or need meein& a(ili# 2uili#3 as he second and he $irs" The *e# !rinci!le o$ consumer
demand heor# is he
law o$ diminishin& mar&inal uili#- which o$$ers an e'!lanaion $or he law o$ demand
and he ne&ai)e slo!e
o$ he demand cur)e
The law o$ diminishin& mar&inal uili# saes ha- ?as a consumer consumes more and
more unis o$ a s!eci$ic
commodi#- he uili# $rom he successi)e unis &oes on diminishin&@" Mr" 1" :ossen- a
:erman economis-
was he $irs o e'!lain his 4aw in 1EBF"
Al$red Marshall laer on resaed his 4aw in he $ollowin& words: ?The addiional (ene$i
which a !erson
deri)es $rom an increase o$ his soc* o$ a hin& diminishes wih e)er# increase in he
soc* ha he alread#
has@"
Basis o$ he law o$ demand" As he (u#s more and more- he mar&inal uili# o$ he
successi)e unis (e&ins
o diminish" Then he !a#s less amoun $or he successi)e unis "From his i is clear ha i$
a !erson wishes o
increase he sale o$ a commodi#- he mus lower is !rice
The 4aw o$ E+ui-Mar&inal Uili# is an e'ension o he law o$ diminishin& mar&inal
uili#
This law saes ha how a consumer allocaes his mone# income (eween )arious &oods
so as o o(ain
ma'imum sais$acion "Su!!ose here are wo &oods G'G and G#G on which he consumer has
o s!end his &i)en
income" The consumer,s (eha)ior is (ased on wo $acors: 2a3 Mar&inal Uiliies o$ &oods
G'G and G# H 2(3 The
!rices o$ &oods G'G and G#G "Ma*in& he mar&inal uili# !er dollar s!en he same $or all
&oods &es he mos
ou o$ a (ud&e" shi$ mone# $rom he area in which i is &i)in& a low reurn o he area in
which i has a hi&h
reurn- he will (e (eer o$$" This is he (asic idea o$ he e+ui-mar&inal !rinci!le"
Ma'imi%aion occurs when
he reurn on he las dollar s!en is he same in all areas" In erms o$ a $ormula- a !erson
wans
2Mar&inal Bene$i o$ A3=2;rice o$ A3 I 2Mar&inal Bene$i o$ B3=2;rice o$ B3
E+uimar&inal uiliies - I$ &ood A coss wice as much as &ood B- hen (u# &ood A onl#
when is mar&enial
uili# is a leas wice as &rea as &ood B,s mar&inal uili#JJ
E+uimar&inal !rinci!le- a consumer ha)in& a $i'ed income and $acin& &i)en mar*e
!rices o$ &oods will
achie)e ma'imum sais$acion or uili# when he MU o$ he las dollar s!en on each
&ood is e'acl# he
same as he mar&inal uili# o$ he las dollar s!en on an# oher &ood" Uili# ma'imi%in&
rule -The 4aw
o$ E+ui-Mar&inal Uili# saes ha he consumer will disri(ue his mone# income in
such a wa# ha he
uili# deri)ed $rom he las ru!ee s!en on each &ood is e+ual " /hen s!endin& a limied
amoun o$ mone#-
consumers r# o e+uae he mar&inal uili# !er dollar $or he iems (ein& !urchased"
Consumer,s E+uili(rium- consumer will aain is e+uili(rium 2ma'imum sais$acion3 a
he !oin - where
mar&inal uili# o$ a !roduc di)ided (# he mar&inal uili# o$ a ru!ee or !rice o$ he
!roduc is e+ual o he
!rice"
MU o$ a !roduc
<
Consumer,s e+uili(riumI
Mu &ood 1
I MU o$ a ru!ee
Mu &ood .
< More &oods
Consumers, e+uili(rium- (# usin& indi$$erence cur)es"-ordinal uili# -The idea o$ uili#
as measura(le in
a cardinal wa# was su(9ec o much criicism- The idea o$ a uili# measure as a ran*
orderin& re!laced he idea
o$ cardinal measuremen -An ?ordinal@ measure is a ran*in& onl#" No uni o$
measuremen-1i&her num(ers
im!l# onl# more !re$erred" In he ordinal uili# cone' ma'imi%in& uili# means
choosin& ha (undle o$
&oods ha is on he hi&hes indi$$erence cur)e achie)a(le wih &i)en income and !rices
<
The mar&inal rae o$ su(siuion is he rae a which a !erson will &i)e u! &ood # 2he
&ood
measured on he #-a'is3 o &e more o$ &ood ' 2he &ood measured on he '-a'is3 and a
he same ime
remain on he same indi$$erence cur)e"
<
>iminishin& mar&inal rae o$ su(siuion is he &eneral endenc# $or he mar&inal rae o$
su(siuion
o decrease as he consumer mo)es down alon& he indi$$erence cur)e- increasin&
consum!ion o$
&ood ' and decreasin& consum!ion o$ &ood #"
Tools needed o deermine how consumers should allocae heir income (eween 0 &oods
5
1Indi$$erence Cur)es
0" Bud&e Consrain
Consumer,s srae&# is o *ee! mo)in& o hi&her and hi&her indi$$erence cur)es unil he
reaches he hi&hes
one ha is sill a$$orda(le"
The Bud&e 4ine- A (ud&e line descri(es he limis o consum!ion choices and de!ends
on a consumer,s
(ud&e and he !rices o$ &oods and ser)ices"
The &oal o$ he consumer is o (u# he a$$orda(le +uaniies o$ &oods ha ma*e he
consumer as well o$$ as
!ossi(le" The consumer,s !re$erence ma! descri(e he wa# a consumer )alues di$$eren
com(inaions o$ &oods"
The consumer,s (ud&e and he !rices o$ he &oods limi he consumer,s choices"
The su(siuion e$$ec in)ol)es he su(siuion o$ &ood '1 $or &ood '0 or )ice-)ersa due
o a chan&e in relai)e
!rices o$ he wo &oods"
The income e$$ec resuls $rom an increase or decrease in he consumer,s real income or
!urchasin& !ower as a
resul o$ he !rice chan&e" The sum o$ hese wo e$$ecs is called he !rice e$$ec"
;1
Mu &ood 0
I
I IMU=C
;0
;.
Elasici#- is a &eneral conce! ha can (e used o +uani$# he res!onse in one )aria(le
when anoher
)aria(le chan&es- The res!onsi)eness o$ one )aria(le o chan&es in anoher-
/hen !rice rises- wha ha!!ens o demand6 >emand $alls BUTK JJ1ow much does
demand $all6
I$ !rice rises (# 1DL - wha ha!!ens o demand6 /e *now demand will $all 5
B# more han 1DL-
B# less han 1DL6-
B# same 1DL-
Elasici# measures he e'en o which demand will chan&e due o !rice chan&e"
T#!es- ;rice elasici# o$ demand- Income elasici# o$ demand- Cross elasici# -
Elasici# O$ !rice
E'!ecaions- Ad)erisemen Elasici# - ;rice elasici# o$ su!!l#"
;RICE E4ASTICITA OF >EMAN>
;rice elasici# o$ demand is he de&ree o$ res!onsi)eness o$ he +uani# demanded o
chan&e in he !rice"
!rice elas
ici# o$
demandI
L chan&eni +uani#
demanded
L chan&e in
!rice
T#!es o$ !rice elasici# o$ demand-J
"EdI D !er$ecl# inelasic J""=EdM 1 - Inelasic or less han uni elasic-J = Ed I 1
Elasic J" =Ed IN !er$ecl# elasic
Facors a$$ecin& elasici# o$ demandO
1a)aila(ili# o$ su(siues 5 commodiies ha)in& su(siues is )er# elasic"-
0!os!onemen o$ consum!ion-commodiies- whose consum!ion can (e !os!oned $or
someime is elasic"-
.!ro!orion o$ e'!endiure- where a si&ni$ican !ar o$ income is s!en-is )er# elasic 5
F naure o$ he commodi#-necessiies-inelasic-com$ors8 lu'uries- elasic-di$$eren uses
o$ he commodi#-
which has se)eral uses- elasic-
B"ha(is- ha(iuaed o$ some commodiies- inelasic
Im!orance o$ !rice elasici# o$ demand-
1I hel!s he mono!olis in ma'imi%in& his !ro$i"
0 I hel!s he &o)" a he ime o$ (ud&e !re!araion" :o)" can le)# more a' on he
commodi# - whose
demand is inelasic"
."erms 8 condiions o$ $orei&n rade are alwa#s in $a)our o$ hose counries -whose
im!or demands are
elasic - and e'!or demands are inelasic "
F"I is use$ul o decidin& remuneraion o $acors o$ !roducion" J"la(our demand is
inelasicJwa&es and
salaries will increase
Uni elasicJ"= Ed P1
>emand Forecasin&: Forecasin& sim!l# aem!s o !redic he le)el o$ sales a some
$uure dae-
1ow man# Qa!anese ouriss will )isi India in 0D106-1ow man# dele&aes will aend
con$erences in 4ondon
in 0DD1>emand $orecasin& re$ers o he !redicion or esimaion o$ a $uure siuaion
under &i)en consrains
T#!es o$ $orecasin&"
Shor erm- 1 #ear sales- !urchase- !ricin& and $inancin&"
Medium erm----assess demand siuaion a rade c#cle -e&" :armen indusr#-
4on& erm ----more han one #ear---!lannin& a new uni
Ma9or uses-
11el!in& $or coninuous !roducion !lannin&-o eliminae he &a! (eween->emand and
su!!l#"
0 Re&ular su!!l# o$ commodiies-o mainain su$$icien in)enor# o$ !roducs" -
Formulaion o$ !rice !olic#-
. no $lucuaion o)er a !eriod o$ ime-
F"For (eer !lannin& and allocaion o$ naional recourses-
B"To $ormulae e$$eci)e sales !er$ormance sales ar&es 8 acions-
R"Arran&emens o$ $inance 5
S"!re!are he (ud&e $or insiuional $inance-
E"To deermine he !roducion ca!aci# 5!lan si%e and !roducion" >eermine he use o$
he $orecas"
Ei&h Se!s in Forecasin& 5
1"Selec he iems o (e $orecas"
0">eermine he ime hori%on o$ he $orecas"
." Selec he $orecasin& model2s3"
F":aher he daa"
B" Ma*e he $orecas" R7alidae and im!lemen resuls"
S8E Monior $orecass and ad9us when needed !roducion ca!aci#"
There are wo a!!roaches -
A" sur)e# mehod-+ualiai)e-To collec in$ormaion re&ardin& he inenion o$ he
consumers (# Mar*e
research- sur)e#- 8 economic inelli&enceJJ" Shor erm "
1 Sur)e# o$ (u#er,s inenions-Com!lee enumeraion-Sam!le sur)e#-End-use mehod
0"O!inion !oll mehod-Qur# o$ e'ecui)e o!inion-Sales $orce com!osie->el!hi mehod-
Mar*e sudies
B"Saisical mehod-+uaniai)e-To use !as rends and a*in& hem &uide and (#
e'ra!olain& !as rends
o esimae $uure demandJ"" 4on& run --
1"Time-series-Trend $iin&-- leas s+uire mehod-Mo)in& a)era&e-E'!onenial
smoohin&-Ado!i)e conrol-
Bo'-Qen*ins-
0"Causal-Re&ression-Economerics-4eadin& indicaors->i$$usion inde'-In!u-Ou!u
anal#sis-4i$e-c#cle
anal#sis
The !roducion $uncion" !roducion $uncion s!eci$ies he ma'imum ou!u ha can (e
!roduced wih a &i)en +uani# o$ in !us " I is he relaion (eween !h#sical in !u and
!h#sical ou!u"
Fi'ed $acorsJ""$acors no relaed o he le)el and )olume o$ !roducJ""Buildin&
7aria(le $acorsJ""$acors which are direcl# relaed o he )olume o$ ou!uJJla(ur-
$uelJ
Fi'ed cos- su!!lemenar#5o)erhead cos- ;a#men $or $i'ed $acors o$ !roducion in he
shor run" E&" Ren o$
he $acor#---
)aria(le cos- !rime cos- !a#men o he )aria(le $acors o$ !roducion e&" Cos o$ raw
maerial-
Toal cos -is he lowes oal e'!ense needed o !roduce each le)el o$ ou !u"Toal cos I
oal $i'ed cos T
oal )aria(le cos TC I TFC T T7C-
Mar&inal cos : Mar&inal cos denoes he e'ra or addiional cos o$ !roducin& 1 e'ra
uni o$ ou !u"-MC I
TCn 5 TCn-1 "A)era&e cos : A)era&e cos is he oal cos di)ided (# he oal ou !u"
AC I TC=U
The ;roducion ;rocess---
The !roducion !rocess can (e di)ided-ino he lon& run and he shor run-Shor runJ"a
!eriod in which $irms
can ad9us !roducion (# chan&in& )aria(le $acors-
4on& runJJa !eriod in which $irms can ad9us !roducion (# chan&in& all $acors-The
erms lon& run and
shor run do no necessaril# re$er o s!eci$ic !eriods o$ ime" -The# re$er o he de&ree o$
$le'i(ili# he $irm
has in chan&in& he le)el o$ ou!u"
Toal !roduc-I re$ers o he oal )olume o$ &oods 8 ser)ice !roduced durin& a &i)en
!eriod o$ ime"
A)era&e !roduc ;er uni !roducion o$ he )aria(le $acor
Mar&inal !roduc - The chan&e in he oal ou!u due o he a!!licaion o$ one more or
one less uni o$
)aria(le $acor"
1"4aw
o$ )aria(le !ro!orion= diminishin& reurn- 2increasin& onl# one $acor3 - The law
sain& ha i$ one $acor o$ !roducion is increased while he ohers remain consan- he
o)erall reurns will
relai)el# decrease a$er a cerain !oin we will &e less and less e'ra ou !u when we
add addiional doses o$
an in !u while holdin& oher in!us $i'e" This law is also called he $lower !o law" I$ i
did no hold rue- he
world,s enire $ood su!!l# could (e &rown in a sin&le $lower!o
Sa&e 1 T;-M;-A; will increase in his sa&e" Sa&e 0T; increases a a diminishin& rae"
M; decreases and
(ecome D A; sars decreasin& Sa&e . T;- sar declinin& M;-(ecome ne&ai)e
A;- sar declinin&
Assum!ions o$ he law
< -echnolo&# is remain consan-
< one $acor onl# )ar#in& -
< ohers are remainin& consan-;ossi(ili# o chan&e $acor !ro!orion
0" 4aw o$ Reurns o scale -increasin& In case- all in !us are increased in he same
!ro!orion
he scale o$ !roducion is e'!anded in hree $orms-
<
<
<
Increasin&J"2 Economies o$ scale3J" reurns o scale-more han he rae o$ in!u
increase
Consan8JJ"a he same rae o$ in!u increase reurns o scale
>iminishin& JJreurns o scale J" 4ess han he rae o$ in!u increase
/ha >oes Economies O$ Scale Mean6
The increase in e$$icienc# o$ !roducion as he num(er o$ &oods (ein& !roduced
increases" T#!icall#- a
com!an# ha achie)es economies o$ scale lowers he a)era&e cos !er uni hrou&h
increased !roducion since
$i'ed coss are shared o)er an increased num(er o$ &oods"
There are wo #!es o$ economies o$ scale:-
<
<
E'ernal economies - he cos !er uni de!ends on he si%e o$ he indusr#- no he $irm"-
Inernal economies - he cos !er uni de!ends on si%e o$ he indi)idual $irm
E'ernal economies o$ scale 5 he ad)ana&es $irms can &ain as a resul o$ he &rowh o$
he indusr# 5
normall# associaed wih a !aricular are Su!!l# o$ s*illed la(our 5Re!uaion-4ocal
*nowled&e and s*ills-
In$rasrucure-Trainin& $aciliies
The lon&-run a)era&e cos cur)e 54RAC-shows he minimum a)era&e cos a each ou!u
le)el when
all in!us are )aria(le- ha is- when he $irm can ha)e an# !lan si%e i wans" There is a
relaionshi! (eween
he 4RAC cur)e and he $irmGs se o$ shor-run a)era&e cos cur)es" I$ each !lan si%e is
associaed wih a
di$$eren amoun o$ $i'ed coss- hen each !lan si%e $or a $irm will &i)e us a di$$eren se
o$ shor-run cos
cur)es" Choosin& a di$$eren !lan si%e 2a For he U-sha!ed lon&-run a)era&e cos cur)e-
here are economies
o$ scale o)er small ou!us- and diseconomies o$ scale a lar&er ou!us" No all $irms
necessaril# su$$er $rom
diseconomies o$ scale a lar&e ou!us" /hen a $irm has economies o$ scale o)er a ran&e
o$ ou!us (i& enou&h
o su!!l# he oal mar*e demand-ha $irm is called a naural mono!ol#" lon&-run
decision3 hen means
mo)in& $rom one shor-run cos cur)e o anoher"
and
Mar*e srucure-Num(er o$ su!!liers-;roduc,s de&ree o$ uni$ormi#->o $irms in he
mar*e su!!l# idenical !roducs or are here di$$erences across $irms6-Ease o$ enr# ino
he mar*e-Can new
$irms ener easil# or are he# (loc*ed (# naural or ari$icial (arriers6-Forms o$
com!eiion amon& $irms->o
$irms com!ee onl# hrou&h !rices or are ad)erisin& and !roduc di$$erences common as
well6
1";er$ecl# Com!eii)e Mar*e Srucure- Man# (u#ers and sellers-Each Firm is a !rice
a*er-Each (u#s
and sells onl# a in# $racion o$ he oal amoun e'chan&ed in he mar*e-Sandardi%ed or
homo&eneous
!roduc-Bu#ers and sellers are $ull# in$ormed a(ou he !rice and a)aila(ili# o$ all
resources and !roducs-
Firms and resources are $reel# mo(ile o)er ime he# can easil# ener or lea)e he
indusr#"
Because he !er$ecl# com!eii)e $irm can sell an# +uani# $or he same !rice !er uni-
mar&inal re)enue is
also a)era&e re)enue -A)era&e re)enue- AR- e+uals oal re)enue di)ided (# +uani# AR
I TR = +-Re&ardless
o$ he rae o$ ou!u- he $ollowin& e+uali# holds alon& he $irm,s demand cur)e -Mar*e
!rice I mar&inal
re)enue I a)era&e re)enue-Firms ha)e ime o ener and e'i and o ad9us heir scale o$
heir o!eraions-Shor-
run economic !ro$i will in he lon& run encoura&e new $irms o ener he mar*e and ma#
!rom! e'isin&
$irms o e'!and he scale o$ heir o!eraions: he indusr# su!!l# cur)e shi$s ri&hward in
he lon& run- dri)in&
down he !rice-New $irms will coninue o ener a !ro$ia(le indusr# and e'isin& $irms
will coninue o
increase in si%e as lon& as economic !ro$i is &reaer han %ero
0"A mono!ol# is a sin&le su!!lier=seller o a mar*e"2 and a lar&e num(er o$ (u#ers3
mar*e siuaion where
here is onl# one !ro)ider o$ a !roduc or ser)ice- in oher words a $irm ha has no
com!eiors in is indusr#"
Mono!olies are characeri%ed (# a lac* o$ economic com!eiion $or he &ood or ser)ice
ha he# !ro)ide and
a lac* o$ )ia(le su(siue &oods
Barriers o enr# are he source o$ all mono!ol# !ower-here are wo &eneral #!es o$
(arriers o enr#-echnical
(arriers-le&al (arriers2 4icenses- !aens3 To ma'imi%e !ro$is- a mono!olis will choose
o !roduce ha ou!u
le)el $or which mar&inal re)enue is e+ual o mar&inal cos" mar&inal re)enue is less han
!rice "Since MR I
MC a he !ro$i-ma'imi%in& ou!u and ; P MR $or a mono!olis- he mono!olis will se
a !rice &reaer han
mar&inal cos"
Mono!ol# !ro$is will (e !osii)e as lon& as ; P AC" Mono!ol# !ro$is can coninue ino
he lon& run (ecause
enr# is no !ossi(le" some economiss re$er o he !ro$is ha a mono!ol# earns in he
lon& run as mono!ol#
rens" The si%e o$ mono!ol# !ro$is in he lon& run will de!end on he relaionshi!
(eween a)era&e coss and
mar*e demand $or he !roduc
;er$ec com!eiion e'hi(is allocai)e e$$icienc#- !riceI MC" Under Mono!ol#- he !rice
is &reaer han
MC" /ihou !roduci)e e$$iciencies (# a mono!ol#- ; mon! is &reaer han ;!c and U
mon is less han
U!c "Reducion in wel$are under mono!ol#" ;ossi(le ine$$icienc# in Mono!ol#
."An oli&o!ol#
is a mar*e $orm in which a mar*e or indusr# is dominaed (# a small num(er o$ sellers
2oli&o!oliss3" The word is deri)ed $rom he :ree* $or $ew sellers" Because here are $ew
!arici!ans in his
#!e o$ mar*e- each oli&o!olis is aware o$ he acions o$ he ohers" The decisions o$ one
$irm in$luence- and
are in$luenced (# he decisions o$ oher $irms
A(o)e he *in*- demand is relai)el# elasic (ecause all oher $irm,s !rices remain
unchan&ed" Below he
*in*- demand is relai)el# inelasic (ecause all oher $irms will inroduce a similar !rice
cu- e)enuall# leadin&
o a !rice war" So he (es o!ion $or he oli&o!olis is o !roduce a !oin E which is he
e+uili(rium !oin and
incidenall# ?he *in* !oin@" In an oli&o!ol#- $irms o!erae under im!er$ec com!eiion
and a *in*ed demand
cur)e which re$lecs inelasici# (elow mar*e !rice 8 elasici# a(o)e mar*e !rice"
Followin& $rom he $ierce
!rice com!eii)eness creaed (# his sic*#-u!ward demand cur)e- $irms uili%e non-
!rice com!eiion in order
o accrue &reaer re)enue and mar*e share"
F"Mono!olisic com!eiion-A mar*e srucure in which se)eral or man# sellers each
!roduce similar- (u
sli&hl# di$$ereniaed !roducs" Each !roducer can se is !rice and +uani# wihou
a$$ecin& he mar*e !lace
as a whole"2 For e&" Man# FMC: !roducs- es!eciall# wea* (rands-
A $irm in mono!olisic Com!eiion ma*in& shor run !ro$is as AC is (elow he AR
cur)e a he !ro$i
ma'imi%in& 4e)el o$ ou!u" A $irm in mono!olisic "Com!eiion in he lon& run ma*e
normal !ro$is onl#- as
i has o lower !rice (ecause o$ com!eiion $rom oher $irms V Thus AR cur)e a he
!ro$i ma'imi%in& 4e)el
o$ ou!u is 9us e+ual o 4RAC cur)e
Circular Flow o$ Income: The c#clical o!eraion o$ demand- ou!u- income- and new
demand"
4ea*a&es: $lows ou o$ circular $low when resource income is recei)ed and no s!end
direcl# on !urchases
$rom domesic $irms-In9ecions: Added s!endin& in circular $low ha does no come ou
o$ curren resource
income"
Naional income is he $inal oucome o$ all economic aci)iies o$ a naion )alued in
erms o$ mone#" I is
he mone# )alue o$ all $inal &oods and ser)ices !roduced in a counr# durin& a !eriod o$
one #ear" I is he
mone# )alue o$ he end resul o$ all economic aci)iies o$ he naion" Conce!uall#-
naional income re$ers o
he mone# )alue o$ he enire )olume o$ $inal &oods and ser)ices resulin& $rom all
economic aci)iies o$ he
counr#" Naional income is he mos im!oran macroeconomic )aria(le and deerminan
o$ he (usiness le)el
and economic saus o$ a counr#"The le)el o$ naional income deermines he le)el o$
a&&re&ae demand $or
&oods and ser)ices"
Naional income conce!s
1":ross Naional ;roduc 2:N;3 0" :ross >omesic ;roduc 2:>;3 ." Ne Naional
;roduc 2NN;3
:ross Naional ;roduc-:N;-:N; is he mos im!oran and widel# used measure o$
naional income"
I is he mos com!rehensi)e measure o$ he naional !roduci)e aci)iies in an o!en
econom#" I is he )alue
o$ all $inal &oods and ser)ices !roduced durin& a s!eci$ic !eriod- usuall# one #ear- !lus
income earned a(road
(# he naionals- minus incomes earned locall# (# he $orei&ner
:ross >omesic ;roduc-:>; -:>; is de$ined as he mar*e )alue o$ all $inal &oods and
ser)ices !roduced
in he domesic econom# durin& a !eriod o$ one #ear- !lus income earned locall# (#
$orei&ners- minus income
earned a(road (# he naionals"The conce! o$ :>; is similar o ha o$ :N; wih a
si&ni$ican !rocedural
di$$erence
NN; is de$ined as :N; less de!reciaion"NN; I :N; 5 de!reciaion"NN; &i)es he
measure o$ ne ou!u
a)aila(le $or consum!ion (# he socie# 2includin& consumers- !roducers- and he
:o)"3"NN; is he real
measure o$ naional income"NN; I NNI 2ne naional income3" NN; is he same as
naional income a $acor
cos" NN; is measured a mar*e !rices includin& direc a'es" Indirec a'es are no a !ar
o$ acual cos o$
!roducion" There$ore- o o(ain real naional income- indirec a'es are deduced $rom
he NN;" Naional
income is NN; less indirec a'es
There are man# conce!s o$ naional income which are used (# di$$eren economiss and
all o$ which are iner-
relaed" For measurin& naional income- an econom# is )iewed $rom hree di$$eren
an&les:
1" Ne !roduc mehod -he naional econom# is considered as an a&&re&ae o$ !roduci)e
unis o$ di$$eren
secors such as a&riculure- minin&- manu$acurin&- rade and commerce- ser)ices- ec"
The !roducion mehod measures naional income as he sum o$ ne !roducs !roduced (#
he !roducion
unis in he &i)en !eriod" There$ore- he !roducion mehod in)ol)es he $ollowin& se!s:
2i3 Ideni$#in& he
!roducion uni 2ii3 Esimain& heir ne !roducs 2iii3 7aluin& he &oods and ser)ices 2i)3
Esimaion o$ ne
income $rom a(road" 1" esimain& he &ross )alue o$ domesic ou!u in he )arious
(ranches o$ !roducion"
0" deerminin& he cos o$ maerial and ser)ices used- and also he de!reciaion o$
!h#sical asses ." deducin&
hese coss and de!reciaion $rom &ross )alue o o(ain he ne )alue o$ domesic ou!u"
0" The income mehod- he whole o$ naional econom# is )iewed as a com(inaion o$
indi)iduals and
households ownin& di$$eren *inds o$ $acors o$ !roducion which he# use hemsel)es or
sell $acor-ser)ices
o ma*e heir li)elihood" $acor-income mehod -The income mehod measures naional
income as he sum
oal o$ $acor income shares accruin& o he $acor owners" Facors o$ ;roducion: 4and-
4a(our- Ca!ial
and Or&ani%aion" Facor Incomes: Ren- /a&e- Ineres and ;ro$i" One can easil#
a&&re&ae all he $acor
incomes o)er a !eriod o$ ime and his a&&re&ae $i&ure is *nown as naional income a
$acor cos" There are
ma9or addiions and deducions o he naional income accounin&" Addiions: Income
$rom $orei&n secors in
he $orm o$ ren- !ro$is ec" >educions: Incomes $rom all ille&al aci)iies: he$-
ru((er#- smu&&lin&- child
la(or- !rosiuions ec"- Incomes o he $orei&n secor acin& in domesic secors "The
oal $acor-incomes are
&rou!ed under hree cae&ories: 1" 4a(our incomes- 0"ca!ial incomes and ." mi'ed
incomes
." The e'!endiure mehod -The naional econom# ma# also (e )iewed as a collecion o$
consumin&- sa)in&
and in)esin& unis 2indi)iduals- households- $irms and &o)ernmens- e'!endiure mehod
3 The e'!endiure
mehod measures naional income a he $inal e'!endiure sa&es" In esimain& he oal
naional e'!endiure-
an#one o$ he wo $ollowin& mehods are used: All he mone# e'!endiures a mar*e
!rice are com!ued and
added u! o&eher" The )alue o$ all he !roducs $inall# dis!osed o$$ are com!ued and
added u!
Facors a$$ecin& naional income
1" Facors o$ ;roducion Normall# he more e$$icien and richer he resources- he hi&her
he le)el o$ naional
income or :N; will (e"-a34and-Resources li*e coal- iron 8 im(er are essenial $or hea)#
indusries so ha
he# mus (e a)aila(le and accessi(le"- In oher words- he &eo&ra!hical locaion o$ hese
naural resources
a$$ec he le)el o$ :N;"
(3Ca!ial-Ca!ial is &real# deermined (# in)esmen" In)esmen in urn de!ends on
oher $acors li*e
!ro$ia(ili#- !oliical sa(ili# ec"
c3 4a(our 8 Enre!reneur The +uali# or !roduci)i# o$ human resources is more
im!oran han +uani#"-
Man!ower !lannin& and educaion a$$ec he !roduci)i# and !roducion ca!aci# o$ an
econom#
0" Technolo&# -This $acor is more im!oran $or naions wih lile naural resources" The
de)elo!men in
echnolo&# is a$$eced (# he le)el o$ in)enion and inno)aion on !roducion"
.":o)ernmen -:o)ernmen can hel! o !ro)ide a $a)oura(le (usiness en)ironmen $or
in)esmen" I !ro)ides
laws and order- re&ulaions ha a$$ec e'chan&es"The &o)ernmen !romoes $ree rade
and com!eiion which
encoura&e economic aci)iies
F" ;oliical Sa(ili# -A sa(le economic and !oliical s#sem hel!s he allocaion o$
resources" /ars- sri*es
and social unress will discoura&e in)esmen and (usiness aci)iies
Uses o$ Naional Income Saisics
Sandard o$ 4i)in& The !er ca!ia :N; allows us o com!are he sandard o$ li)in& o$
di$$eren naions" In
&eneral- a naion has a hi&her sandard o$ li)in& i$ is !er ca!ia :N; is &reaer han ha
o$ anoher naion"
;olic# Formulaion In he com!ilaion o$ :N; saisics- he &o)ernmen had alread#
&ahered a lo o$
in$ormaion o$ he econom#" The &o)ernmen can (ase on hese $i&ures o !lan and decide
is !olicies
Inernaional Com!arison B# con)erin& he local :N; $i&ures ino a common uni
2 usuall# in USC 3- we
can com!are he sandard o$ li)in& o$ di$$eren naions" I hel!s o show he rae o$ &rowh
or de)elo!men o$
di$$eren naions"
Business >ecision -The :N; $i&ures can show he le)el o$ de)elo!men o$ di$$eren
indusries and secors o$
an econom#" I hel!s he (usinessmen o !lan $or !roducion
MO>U4E-.
IS cur)e is he relaionshi! (eween e+uili(rium a&&re&ae ou!u and he ineres rae-
4M cur)e is he
com(inaions o$ ineres raes and a&&re&ae ou!u $or which M> I MS
The IS4M Model
E+uili(rium in he &oods mar*e im!lies ha an increase in he ineres rae leads o a
decrease in ou!u"
E+uili(rium in $inancial mar*es im!lies ha an increase in ou!u leads o an increase in
he ineres rae"
/hen he IS cur)e inersecs he 4M cur)e- (oh &oods and $inancial mar*es are in
e+uili(rium"
IS and 4M ineracions
The IS cur)e ca!ures he essenial relaionshi! (eween he- rae o$ ineres and income
in he mar*es $or
&oods and ser)ices- 2he circular $low o$ income3" The 4M cur)e ca!ures he essenial
relaionshi! (eween
he rae o$ ineres and income in he mone# mar*e"
For he wo mar*es o (e consisen wih each oher - he same rae o$ ineres rulin& in
(oh he &oods and
ser)ices mar*e and in he mone# mar*e - here can onl# (e one e+uili(rium le)el o$
naional income 2AW3-
shown (# he inersecion o$ he IS cur)e wih he 4M cur)e
Fiscal !olic# re$ers o he &o)ernmen,s choices re&ardin& he o)erall le)el o$ &o)ernmen
!urchases or a'es"
Fiscal !olic# in$luences sa)in&- in)esmen- and &rowh in he lon& run" In he shor run-
$iscal !olic# !rimaril#
a$$ecs he a&&re&ae demand" /hen !olic#ma*ers chan&e he mone# su!!l# or a'es- he
e$$ec on a&&re&ae
demand is indirecOhrou&h he s!endin& decisions o$ $irms or households "/hen he
&o)ernmen alers is
own !urchases o$ &oods or ser)ices- i shi$s he a&&re&ae-demand cur)e direcl#" /hen
he &o)ernmen alers
s!endin& or a'es- he resulin& shi$ in a&&re&ae demand can (e lar&er or smaller han
he $iscal chan&e" The
muli!lier e$$ec ends o am!li$# he e$$ecs o$ $iscal !olic# on a&&re&ae demand" The
crowdin&-ou e$$ec
ends o dam!en he e$$ecs o$ $iscal !olic# on a&&re&ae demand"
/ha is Monear# ;olic#6 The erm monear# !olic# re$ers o acions a*en (# cenral
(an*s o a$$ec
monear# ma&niudes or oher $inancial condiions" Monear# ;olic# o!eraes on
monear# ma&niudes or
)aria(les such as mone# su!!l#- ineres raes and a)aila(ili# o$ credi" ;olic# ulimael#
o!eraes hrou&h is
in$luence on e'!endiure $lows in he econom#" In oher words a$$ecs li+uidi# and (#
a$$ecin& li+uidi#- and
hus credi- i a$$ecs oal demand in he econom#
M; is a !ar o$ &eneral economic !olic# o$ he &o)"-Thus M; conri(ues o he
achie)emen o$ he &oals
o$ economic !olic#" O(9eci)e o$ M; ma# (e: Full em!lo#men- Sa(le e'chan&e rae-
1ealh# Bo; -
Economic &rowh- Reasona(le ;rice Sa(ili#- :reaer e+uali# I disri(uion o$ income 8
wealh- Financial
sa(ili# -7ariaions in Reser)e Raios
Insrumens o$ Monear# ;olic#
1">iscoun Rae 2Ban* Rae3 2also called rediscoun rae3 0"O!en Mar*e O!eraions
2OMOs3 ."Oher
Insrumens
;olic# in he IS-4M Model - Fiscal ;olic#-E'!ansionar# $iscal !olic# shi$s he IS cur)e
o he ri&h-
Conracionar# $iscal !olic# shi$s he IS cur)e o he le$
Monear# ;olic#- E'!ansionar# monear# !olic# shi$s he 4M cur)e o he ri&h-
Conracionar# monear#
!ol ic# shi$s he 4M cur)e o he le$"
;ro(lems Usin& IS-4M-
A" Iner!reaion ;ro(lems 2wha is ha!!enin&63-;ro(lems in *nowin& how o iner!re
real-world e)ens
wihin he IS-4M $ramewor*
B" Im!lemenaion ;ro(lems 2how o deal wih i63
C"
;ro(lems encounered in undera*in& !olic#
MO>U4E-F
1" Xe#nes heor#- Xe#nes heor# o$ income and em!lo#men is (ased on he conce! o$
a&&re&ae demand and a&&re&ae su!!l#
a&&re&ae demand- he )alue o$ oal e'!endiures on all &oods and ser)ices in he
econom# durin& a s!eci$ic
!eriod o$ ime Com!onens: a" house hold consum!ion demand (" In)esmen demand c"
&o)" demand d" Ne
e'!or demand" AI CT IT : T NY
A&&re&ae su!!l#: he +uani# o$ &oods and ser)ices !roduce (# he enire econom# -
ASI CTS
Classical conce!" AS cur)e is !er$ecl# inelasic wih res!ec o !rices" I is a $ull
em!lo#men le)el o$
ou !u"-Xe#nes model: AS is !er$ecl# elasic wih res!ec o !rices unil he $ull
em!lo#men le)el o$ ou
!u "$irms are willin& o su!!l# an# amoun o$ ou !u a he !re)ailin& !rice le)el"
The Muli!lier: The )iew ha a chan&e in auonomous e'!endiures 2e"&" in)esmen3
leads o an e)en lar&er
chan&e in a&&re&ae income" An increase in s!endin& (# one !ar# increases he income
o$ ohers" Thus-
&rowh in s!endin& can e'!and ou!u (# a muli!le o$ he ori&inal increase" The
muli!lier is he num(er (#
which he iniial chan&e in s!endin& is muli!lied o o(ain he oal am!li$ied increase in
income" The si%e o$
he muli!lier increases wih he -mar&inal !ro!ensi# o consume 2M;C3"
0"Classical heor# -Re$ers o he heor# $irs !ro!osed (# Adam Smih in ?An In+uir# ino
he Naure and
Causes o$ he /ealh o$ Naions"@Classical heor# was he !redominan heor# in
indusriali%ed naions $rom
he ime o$ Adam Smih unil he :rea >e!ression" The ideal +uani# o$ oal ou!u is
he +uani# ha
will #ield $ull em!lo#men o$ la(or" The +uani# o$ oal ou!u ha resuls in $ull
em!lo#men o$ la(or
is called Naural Real :>;" Accordin& o classical heor#- a mar*e econom# is s
Classical heor# ar&ues
ha inade+uae demand canno (e a !ro(lem in a mar*e econom# due o Sa#,s 4aw"
Sa#,s 4aw-Su!!l#
creaes is own demand" The ac o$ !roducion leads o e+ui)alen income o resource
owners Accordin& o
classical heor#- $le'i(le ineres raes in he credi mar*e cause an# consumer sa)in&s o
(e e'acl# o$$se
(# (usiness in)esmen" This assumes ha he +uani# o$ (oh sa)in&s and in)esmen is
deermined (# he
ineres rae are sel$-re&ulain& and will auomaicall# ad9us o Naural Real :>;"
Accordin& o classical
heor#- he econom# is sel$-re&ulain& and will auomaicall# close a recessionar# &a!"
The sur!lus o$ la(or
will cause wa&e raes in he econom# o $all" The decrease in wa&e raes will shi$ he
SRAS cur)e o he
ri&h- unil Naural Real :>; is reached Accordin& o classical heor#- he econom# is
sel$-re&ulain& and
will auomaicall# close an in$laionar# &a!" The shora&e o$ la(or will cause wa&e raes
in he econom# o
rise" The increase in wa&e raes will shi$ he SRAS cur)e o he le$- unil Naural Real
:>; is reached" I$ he
econom# is sel$-re&ulain& and auomaicall# ad9uss o Naural Real :>;- he !ro!er
macroeconomic !olic# is
laisse%-$aire
. RosowGs Model-
Sa&e 1 Tradiional Socie#-The econom# is dominaed (# su(sisence aci)i# where
ou!u is consumed
(# !roducers raher han raded" An# rade is carried ou (# (arer where &oods are
e'chan&ed direcl# $or
oher &oods" A&riculure is he mos im!oran indusr# and !roducion is la(our inensi)e
usin& onl# limied
+uaniies o$ ca!ial" Resource allocaion is deermined )er# much (# radiional mehods
o$ !roducion"
Sa&e 0 Transiional Sa&e 2he !recondiions $or a*eo$$3-Increased s!ecialisaion
&eneraes sur!luses
$or radin&" There is an emer&ence o$ a rans!or in$rasrucure o su!!or rade" As
incomes- sa)in&s and
in)esmen &row enre!reneurs emer&e" E'ernal rade also occurs concenrain& on
!rimar# !roducs
Sa&e . Ta*e O$$- Indusrialisaion increases- wih wor*ers swichin& $rom he
a&riculural secor o he
manu$acurin& secor" :rowh is concenraed in a $ew re&ions o$ he counr# and in one
or wo manu$acurin&
indusries" The le)el o$ in)esmen reaches o)er 1DL o$ :N;"The economic ransiions
are accom!anied (#
he e)oluion o$ new !oliical and social insiuions ha su!!or he indusrialisaion" The
&rowh is sel$-
susainin& as in)esmen leads o increasin& incomes in urn &enerain& more sa)in&s o
$inance $urher
in)esmen"
Sa&e F >ri)e o Mauri#-The econom# is di)ersi$#in& ino new areas" Technolo&ical
inno)aion is !ro)idin&
a di)erse ran&e o$ in)esmen o!!oruniies" The econom# is !roducin& a wide ran&e o$
&oods and ser)ices and
here is less reliance on im!ors"
Sa&e B 1i&h Mass Consum!ion-The econom# is &eared owards mass consum!ion" The
consumer dura(le
indusries $lourish" The ser)ice secor (ecomes increasin&l# dominan"
F"1arrod->omar Model- The model su&&ess ha he econom#Gs rae o$ &rowh de!ends
on: he le)el o$
sa)in&- and he !roduci)i# o$ in)esmen i"e" he ca!ial ou!u raio" /arraned &rowh
5 he rae o$ ou!u
&rowh a which $irms (elie)e he# ha)e he correc a moun o$ ca!ial and here$ore do
no increase or
decrease in)esmen- &i)en e'!ecaions o$ $uure demand" Naural rae o$ &rowh 5 The
rae a which he
la(our $orce e'!ands- a lar&er la(our $orce &enerall# means a lar&er a&&re&ae ou!u"
Acual &rowh 5 The
acual a&&re&ae ou!u chan&e" There is no &uaranee ha an econom# will achie)e
su$$icien ou!u &rowh
o susain $ull em!lo#men in a cone' o$ !o!ulaion &rowh" The !ro(lem arises when
acual &rowh eiher
e'ceeds or $ails o mee warraned &rowh e'!ecaions" A )icious c#cle can (e creaed
where he di$$erence is
e'a&&eraed (# aem!s o mee he acual demand- causin& economic insa(ili# -
Ca!ial soc* 2X3 -Ou!u
2A3 5 :>;- Ca!ial-Ou!u raio 2*3: he dollar amoun o$ ca!ial needed o !roduce a C1
sream o$ :>;" X=
A or ZX=ZA- Sa)in&s 2S3 and he sa)in&s raio 2s3: he $i'ed !ro!orion o$ naional ou!u
ha is used $or new
in)esmen So S I sA213 Ne in)esmen is he chan&e in he ca!ial soc* I I ZX 203
Remem(er ha * I X=A
or ZX=ZA- so ha ----ZX I *ZA 2.3 Ne sa)in&s mus e+ual o ne in)esmen so ha S I
I" Com(inin& 213- 203
and 2.3:
sA I *ZA ------- s=* I ZA=A
------ ZA=A is he &rowh rae o$ :>; "
B"Schum!eer model -Schum!eer- an enre!reneur is a !erson who is willin& and a(le o
con)er a new
idea or in)enion ino a success$ul inno)aion" Enre!reneurshi! em!lo#s wha
Schum!eer called [he &ale
o$ creai)e desrucion[ o re!lace in whole or in !ar in$erior inno)aions across mar*es
and indusries-
simulaneousl# creain& new !roducs includin& new (usiness models" In his wa#-
creai)e desrucion is
lar&el# res!onsi(le $or he d#namism o$ indusries and lon&- erm economic &rowh"
Inno)aions in he
in$ormaion and communicaions echnolo&# 2ICT3 indusr# are &larin& e'am!les o$
modern da# consruci)e
desrucion
MO>U4E-B - E'chan&e Rae-BO;
E'chan&e raes -The )alue o$ one currenc# relai)e o anoher currenc# as he num(er o$
unis o$ one currenc#
re+uired o !urchase one uni o$ he oher currenc#" Forei&n E'chan&e Mar*e The
$inancial mar*e where
e'chan&e raes are deermined -Transacions conduced in he $orei&n e'chan&e mar*e
deermines he raes a
which currencies are chan&ed-
The !rice o$ one currenc# in erms o$ anoher is called e'chan&e rae"
There are wo *inds o$ e'chan&e rae (ased on ransacions ha ma*e u! he $orei&n
e'chan&e mar*e:-
S!o ransacions in)ol)e he near-immediae e'chan&e o$ (an* de!osis- com!leed a
he s!o rae"
-Forward ransacions in)ol)e e'chan&es a some $uure dae- com!leed a he $orward
rae" /hen a
currenc# increases 2decreases3 in )alue- i e'!eriences a!!reciaion 2de!reciaion3----
Fle'i(le e'chan&e raes are e'chan&e raes- which $lucuae accordin& o mar*e $orces"
Ad)ana&es: a"Allow
counries o mainain inde!enden economic !olicies" (" ;ermi a smooh ad9usmen o
e'ernal shoc*s" C
>onG need o mainain lar&e inernaionalreser)es".">isad)ana&es: a" Fle'i(le e'chan&e
raes are hi&hl#
unsa(le so ha $lows o$ $orei&n rade and in)esmen ma# (e discoura&ed" ("The# are
inherenl# in$laionar#
Fi'ed e'chan&e raes are e'chan&e raes which do no $lucuae or which chan&e wihin a
!redeermine
(and"0Fi'ed e'chan&e raes !ro)ide he sa(ili# o$ e'chan&e rae- (u heir disad)ana&es
include: a3Too ri&id
o a*e care o$ ma9or u!hea)als" B3" Need lar&e reser)es o de$end he $i'ed e'chan&e
rae" C3" Ma# cause
desa(ili%in& s!eculaionsV mos currenc# crises oo* !lace under a $i'ed e'chan&e
s#sem"
>e$inin& Balance o$ ;a#mens 2BO;3:A measuremen o$ all inernaional economic and
$inancial
ransacions (eween he residens o$ a !aricular counr# and he res o$ he world The
Balance o$ ;a#mens o$
an# counr# is di)ided ino wo ma9or accouns: he Curren Accoun and he
Ca!ial=Financial Accoun"
Curren Accoun rac*s: Balance o$ Trade: 2ne3 merchandise e'!ors and im!ors"
Ser)ices Balance:
2ne3 $inancial ser)ices and ra)el 2oher3 ser)ices -Financial: ;ro)ided (# (an*s o non-
residens" Tra)el =
oher: ;ro)ided (# domesic eniies o $orei&n counr# residens- such as meals- hoels-
air ra)el- suden
e'chan&es- consrucion" Income Balance: 2ne3 in)esmen income $rom a(road and o
$orei&n eniies 2arises
$rom !re)ious in)esmens3"Ne Trans$ers: 2ne3 !ri)ae remiances o residens a(road
2mone#=&i$s3 or (#
&o)ernmens 2aid3"
The Ca!ial and Financial Accouns -ca!ure cross (order in)esmens durin& a recorded
!eriod" Ca!ial
Accoun: ;urchases 2or sales3 o$ real esae"-Financial Accoun:2ne3 Forei&n >irec
in)esmen 2F>I3"F>I in
he U"S" minus U"S" F>I a(road -2ne3 ;or$olio in)esmen-Non-conrollin& e+ui#
in)esmens- i"e"- common
soc* 2M1DL3->e( insrumen in)esmens 2i"e"- (onds3"-Include (oh !ersonal and
insiuional 2muual $unds3
-2ne3 Oher $inancial ransacions-Ban* loans"
A counr#,s BO; can ha)e a si&ni$ican im!ac on he le)el o$ is e'chan&e rae and )ice
)ersa de!endin&
on ha counr#,s e'chan&e rae re&ime-The e$$ec o$ an im(alance in he BO; o$ a
counr# wor*s somewha
di$$erenl# de!endin& on wheher ha counr# has $i'ed e'chan&e raes- $loain&
e'chan&e raes- or a mana&ed
e'chan&e rae s#sem-Under a $i'ed e'chan&e rae s#sem he &o)ernmen (ears he
res!onsi(ili# o assure
a BO; near %ero-Under a $loain& e'chan&e rae s#sem- he &o)ernmen o$ a counr# has
no res!onsi(ili# o
!e& is $orei&n e'chan&e rae
>irec In)esmen 5 in which he in)esor e'ers some e'!lici de&ree o$ conrol o)er he
asses-;or$olio
In)esmen 5 in which he in)esor has no conrol o)er he asses nor an# !arici!aion in
he mana&emen-
Oher In)esmen 5 consiss o$ )arious shor-erm and lon&-erm rade credis- cross-
(order loans- currenc#
de!osis- (an* de!osis and oher ca!ial $lows relaed o cross-(order rade
Ad)ana&es- :rowh o$ ca!ial soc*-Incor!oraed echnolo&ies-;ossi(iliies o &ain
mana&erial and la(or
s*ills-1i&her incomes and economic de)elo!men" 2Ta'aion $or !u(lic secor3-Finance
educaion-Finance
healh-Finance in$rasrucure de)elo!men- ec"
Trade Resricions: Ar&umens -Naional >e$ense" 0Sancions o ;unish O$$endin&
Naions .";roec In$an 2or
>#in&3 Indusr# F";roec >omesic Qo(s $rom Chea! Forei&n 4a(or B"Scieni$ic Tari$$ or
Fair Com!eiion-
Counries use !roecionis measures o shield a counr#,s mar*es $rom inrusion (#
$orei&n com!eiion and
im!ors
Ar&umens $or ;roecionism include:1mainain em!lo#men and reduce
unem!lo#men"0increase o$
(usiness si%e- and .realiaion and (ar&ainin&"F!roecion o$ he home mar*e" Bneed o
*ee! mone#
a home"Rencoura&emen o$ ca!ial accumulaion"Smainenance o$ he sandard o$ li)in&
and real
wa&es"Econser)aion o$ naural resources"\!roecion o$ an in$an indusr#
1Dindusriali%aion o$ a low-wa&e
naion "11naional de$ense
XIN>S OF TRA>E RESTRICTIONS
1Tari$$ (arriers- 2Uualiai)e (arriers3 a"Ad )alorem du#- ("S!eci$ic du# -cCom!ound
du#- d7aria(le le)#-
Creaes re)enue $or &o)ernmen
Bene$is-In$an indusr# !roecion->um!in& 5 o$ $orei&n &oods a low !rices o *ill o$$
com!eiion-Chea!
la(our 5 !roecion $rom chea! $orei&n la(our-Srae&ic rade !olic# 5 ] naional wel$are
a he cos o$ oher
naions-E'ernaliies 5 !roec indusries $rom $orei&n com!eiion in order $or hem o
ca!ure (ene$is o$
R8>
0"Non-ari$$ (arriers 2Uuaniai)e (arriers3 5a"Uuoas ("7olunar# e'!or resrains- c"
Orderl# mar*ein&
arran&emens
."Non-+uaniai)e- non-ari$$ (arriers-a">irec &o)ernmen !arici!aion in rade-
("Cusoms and oher
adminisrai)e !rocedures-c"Sandard"
Inellecual ;ro!er# is a !ro!er# ha arises $rom he human inellec" I is a !roduc o$
human creaion"
Inellecual ;ro!er# is he creaion o$ he human inellecual !rocess and is here$ore he
!roduc o$ he human
inellec or mind" I is an inan&i(le $orm o$ !ro!er#" I is a !ersonal !ro!er#" I is a (asic
$orm o$ !ro!er#" I
is (ased on in$ormaion Economic li(erali%aion is a !rocess and a maer o$ de&ree
MEANIN: 5 :ran o$ e'clusi)e ri&hs $or a cerain !eriod o)er inan&i(le asses creaed
hrou&h human s*ill-
inelli&ence- la(our and e$$or
INTE44ECTUA4 ;RO;ERTA RI:1TS IN IN>IA 5
C1IEF COM;ONENTS 51Co!#ri&h 0"Trademar* -.;aen F"Indusrial >esi&ns-
B:eo&ra!hical indicaions-R
Semi-conducors 24a#ou->esi&ns 2To!o&ra!hies3 o$ Ine&raed Circuis3 -S";lan 7arie#
8 Bio->i)ersi#
I;R ;ROTECTION MEC1ANISM IN IN>IA- SA4IENT FEATURES
In con$ormi# wih Inernaional sandards and as amended $rom ime o ime- he Indian
laws !ro)ide $or (oh
ci)il and criminal lia(ili#V ;roecion a)aila(le o (oh re&isered as well as unre&isered
I;Rs hrou&h ci)il
suis- em!orar# = !ermanen in9uncion- arres- !enal#- dama&es- com!ensaion ec"V
Criminal remed# more
e$$eci)e han ci)il !roceedin&sV
:O7ERNIN: STATUTES 8 TERM OF ;ROTECTION 5
Under Co!#ri&h Ac- 1\BS 5 4i$eime T RD #rs"- $or Naural eni# and BD #rs" $rom
!u(licaion $or Ari$icial
Eni#V Under ;aens Ac- 1\SD 5 0D #ear- renewa(leV
Under Trademar*s Ac- 1\\\ 5 1D #ear- renewa(leV
Under >esi&ns Ac- 0DDD - 1D #ear T B #ear e'ensionV
Under :eo&ra!hical Indicaions o$ :oods 2Re&israion and ;roecion3 Ac-1\\\ 5 1D
AearsV
Under ;roecion o$ ;lan 7arie# 8 $armer,s Ri&h Ac- 0DDD 5 Ma'imum 1E #earsV
Biolo&ical >i)ersi# Ac-
0DD0V
Under Semiconducor Ine&raed Circuis 4a#ou >esi&n Ac- 0DDD- 1D #ear" Ac o (e
im!lemened hence no
!roecion as o$ dae
ECONOMIC 4IBERA4I^ATION- The le)el o$ li(erali%aion o$ a counr#,s econom#
canno (e deermined
in a(solue erms- and has o (e assessed on a com!arai)e (asis-There ma# (e )arious
$acors which can hel!
o characeri%e a !aricular econom# as re&ulaed or li(erali%ed- such as
213 le)el o$ !ri)ae ener!rise 5
203 macro economic !olic# 5
2.3m icro economic !olic#
13 le)el o$ !ri)ae ener!rise 5
1" /ha !ercena&e o$ he :>; comes $rom !ri)ae ownershi!6 /ha !ercena&e o$ he
la(or $orce is
em!lo#ed in he !ri)ae secor6 1ow lar&e is he in$ormal secor o$ he econom#6
0" /ha ma9or !ri)ai%aion le&islaion has (een !assed6 /ha were is su(sani)e
$eaures6
." /ha !ro!orion o$ a&riculure- housin& and land- indusr#- and small (usiness and
ser)ices is in !ri)ae
hands6
F" /ha has (een he e'en o$ insider 2mana&emen- la(or- and nomen*laura3
!arici!aion in he !ri)ai%aion
!rocess6 /ha e'!lici and im!lici !re$erences ha)e (een awarded o insiders6
B" 1ow much !u(lic awareness o$ and su!!or $or !ri)ai%aion has here (een6 /ha is
he naure o$ su!!or
and o!!osiion o !ri)ai%aion (# ma9or ineres &rou!s
03 Macro economic !olic#-
1" 1as he a'aion s#sem (een re$ormed6 /ha areas ha)e and ha)e no (een
o)erhauled6 To wha de&ree
are a'!a#ers com!l#in&6 Is a' com!liance di$$icul o achie)e6 1as he le)el o$
re)enues increased6 Is he
re)enue-collecion (od# o)er(urdened6 /ha is he o)erall a' (urden6
0" >oes $iscal !olic# encoura&e !ri)ae sa)in&s- in)esmen- and earnin&s6 1as here (een
an# re$orm=
aleraion o$ re)enue and (ud&e !olicies6 1ow lar&e are (ud&e de$icis and o)erall de(6
Is he $inancin& o$
he social insurance=!ension s#sem susaina(le6 /ha !ro!orion o$ he (ud&e is a*en
u! (# su(sidies o
$irms and indi)iduals6
." 1as here (een (an*in& re$orm6 Is he cenral (an* inde!enden6 /ha are is
res!onsi(iliies6 Is i
e$$eci)e in sein& and=or im!lemenin& monear# !olic#6 /ha is he acual sae o$ he
!ri)ae (an*in&
secor6 >oes i con$orm o inernaional sandards6 Are de!osiors !roeced6
F" 1ow sound is he naional currenc#6 Is he )alue o$ he currenc# $i'ed or does i $loa6
1ow con)eri(le is
he currenc#6 1ow lar&e are he hard currenc# reser)es6 1as e'chan&e rae !olic# (een
sa(le and !redica(le
B" Is here a $uncionin& ca!ial mar*e in$rasrucure6 Are here e'isin& or !lanned
commodiies- (ond- and
soc* mar*es6 /ha are he mechanisms $or in)esmen and lendin&6 /ha &o)ernmen
(odies ha)e auhori#
o re&ulae ca!ial mar*es6 >oes he re&ulaor# s#sem !ro)ide $or in)esor !roecion-
rans!arenc# and
cor!orae accouna(ili#"
.3micro economic !olic#-1"Are !ro!er# ri&hs &uaraneed6 Are here (oh $ormal and de
$aco !roecions o$
!ri)ae real esae and inellecual !ro!er#6 Is here a land re&isr# wih he auhori# and
ca!a(ili# o ensure
accurae recordin& o$ who owns wha6 /ha are he !rocedures $or e'!ro!riaion-
includin& measures $or
com!ensaion and challen&e6 1a)e an# sei%ures a*en !lace6
0" To wha e'en ha)e !rices (een li(erali%ed6 /ha su(sidies remain6 . Is i !ossi(le o
own and o!erae a
(usiness6 1as here (een le&islaion re&ardin& he $ormaion- dissoluion- and rans$er o$
(usinesses- and is
he law res!eced6 >o here e'is o)erl# cum(ersome (ureaucraic hurdles ha
e$$eci)el# hinder he a(ili#
o own and dis!ose o$ a (usiness6 Are cii%ens &i)en access o in$ormaion on
commercial law6 Is he law
a!!lied $airl#6 >o re&ulaion or licensin& re+uiremens im!ose si&ni$ican coss on
(usiness and consumers6
>o he# creae si&ni$ican (arriers o enr# and seriousl# ham!er com!eiion6" FIs
(usiness com!eiion
encoura&ed6 Are mono!olisic !racices limied in law and in !racice6 I$ so-how6 To
wha de&ree is [insider[
dealin& a hindrance o o!en com!eiion6 Are &o)ernmen !rocuremen !olicies o!en and
un(iased6 B" Are
cours e$$eci)e- rans!aren- e$$icien- and +uic* in reachin& decisions on !ro!er# and
conrac dis!ues6 /ha
alernai)e mechanisms $or ad9udicain& dis!ues e'is6R" >oes corru!ion inhi(i
(usiness6 S" To wha e'en
has inernaional rade (een li(erali%ed6 To wha de&ree has here (een
sim!li$icaion=o)erhaul o$ cusoms
and ari$$ !rocedures- and are hese a!!lied $airl#6 /ha in$ormal rade (arriers e'is6 E"
To wha e'en has
$orei&n in)esmen and ca!ial $low (een encoura&ed or consrained \" 1as here (een
re$orm o$ he ener&#
secor6 To wha de&ree has he ener&# secor (een resrucured6 Is he ener&# secor more
)aried- and is i o!en
o !ri)ae com!eiion6 Is he counr# o)erl# de!enden on one or wo oher counries $or
ener&#- includin&
wheher e'!ored $uels mus !ass hrou&h one or more counries o reach mar*es6 1D"
1ow srin&en are
he la(our laws6 1ow co-o!erai)e are he wor*$orce and he rade unions6 11" 1ow
e$$eci)e is he le&al
$ramewor* $or credior ri&hs6 10" 1ow sensii)e are he insol)enc# laws o credior
ri&hs6 >o he insol)enc#
laws !ro)ide $or cor!orae reco)er#6 1ow e$$icien is he s#sem $or reha(iliaion o$
)ia(le (usiness6
UUESTIONS
/ha are he ma9or $eaures o$ Micro and Macro Economics6
0" >e$ine Micro and Macro Economics" 1ow hese wo are hel!$ul o mana&ers6
." E'!lain he ma9or (ene$is o$ Micro and Macro Economics6
F" >isin&uish (eween inernal and e'ernal en)ironmen o$ (usiness"
B" E'!lain he emer&in& (usiness en)ironmen and (usiness ehics in India"
R" "E'!lain he 4aw-o$ diminishin& mar&inal uili# heor# wih a suia(le e'am!le"
S" >isin&uish (eween cardinal 8 ordinal uili# anal#sis"
E" >e$ine indi$$erence cur)e" 1ow i hel!s o e'!lain low o$ demand6
\" 1ow !rice e$$ec can (e di)ided in o income and su(siuion e$$ec6
1D" /ha is e+ui-mar&inal !rinci!le6 1ow i e'!lains consumer,s e+uili(rium6
1"
11" >e$ine !rice elasici# o$ demand and e'!lain is im!orance in mana&emen
decisions"
10" E'!lain- wih dia&rams- he di$$eren de&rees o$ !rice elasici# o$ demand"
1." E'!lain he conce!s-income elasici#- cross- elasici#- ad)erisemen elasici#-
elasici# o$
!rice e'!ecaion"
1F" >e$ine !roducion $uncion" E'!lain he law o$ )aria(le !ro!orion"
1B" 1ow lon& run a)era&e cos cur)e e'!lain he law o$ reurn o scale" wrie a (rie$ noe
on
economies o$ scale"
E'!lain he !rice and ou !u deerminaion mehod o$ !er$ec com!eiion"
/ha is mono!ol#6 /ha are he ma9or $eaures6 1ow !rice is deermined in mono!ol#6
E'!lain he $uncionin& o$ oli&o!ol# mar*e" >iscuss he )arious oli&o!ol# models"
/ha is $ull coas !ricin&6 wha is he relaion (eween !roduc li$e c#cle and !ricin&6
>escri(e an econom# in erms o$ circular $lows o$ income and e'!endiure" /ha is
mean (#
wihdrawals and in9ecions6
>e$ine naional income- wha is is im!orance6 wha are he im!oran mehods o$
naional
income measuremen
E'!lain he Xe#nesian heor# o$ income and em!lo#men" 1ow i di$$er $rom classical
model6
E'!lain he conce! o$ muli!lier wih a suia(le e'am!le"
E'!lain he classical model o$ economic !lannin&
1ow Xe#nesian model is di$$er $rom classical model6
Criicall# e'amine Rosow@s model o$ economic !lannin&
e'!lain he role o$ sa)in&s in 1arror- >omer Model o$ economic !lannin&"
Com!eiion hrou&h inno)aion is he dri)in& $orce o$ economic de)elo!men ?-e'!lain
E'!lain he conce! o$ IS4M" 1ow hese are deri)in& and reachin& an e+uili(rium6
E'!lain he e$$ec o$ monear# and $iscal !olic# wih he hel! o$ IS4M model"
/ha are he ;ro(lems o$ Usin& IS-4M in he Real /orld6
"Brie$l# descri(e -how BO;s are use $ull $or e'chan&e rae deerminaion" 1ow BO;
di$$er
$rom BOT6
E'!lain he role o$ $orei&n !ri)ae in)esmen in correcin& BO;s o$ 4>Cs- and criicall#
e'amine heir de( mana&emen !olicies"
"1ow !roecionism will hel! o correc BO; !ro(lems6
"E'!lain he ma9or !ros!ecs o$ economic li(erali%aion in 4>Cs - a*e India as an
e'am!le
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