General Economics For CA-CPT

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Cover Copyright Contents Preface to this Edition Preface About the Authors Part One: Microeconomics Section 1: Introduction to Microeconomics Unit 1: Nature and Scope of Economics What is Economics Definition and Scope of Economics Study of Wealth Merits Demerits Study of Material Welfare Study of Scarcity and Choice Making Features Criticism Study of Dynamic Growth and Development Micro and Macroeconomics Microeconomics Macroeconomics Nature of Economics Economics is a Science or an Art? Economics as a Positive Science and a Normative Science Positive Science Normative Science Methods of Study of Economics Deductive Method (from General to Particular) Inductive Method (From Particular to General) Laws of Economics Unit 2: Economic Systems Central Economic Problems What to Produce? What goods and services to be produced? In what quantities these goods and services to be produced? How to Produce? For Whom to Produce? What provision should be made for future economic growth? How different economies solve their central economic problems? Capitalism (Capitalist Economy) How Capitalist Economy Solve Its Central Economic Problem? Decision regarding what to produce Decision regarding how to produce Decision regarding for whom to produce Decision regarding consumption, saving, and investment for future economic growth Socialism (Socialist Economy) How Socialist Economy Solve Its Central Economic Problem? Decision regarding what to produce Decision regarding how to produce Decision regarding for whom to produce Decision regarding consumption, saving, and investment for future economic growth Mixed Economy How does a Mixed Economy Solve Its Central Economic Problem? Comparative Evaluation of the Economic System Capitalist economy Merits Demerits Socialist economy Merits Demerits Mixed economy Merits Demerits Unit 3: Production Possibility Curve or Production Possibility Frontier Production Possibility Curve Movements inside and outside PPC Production Possibility Curve and Opportunity Cost Production Possibility Curve and Economic Growth Summary Multiple Choice Questions Answer Keys Section 2: Theory of Demand and Supply Unit 4: Law of Demand and Elasticity of Demand Meaning of Demand Determinants of Demand Law of Demand—Demand Curve—Reasons for Demand Curve Sloping Downward—Exceptions to Law of Demand—Exceptional Demand Curve Law of Demand Demand schedule Individual demand curve Market demand schedule Market demand curve Reasons for Demand Curve Sloping Downward Exceptions to Law of Demand—Exceptional Demand Curve Changes in Demand Factors Leading to Changes in Demand (Shifts in Demand Curve) Elasticity of Demand Price Elasticity of Demand Methods of Measuring Price Elasticity of Demand Determinants of Price Elasticity of Demand Income elasticity of demand (EY) Cross Elasticity of Demand (EC) Demand for Related Goods Demand Distinctions Unit 5: Theory of Consumer Behaviour Utility Features of Human Wants Classification of human wants Utility Analysis Law of Diminishing Marginal Utility (DMU) Main Features of the Law Assumptions of the Law Limitations of the Law Consumer’s Surplus Assumptions Limitations Indifference Curve Analysis Assumptions of IC Analysis What is an indifference curve? Properties of indifference curves Consumer’s Equilibrium Consumers’ Equilibrium Unit 6: Analysis of Supply Meaning of Supply Determinants of Supply Law of Supply Supply Curve Changes in Supply Changes in quantity supplied: Expansion and contraction of supply Changes in supply: Increase and decrease in supply Elasticity of Supply Degrees of Elasticity of Supply Other Methods of Measuring Elasticity of Supply Summary Multiple Choice Questions Answer Keys Section 3: Theory of Production and Costs Unit 7: Theory of Production Meaning of Production Factors of Production Land Characteristics of land Labour Characteristics of labour Division of Labour Advantages Demerits Factors limiting division of labour Capital Features of capital Capital and Wealth Classification of capital Capital formation Stages of capital formation Entrepreneur Functions of an entrepreneur Meaning of Production Function Total Product Average Product Marginal Product Short period production function Law of Variable Proportion Assumptions of the law Three stages of the law Long Period Production Function—Returns to Scale Increasing returns to scale Constant returns to scale Diminishing returns to scale Returns to scale in terms of cost conditions Product Optimization—Theory of Isoquants Isoquants Producer’s equilibrium and least cost combination of factors Derivation of isocost line Economies of Scale Internal Economies External Economies Disadvantages of Large Scale Production Unit 8: Theory of Costs Cost Analysis Cost Concepts Short Run Cost Concepts Relationship of MC to AC Relationship between average cost and marginal cost Long Run Cost Concepts Long Run Average Cost Explanation of ‘U’ Shape of LAC Curve Long Run Marginal Cost Summary Multiple Choice Questions Answer Keys Section 4: Price Determination in Different Markets Unit 9: Meaning and Types of Markets Meaning of Market Classification of Markets On the basis of geographical area On the basis of time On the basis of nature of transactions On the basis of regulation On the basis of volume of business On the basis of competition Types of Market Structures Revenue Concepts Total revenue (TR) Average revenue (AR) Marginal revenue (MR) Relationship Among Revenue Concepts in Different Markets Perfect market Imperfect markets Behavioural Principles Unit 10: Determination of Prices Determination of Equilibrium Price and Output Determination of Equilibrium—Diagram Changes in Demand and Supply Supply Remains Constant—Increase in Demand Supply Remains Same—Decrease in Demand Demand Remains Same—Increase in Supply Demand Remains Same—Decrease in Supply Simultaneous Changes in Demand and Supply Unit 11: Price-Output Determination Under Different Markets Perfect Competition Features of Perfect Competition Price Determination in Perfect Competition Short Period Equilibrium in Perfect Market Short period equilibrium—case of abnormal profits Short period equilibrium—case of normal profits Short period equilibrium—case of losses Long Run Equilibrium Under Perfect Competition Monopoly Features of Monopoly Sources of Monopoly Power Monopoly Price AR and MR under monopoly Short period equilibrium under monopoly Long run equilibrium under monopoly Price discrimination (or) discriminating monopoly Conditions Under Which Price Discrimination is Possible? Peculiarities of consumers Objectives of Price Discriminations Degrees of Price Discrimination Nature of commodity Geographical distances and barriers When is Price Discrimination Profitable? Is Price Discrimination Beneficial? Imperfect competition—Monopolistic Competition Features of Monopolistic Competition Nature of Price Short Period Equilibrium Under Monopolistic Competition Long Run Equilibrium Under Monopolistic Competition Oligopoly Types of Oligopoly Features of Oligopoly Price-Output Determination Under Oligopoly Summary Multiple Choice Questions Answer Keys Part Two: Indian Economic Development Section 5: Indian Economy—A Profile Unit 12: Nature of Indian Economy Growth vs Development Developed vs Underdeveloped Countries Features of Underdeveloped Economy India as Underdeveloped Country India—A Developing Economy India—A Mixed Economy Unit 13: Role of Different Sectors in India Agriculture Role of Agriculture Growth of Agriculture in the Plan Period Increase in Agricultural Production and Productivity Diversified growth in Agriculture Modernization of Agriculture Reform of Agrarian System Other Changes in Agricultural Sector Problems of Agricultural Sector Slow and Uneven Growth Slow Modernization of Agriculture Defective Land Reforms Problems Related to Agricultural Credit Problems of Agricultural Marketing and Warehousing Industry Role of Industry in India Growth of Industrial Sector in India Pattern of Industrial Development Since Independence Performance and Contribution of Small Industries in India Problems of Industrial development in India Services Role of Service Sector in India Growth of Service Sector During Plan Period Problems of Service Sector in India Unit 14: National Income in India Basic Concepts of National Income Summary of NI Concepts Methods of Measuring National Income Difficulties in the Calculation of National Income Trends in India’s National Income Growth and Structure Growth of National Income Growth of Per Capita Income Unit 15: Basic Understanding of Tax System in India Meaning of Direct and Indirect Taxes Merits and Demerits of Direct Taxes Merits of Direct Taxes Demerits of Direct Taxes Merits of Indirect Taxes Demerits of Indirect Taxes Tax Structure in India Direct Taxes in India Income Tax Indirect Taxes Features of Tax Structure in India Evaluation of Indian Tax System Summary Multiple Choice Questions Answer Keys Section 6: Selected Aspects of Indian Economy Unit 16: Population What is Meant by Population? Demographic Profile of India Size of Population Rate of Growth of Population Birth Rate and Death Rate Density of Population Sex Ratio Life Expectancy Literacy Ratio Causes for Rapid Growth of Population Impact of Rapid Growth of Population on Indian Economic Development Population Policy—Government Measures to Control the Growth of Population National population policy 2000 Unit 17: Poverty Poverty Concepts of Absolute and Relative Poverty Poverty in India Planning Commission and Poverty Estimates Causes of Poverty Government Programmes for Poverty Alleviation or Eradication Unit 18: Unemployment Meaning of Unemployment Types of Unemployment Nature of Unemployment in India Causes of Unemployment in India Extent of Unemployment in India Measurement of Unemployment Trends in Unemployment Rate NSSO—66th Round Unit 19: Infrastructural Challenges Meaning of Infrastructure Energy Sources of Electricity Difficulties and Problems Relating to Energy Recent Steps Taken to Meet the Energy Problem Transportation Railways Problems of rail transport Road Problems of road transport Water Transport Problems faced by Indian ports Air Transport Communication Postal Services Telecommunications Health Education Problems of India’s Education System Suggestions for Improving the Education System Unit 20: Inflation Meaning and Types of Inflation Inflation—Concepts Demand-pull Inflation Cost-push Inflation Stagflation Deflation Price Trends in India Features of Inflationary Economy Causes of Inflation in India Demand Side Factors Supply Side Causes Effects of Inflation on Production and Distribution Measures to Control Inflation Monetary Measures Quantitative credit control measures Qualitative credit control Fiscal Measures Other Measures Unit 21: Budget and Fiscal Deficits in India Meaning—Budget and Fiscal Deficit Budget deficit Fiscal deficit Example for calculation of budget and fiscal deficits Trends in India’s Budget and Fiscal Deficits—FRBM Act Fiscal Responsibility and Budget Management Act (FRBM) Unit 22: Balance of Payments Meaning of Balance of Trade and Balance of Payments Balance of Trade Balance of Payments Trends in India’s Balance of Payments Measures to Correct Deficits in Balance of Payments Unit 23: External Debt External Debt of India External Debt Indicators Summary Multiple Choice Questions Answer Keys Section 7: Economic Reforms in India Unit 24: Economic Reforms in India Background of Economic Reforms Industrial Sector Reforms Foreign Direct Investment Financial Sector Reforms External Sector Reforms Fiscal Policy Reforms Tax Reforms Since 1991–92 Direct tax reforms Indirect tax reforms Public expenditure reforms Impact of Economic Reforms on the Indian Economy Unit 25: Liberalization, Privatization, and Disinvestment Meaning: Liberalization, Globalization, and Disinvestment Liberalization Privatization Arguments for privatization Arguments against privatization Disinvestment Minority disinvestment Majority disinvestment Complete privatization Progress of Disinvestment in India Unit 26: Globalization Meaning of Globalization Arguments for Globalization Arguments Against Globalization Measures to Promote Globalization Effects of Globalization on Indian Economy International Organization for Facilitating Globalization—IMF, IBRD, and WTO International Monetary Fund (IMF) Objectives Functions World Bank or International Bank for Reconstruction and Development (IBRD) Objectives Functions of the world bank World Trade Organization (WTO) Salient features of WTO Objectives of WTO Functions of WTO Summary Multiple Choice Questions Answer Keys Section 8: Money and Banking Unit 27: Money Meaning of Money Definition of Money Functions of Money Static Dynamic Money stock in India Unit 28: Commercial Banks Definition of a Bank Role of Commercial Banks Functions of Commercial Banks Primary Functions Different forms of lending Secondary Functions Nationalization of Commercial Banks Objectives of Nationalization of Commercial Banks Performance of Nationalized Commercial Banks in India Limitations of Commercial Banks in India Unit 29: Reserve Bank of India Meaning of Central Bank Functions of Central Bank Difference Between Central Bank and Comercial Banks Role of Reserve Bank of India (RBI) Functions of the Reserve Bank of India Issue of Paper Currency Central Bank as Banker, Advisor, and Agent Central Bank is Bankers bank Monetary Policy in India Tools of Monetary Policy Methods of Credit Control General Credit Control or Quantitative Credit Controls Bank rate policy Limitations Open market operation Limitation Variable reserve requirements Limitation Selective Credit Control or Qualitative Credit Controls Limitations Summary Multiple Choice Questions Answer Keys