💰 ECONOMICS – SUMMARY NOTES
🧠 1. Meaning of Economics
Economics is the study of how people and societies choose to use limited resources to satisfy unlimited wants.
Definition (Lionel Robbins):
“Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.”
🎯 2. Branches of Economics
| Branch | Focus | Examples |
|---|---|---|
| Microeconomics | Individual units like consumers, firms | Price of a product, demand, supply |
| Macroeconomics | Whole economy | National income, inflation, unemployment |
📊 3. Basic Economic Problems
Every economy faces three fundamental questions:
- What to produce?
- How to produce?
- For whom to produce?
✅ These arise due to scarcity of resources.
💡 4. Types of Economies
| Type | Basis | Example |
|---|---|---|
| Capitalist | Market decides everything | USA |
| Socialist | Government controls economy | China (earlier USSR) |
| Mixed | Both private & public sector | India |
🧾 5. Central Problems of Economy
- Resource Allocation
- Full Employment of Resources
- Economic Growth & Development
📈 6. Microeconomics – Key Concepts
(a) Demand
Quantity of a good that a consumer is willing & able to buy at a given price.
Law of Demand:
Price ↑ → Demand ↓ (inverse relationship)D=f(P)D=f(P)
Determinants of Demand:
Income, taste, price of related goods, expectations.
(b) Supply
Quantity of a good that producers are willing to sell at a given price.
Law of Supply:
Price ↑ → Supply ↑ (direct relationship)S=f(P)S=f(P)
(c) Elasticity of Demand
Measures how much demand changes with price/income change.
| Type | Formula |
|---|---|
| Price Elasticity | Ep=%change in Q%change in PEp=%change in P%change in Q |
| Income Elasticity | Ey=%change in Q%change in IncomeEy=%change in Income%change in Q |
(d) Utility
Satisfaction derived from consuming goods/services.
| Type | Meaning |
|---|---|
| Total Utility (TU) | Total satisfaction |
| Marginal Utility (MU) | Change in TU from one more unit |
Law of Diminishing Marginal Utility:
MU decreases as more units of a good are consumed.
(e) Production Function
Q=f(L,K)Q=f(L,K)
where Q = output, L = labor, K = capital.
(f) Cost Concepts
| Cost Type | Meaning |
|---|---|
| Fixed Cost | Constant regardless of output |
| Variable Cost | Changes with output |
| Total Cost | FC + VC |
| Average Cost | TC / Q |
| Marginal Cost | ΔTC / ΔQ |
(g) Revenue Concepts
| Term | Formula |
|---|---|
| Total Revenue (TR) | P × Q |
| Average Revenue (AR) | TR / Q |
| Marginal Revenue (MR) | ΔTR / ΔQ |
(h) Market Structures
| Type | Features | Example |
|---|---|---|
| Perfect Competition | Many sellers, homogeneous product | Agriculture |
| Monopoly | One seller, no substitutes | Railways |
| Monopolistic Competition | Many sellers, differentiated goods | Fast-food chains |
| Oligopoly | Few big sellers | Telecom, airlines |
💹 7. National Income (Macroeconomics)
Total income earned by a nation’s people and businesses.
Methods of Measurement:
- Production Method – Sum of value added
- Income Method – Sum of all factor incomes
- Expenditure Method – Sum of all spending
GDP=C+I+G+(X−M)GDP=C+I+G+(X−M)
Where:
C = Consumption, I = Investment, G = Government Spending, (X–M) = Net Exports
Important Terms
| Term | Meaning |
|---|---|
| GDP | Gross Domestic Product – within country |
| GNP | GDP + Net income from abroad |
| NDP | GDP − Depreciation |
| NNP | GNP − Depreciation |
| Per Capita Income | National Income / Population |
📉 8. Inflation and Deflation
| Term | Meaning | Cause |
|---|---|---|
| Inflation | Continuous rise in prices | Excess demand |
| Deflation | Continuous fall in prices | Lack of demand |
Control Measures:
- Monetary policy (by RBI)
- Fiscal policy (by Govt)
🏦 9. Money and Banking
Functions of Money
- Medium of Exchange
- Measure of Value
- Store of Value
- Standard of Deferred Payments
Central Bank (RBI) Functions
- Issue of currency
- Control of credit
- Banker to government
- Custodian of foreign reserves
- Lender of last resort
Credit Control Tools
- Bank Rate Policy
- CRR (Cash Reserve Ratio)
- Repo Rate & Reverse Repo Rate
- Open Market Operations
💰 10. Public Finance
Study of government income and expenditure.
| Concept | Example |
|---|---|
| Public Revenue | Taxes, fees, borrowings |
| Public Expenditure | Defense, education, subsidies |
| Public Debt | Loans raised by government |
📊 11. Economic Growth vs Economic Development
| Basis | Growth | Development |
|---|---|---|
| Meaning | Increase in output/income | Growth + social welfare |
| Measurement | GDP, GNP | HDI, literacy, health |
| Nature | Quantitative | Qualitative |
💹 12. Fiscal Policy
Government policy relating to taxation and expenditure.
- Expansionary Policy: Increase spending → raise demand
- Contractionary Policy: Reduce spending → control inflation
💱 13. Monetary Policy
Policy by RBI to control money supply and credit.
Main Instruments:
- Repo Rate
- Reverse Repo Rate
- CRR (Cash Reserve Ratio)
- SLR (Statutory Liquidity Ratio)
🌍 14. International Trade
| Term | Meaning |
|---|---|
| Exports | Goods sold abroad |
| Imports | Goods bought from abroad |
| Balance of Trade (BOT) | Exports − Imports |
| Balance of Payments (BOP) | All international transactions |
🧾 15. Economic Planning in India
- Started in 1951 with First Five-Year Plan.
- Planning Commission → NITI Aayog (2015).
- Focus: Agriculture, industry, infrastructure, and social welfare.
🇮🇳 16. Indian Economy – Key Features
- Mixed Economy
- Agriculture-based but growing industrial & service sector
- Population pressure
- Unemployment & poverty
- Planning and liberalization since 1991
💼 17. Economic Reforms (LPG – 1991)
| Policy | Meaning |
|---|---|
| Liberalization | Removal of government control |
| Privatization | Private sector participation |
| Globalization | Integration with world economy |
📈 18. Sustainable Development
Development that meets present needs without compromising future generations.
Indicators:
- Renewable energy use
- Forest conservation
- Reduction in pollution
📊 19. Key Economic Indicators
| Indicator | Meaning |
|---|---|
| GDP Growth Rate | Rate of economic growth |
| Inflation Rate | % change in price level |
| Unemployment Rate | % of people jobless |
| Fiscal Deficit | Expenditure − Revenue |
| Exchange Rate | Value of currency vs foreign currency |
✅ 20. Summary at a Glance
| Topic | Key Idea |
|---|---|
| Economics | Study of scarcity and choice |
| Micro | Individual behavior |
| Macro | Whole economy |
| National Income | GDP, GNP, NNP |
| Demand & Supply | Price determination |
| Money & Banking | Role of RBI |
| Public Finance | Govt income & spending |
| LPG Reforms | 1991 economic changes |
| Indian Economy | Mixed, developing economy |