Economics-Class-IX (NCERT)

Chapter 1 - The Story of Village Palampur

Village Palampur
● Palampur is a small hypothetical village having about 450 families. It is 3 km away from Raiganj —
big village. Shahpur is the nearest town to the village.
● The village is well connected with neighbouring villages and towns.The village is well connected by
the road and most of the houses are electrified. It has two primary schools and one high school.
● There is a government primary health Centre and a primary dispensary.
Main Production Activities
● Farming is the main production activity in the village Palampur. Most of the people are dependent
on farming for their livelihood.
● Non-farming activities such as dairy, small-scale manufacturing (e.g. activities of weavers and
potters, etc.), transport, etc., are carried out on a limited scale.
Factors of Production (Or Requirements for Production of Goods and Services)
● Land, labour and capital are the basic requirements for production of goods and services which are
popularly known as factors of production.
● Land includes all free gifts of nature,e.g., soil, water, forests, minerals, etc.
● Labour means human effort which of course includes physical as well as mental labour.
● Physical capital is the third requirement for production.Physical capital includes fixed capital (e.g.
tools, machines, building, etc.)
● Working capital includes raw materials such as seeds for the farmer, yarn for the weaver. and
money in hand.
Land - Important Changes in Farm Activities
● Land area under cultivation is virtually fixed. However, some wastelands in India had been
converted into cultivable land after 1960.
● Over the years, there have been important changes in the way of farming, which have allowed the
farmers to produce more crops from the same amount of land. These changes include : (a) Multiple
cropping farming (b) Use of modern farming methods.
● Due to these changes (in the late 1960s) productivity of land has increased substantially which is
known as Green Revolution.
● Farmers of Punjab, Haryana and western Uttar Pradesh were the first to try out the modern farming
methods in India.
● Overuse of fertilizers, pesticides and water is resulting into land degradation. The farmers in Punjab
are facing these problems.
Labour
● Small farmers provide their own labour, whereas medium and large farmers make use of hired
labour to work on their fields. There are many landless families in Palampur which provide labours.
● As the work is less for the number of labourers they are not given minimum wages set by the
government. So some labourers migrate to the cities.
Capital:
● All categories of farmers (e.g. small, medium and large) require capital. Small farmers borrow from
large farmers or the village moneylenders or the traders who supply them various inputs for
cultivation. Modern farming requires a great deal of capital.
Sale of Surplus - Farm Products
● Farmers produce crops on their lands by using the three factors of production, viz. land, labour and
capital. They retain a part of produce for self-consumption and sell the surplus in the nearby market.
That part of farm produce which is sold in the market is called marketable surplus.
● Small farmers have little surplus output. It is the medium and large farmers only who have
substantial surplus produce for selling in the market.
Non-farm activities
● Out of every 100 workers in the rural areas in India, only 24 are engaged in non-farm activities.
● There is a variety of non-farm activities in the villages. Dairy, small scale manufacturing, transport,
etc., fall under this category.

Chapter 2 - People As Resource

● Population of a nation can be its asset rather than liability. 'People as resource' refers to a country's
working people in terms of their existing productive skills and abilities.
● When existing human resource is developed by becoming educated and healthy it turns into human
capital. Human capital is superior to other resources like land and physical capital , as it uses these
capitals and adds value to them.
● Investment in human capital via education and medical care can give high returns in the future.
Country like Japan have invested a lot in human resources. They do not have rich natural
resources, but still they are called developed nations.
● Human beings perform many activities which can be grouped into economic and non-economic.
○ Economic Activities: Economic activities refer to those activities of man which are
undertaken for a monetary gain or to satisfy his/her wants. The activities of workers, farmers,
shopkeepers, manufacturers, doctors, lawyers, taxi drivers, etc. fall under this category.
■ Market Activities: Economic activities are also called as market activities.
■ Non market activities: Non market activities are production for self consumption.
Non-economic activities are ones that are not undertaken for any monetary gain.
These are also called unpaid activities, e.g.., Puja-paath, housekeeping, helping the
poor or disabled, etc.
● Classification of Economic Activities. Various economic activities can be classified into three
main sectors, that is primary sector, secondary sector and tertiary sector.
○ The primary sector includes activities like agriculture, forestry, animal husbandry, fishing,
poultry, farming and mining. In this sector, goods are produced by exploiting nature.
○ In the secondary sector, manufacturing (small and large) and construction activities are
included.
○ The tertiary sector (also called service sector) provides various types of services like
transport, education, banking, insurance, health, tourism, etc.
● In India traditionally there is division of labour between men and women. Women generally look
after domestic affairs like cooking of food, washing of clothes, cleaning of utensils, housekeeping
and looking after children
● Human Capital: Human capital is the stock of skill and productive knowledge embodied in human
beings. Population (human beings) become human capital when it is provided with better education,
training and health care facilities.
● Quality of Population: The quality of population depends upon the literacy rate, life expectancy
and skills formation acquired by the people of the country.
● Role of Education: Education is the most important component of human resource development.
○ It contributes towards the growth of the society, enhances the national income, cultural
richness and increases efficiency of governance.
○ In view of its contribution towards the growth of the society, government expenditure on
education as a percentage of GDP rose from 0.64% in 1951-52 to 3.98% in 2002-
03.However, our national goal is 6% of GDP.
○ Literacy is uneven between males and females. Males are more literate. It also varies with
urban and rural area. Urban population is more literate compared to rural.
○ There were 7.68 lakh schools by 2004-05. But education is diluted by the poor quality of
schooling and high drop out rates.
○ 'Sarv Shiksha Abhiyan' is a significant step towards providing elementary education to all
children below the age of 14.
● Health: Health is another very important component of human resource development.
 ○ Efficiency of workers largely depends on their health. There has been considerable
improvement in the country’s health standard. For instance, the life expectancy at the time of
birth in India rose from 37.2 years in 1951 to 63.9 years in 2001.
○ Similarly, infant mortality rate has come down from 147 to 47 by 2010. Infant mortality rate is
the death of the child under one year of age. India has built up a vast health infrastructure
but still much more is needed to be done.
● Unemployment: Unemployment is said to exist when people who are willing to work at the
prevailing wage rates cannot find jobs. When we talk of unemployed people, we refer to those in the
age group of 15-59 years. Children below 15 years of age and the old people above 60 are not
considered while counting the number of unemployed.
● Nature of Unemployment in India:
○ Seasonal unemployment occurs when people fail to get work during some months of the
year (that is, during off-season). Farm labourers usually face this kind of problem.
○ Disguised unemployment is another kind of unemployment found in rural areas. Such kind
of problem arises due to excessive pressure of population on agriculture.
■ Disguised unemployment refers to a situation where in the number of workers in a
job is more than actually required to do the job. The extra number of workers are
disguisedly unemployed.
● Consequences of Unemployment:Increase in unemployment is an indicator of depressed
economy.
○ Unemployment leads to wastage of manpower resource.
○ Unemployment tends to increase the economic overload that is dependence of the
unemployed on the working population.
○ Unemployment may lead to increase in social unrest and tension.

Chapter 3 - Poverty as a Challenge

● In our daily life we come across many poor people such as land less labourers in villages, people
living in jhuggis, daily wage workers at construction sites, child labourers in dhabas, rickshaw-
pullers, domestic servants, cobblers, beggars, etc. About 30 crore people live in poverty.
● Poverty: Usually the levels of income and consumption are used to define poverty. In India, poverty
can be defined as the lack of common things like food, clothing and shelter , safe drinking water,
medical care and education, which determine quality of life. Poverty has both dimensions
economical and social.
● Other Indicators of Poverty: Now poverty is looked through other social indicators like illiteracy
level, lack of access to health care, lack of job opportunities, lack of access to safe drinking water,
sanitation, etc. Nowadays, the concept of social exclusion is becoming very common in the analysis
of poverty.
● Social exclusion means , generally poor are excluded in the community of better off people.
● Vulnerability describes the greater probability of certain communities or individuals of becoming, or
remaining, poor in the coming years. The people from backward cast, individuals like widows,
physically handicapped are more vulnerable. They possess greater risks at the time of natural
disasters.
● Poverty Line: It is based on the income or consumption level. A person is considered poor if his or
her income or consumption level falls below a given 'minimum level' necessary to satisfy basic
needs. Poverty line varies with time place.
○ For the year 2009-10, the poverty line for a person was fixed at Rs.673 per month for rural
area and Rs. 860 for the urban areas.
○ The poverty line is estimated periodically by conducting sample surveys by National Sample
Survey Organisation( NSSO).
● Estimates of Poverty: The incidence of poverty in India was around 55% in 1973 which declined to
36% in 1993 and further to 26% in 2000. The poverty in India is reduced percent wise but number
 wise it is huge. Social groups which are most vulnerable to poverty are Scheduled Caste and
Scheduled Tribe households.
● Inequality of Incomes within a Family: In poor families, old people, women and female children
are denied equal access to family’s available resources. They are the poorest of the poor.
● Inter-State Disparities: The proportion of poor people is not the same in every state. In 20 states
and union territories the poverty ratio is less than the national average.
○ Orissa and Bihar are the poorest states of India with poverty ratios of 47% and 43%
respectively. Lowest incidence of poverty is found in Jammu and Kashmir with poverty ratio
of just 3.5%.
● Global Poverty Scenario: There has been substantial decline in global poverty. However, it is
marked with great regional differences. Poverty has declined more in China and South East Asian
countries. World bank has defined poverty as the people earning less than 1.25 $ per day. The
Millennium Development Goals of the United Nations call for reducing the proportion of people
below poverty line to half the 1990 level by 2015.
● Causes of Poverty: There are a number of causes for the widespread poverty in India. One
historical reason is the low level of economic development under the British colonial administration.
There are some other reasons. These are :
○ Rapid growth of population, particularly among the poor is considered a major cause of
Indian poverty.
○ Our agricultural sector has failed to generate much employment opportunities for the farm
labourers. Similarly, our industries could not provide much job for the job seekers.
○ Unequal distribution of land and other resources: Various land reform measures
introduced after Independence could not improve the life of millions of rural poor because of
their poor implementation.
○ Social factors: People in India, including the very poor, spend a lot of money on social
occasions like marriages, festivals, etc. Poor people hardly have any savings; they are, thus
forced to borrow. Unable to pay because of poverty, they became victims of indebtedness.
Joint family system has prevented people from doing hard work.
● Steps taken by the Government for Poverty Alleviation Our government’s strategy to poverty
reduction has been twofold. One, promotion of economic growth and, two, targeted poverty
alleviation programmes.
● Poverty Alleviation Programmes: To address the poor, a need for targeted anti-poverty
programmes was strongly felt. Some of them are given below :
○ Prime Minister Rojgar Yojana (PMRY): The aim of this programme (which was started in
1993) was to create self-employment opportunities for educated unemployed youth in rural
areas and small towns.
○ Rural Employment Generation Programme (REGP): REGP was launched in 1995 to
create self-employment opportunities in rural areas.
○ Swarna Jayanti Gram Swarojgar Yojana (SGSY): SGSY was started in 1999. The
programme aims at bringing the assisted poor families above the poverty line.
○ Pradhan Mantri Gramodaya Yojana (PMGY) was launched in 2000.
○ Antyodaya Anna Yojana (AAY) for ‘the poorest of poor’s and elders.
○ National Food for Work Programme (NFWP) was launched in 2004.
○ National Rural Employment Guarantee Act (NREGA) was passed in September 2005.
The Act provides 100-days assured employment every year to every rural household in 200
districts.
● The Challenges Ahead: Though poverty has declined in India, poverty reduction remains India’s
most compelling challenge. We will have to do something special to fight against wide regional
disparities. We must broaden the definition of poverty from ‘a minimum subsistence level of living to
a reasonable level of living’. Bigger challenges before us are: providing health care, education and
job security for all the achieving gender equality.
 Chapter 4 - Food Security in India
● Food security means availability, accessibility and affordability of food to all people at all times.
○ Availability: Food production in the country, import of food
○ Accessibility: Food within the reach of every person
○ Affordability: To have enough money to buy sufficient amount of food.
● Food security- The poorest section of the society remains food insecure all the times. People
above poverty line might also feel food insecure in times of natural calamity like earthquake,
drought, flood, tsunami, etc. Natural calamities may lead to starvation. Starvation in longer run turns
into famine.
● A famine is characterised by widespread deaths due to starvation and epidemics caused by forced
use of contaminated water or decaying water or decaying food and loss of body resistance due to
weakening from starvation.
● Food-insecure
○ In rural areas, the worst affected people are: landless and small farmers, traditional artisans
(weavers, potters, blacksmith etc.) providers of services(e.g. barbers, washer men etc), petty
self-employed workers and destitute.
○ In the urban areas,persons employed in ill-paid occupations and casual labourers are food
insecure.
○ The social composition also plays a role in food insecurity.The SCs, STs and some sections
of OBC ( lower castes) who are landless or with low land productivity are prone to be food
insecure.
○ Large proportion of pregnant and nursing mothers and children under the age of 5 years
constitute an important segment of the food insecure population.
● Hunger: Hunger has chronic and seasonal dimensions. Poor people suffer from chronic hunger and
are food insecure all the times. Seasonal hunger is caused by the seasonal nature of agricultural
activities in rural areas. In urban areas, seasonal hunger occurs because of the casual type of work.
Thus, seasonal hunger exists when people are unable to get work for the whole year.
● Need for self-sufficiency in food grains: Our government since Independence realised the need
to attain self-sufficiency in food grains because India experienced acute shortage of food grains
after partition of the country in 1947. The need for self-sufficiency arises from the following:
○ to feed rising population
○ to fight against droughts, floods, cyclone, etc.
○ to reduce import of food grains
○ to control prices of food grains.
● Food Security System in India: Since the advent of the Green Revolution in the 1960s the country
has avoided famine, even during adverse weather conditions.
○ Punjab and Haryana has shown very impressive growth in food production with 7.23 million
tonnes in 1964-65 to a record 218 million tonnes in 2009-10.
○ India has become self--sufficient in food grains during the last 30 years because of the
variety of crops grown all over the country. Also, we have developed a food security system.
○ Still a few states have lagged behind in food production.e.g. Orissa.
● Buffer Stock: Buffer stock is the stock of food grains (wheat and rice) procured by the government
through the Food Corporation of India (FCI). The FCI purchases wheat and rice for the government
from the farmers of surplus states at pre-announced prices. This price is called ‘minimum support
price’. The food is distributed to the poorer strata of society at lower price than market place is
known as Issue price.
● Public Distribution System (PDS): PDS refers to a system through which the food procured by the
FCI is distributed among the poor through government regulated ration shops. Ration shops are
also called as fair price shops.The consumers are issued ration cards. Rationing was introduced in
India around 1940 after the Bengal famine.
● Kinds of Ration Cards: There are three kinds of ration cards:
○ Antyodaya cards for the poorest of the poor,
○ BPL cards for those below poverty line and,
 ○ APL cards for those above poverty line.
● Three Important Food Intervention Programmes.In the wake of high incidence of poverty levels
in mid-1970s, three important food intervention programmes were introduced:
○ Public Distribution System (in existence earlier)
○ Integrated Child Development Services (ICDS) in 1975
○ Food for work in 1977-78.
● In 2000, two special schemes were launched viz. Antyodaya Anna Yojana (AAY) and the
Annapurna scheme (APS) with special target groups of the poorest of the poor and indigent senior
citizens, respectively.
● PDS has proved to be the most effective for stabilising prices and making food available to
consumers at affordable prices. But it has faced severe criticism on several grounds. Granaries are
full but hunger prevails. Some of the grains gets rotten or eaten by rats.
● Excessive Food Stocks: In July 2002, the stock of wheat and rice with FCI was 63 million tonnes
which was much more than the minimum buffer norms of 24.3 million tonnes. The stock reduced
thereafter but always remained higher than the buffer norms.
● Paradox of Excess Stocks and Starvation: In fact, India has experienced a paradoxical situation
in recent years. While the granaries (godowns) of the government are overflowing with excess
stocks of food, we also find people without food.
○ The main reason for this unfortunate situation is that many poor families do not have enough
money or income to buy food.Sometimes PDS dealers are resorting to malpractice.
○ In southern and western parts of the country the cooperatives are playing an important role
in food security. Mother's dairy, Amul are some of the success stories. In Maharashtra
Academy of Development Science has facilitated a network of NGOs and set up grain
banks.
 Understanding Economic Development-Class-X (NCERT)
Chapter 1 - Development
● The idea of development or progress has always been with us. We have aspirations or desires
about what we would like to do and how we would like to live.
● In this chapter, we shall make a beginning for understanding development. It is only through a
democratic political process that these hopes and possibilities can be achieved in real life.
WHAT DEVELOPMENT PROMISES – DIFFERENT PEOPLE, DIFFERENT GOALS:
● People seek things that are most important for them, i.e., that which can fulfill their aspirations or
desires. In fact, at times, two persons or groups of persons may seek things which are conflicting.
So two things are quite clear:
○ Different persons can have different developmental goals.
○ What may be developed for one may not be developed for the other. It may even be
destructive for the other.
INCOME AND OTHER GOALS:
● What people desire are regular work, better wages and decent price for their crops or other
products that they produce. In other words, they want more income.
● People also seek things like equal treatment, freedom, security, and respect for others. In some
cases, these may be more important than more income or more consumption because material
goods are not all that you need to live.
● Money, or material things that one can buy with it, is one of the factors on which our life depends on
non-material things mentioned above. There are many things that are not easily measured but they
mean a lot to our lives. These are often ignored.
● However, it would be wrong to conclude that what cannot be measured is not important. Similarly,
for development people look at a mix of goals. The developmental goals that people have are not
only about better income but also about better income but also about other important things in life.
NATIONAL DEVELOPMENT: It is very important to keep in mind that different persons could have
different as well as conflicting notions of a country’s development. National development means thinking
about fair and just path for all, whether there is a better way of doing things.
HOW TO COMPARE DIFFERENT COUNTRIES OR STATES?
● Usually, we take one or more important characteristics of persons and compare them based on
these characteristics. For comparing countries, their income is considered to be one of the most
important attributes. Countries with higher income are more developed than others with less
income. The income of the country is the income of all the residents of the country. This gives us the
total income of the country.
● For comparison between countries, total income is not such useful measure. Hence, we compare
the average income which is the country divided by its total population. The average income is also
called per capita income. In World Development Report brought out by the World Bank, the
countries with per capita income of USD 12736 per annum and above in 2013, are called rich
countries and those with per capita income of USD 1570 or less are called low-income countries.
India comes in the category of low middle-income countries because its per capita income in 2013
was just USD 1570 per annum.
INCOME AND OTHER CRITERIA: Let us compare the per capita income of Maharashtra, Kerala, and
Bihar. Maharashtra has the highest per capita income and Bihar is at the bottom. So, if per capita income
were to be used as the measure of development, Maharashtra will be considered the most developed state
of the three.
PUBLIC FACILITIES: Money in your pocket cannot buy all the goods and services that you may need to
live well. Income by itself is not a completely adequate indicator of material goods and services that citizens
are able to use. Normally, your money cannot buy the pollution-free environment or ensure that you get
unadulterated medicines unless you can afford to shift to a community that already has all these things.
Money may also not be able to protect you from infectious disease unless the whole of your community
takes preventive steps.
HUMAN DEVELOPMENT: Development of an individual in such a way that he can able to earn and fulfill
his materialistic desire.
SUSTAINABILITY OF DEVELOPMENTS: Since the second half of the 20th century, a number of scientists
have been warning that the present type, and levels, of development are not sustainable. Resources are
replenished by nature as in the case of crops and plants. In the case of groundwater, if we use more than
what is being replenished by rain then we would be overusing this resources. Consequences of
environmental degradation do not respect national or state boundaries; this issue is no longer region or
nation-specific. Sustainability of developments comparatively a new area of knowledge in which scientists,
economists, philosophers and other social scientists are working together.

Chapter 2 - Sectors of the Indian Economy

SECTORS OF ECONOMIC ACTIVITIES:
● There are many activities that are undertaken by directly using natural resources. For example, the
cultivation of cotton. It takes place within a crop season. When we produce a good by exploiting the
natural resources, it is an activity of primary sector. This is because it forms the base for all other
products that we subsequently make. Since most of the natural products we get are from
agriculture, dairy, fishing, forestry, this sector is also called agriculture and related sector.
● The secondary sector covers activities in which natural products are changed into other forms
through ways of manufacturing that we associate with industrial activity. It is the next step after the
primary. Secondary sector gradually becomes associated with the different kinds of industries that
came up, it is called as industrial sector.
● After primary and secondary, there is a third category of activities that fall under tertiary sector and
is different from the above two. These are activities that help in the development of the primary and
the secondary sector. Transport, storage, communication, banking, trade are some examples of the
tertiary sector. Since these activities generate services rather than goods, the tertiary sector is also
called the service sector.
COMPARING THE THREE SECTORS:
● The various production activities in the primary, secondary and tertiary sectors produce a very large
number of goods and services. Also, the three sectors have a large number of people working in
them to produce these goods and services.
● There is one precaution one has to take. Not every good that is produced and sold also needs to be
counted. It makes sense only to final goods and services.
● For instance, a farmer who sells wheat to a flour mill for Rs. 8 per Kg. The mill grinds the wheat and
sells the flour to a biscuit company for Rs. 10 per Kg. Intermediate goods are used up in producing
final goods and services. The value of final goods that are used in making the final goods.
● The value of final goods and services produced in each sector during a particular year provides the
total production of the sector for that year. The sum of production in the three sectors gives what is
called Gross Domestic Product (GDP) of the country. It is the value of all final goods and services
produced within a country during a particular year. GDP shows how big the economy is.
PRIMARY, SECONDARY AND TERTIARY SECTORS IN INDIA:
● Over the forty years between 1971-72 and 2011-12, while production in all the three sectors has
increased, it has increased the most in the tertiary sector. As a result, in the year 2011-12 the
tertiary sector has emerged as the largest producing sector has emerged as the largest producing
sector in India replacing the primary sector.
● There could be several reasons why tertiary sector becoming so important in India.
○ First, in any country several services such as hospitals, educational institutions, post and
telegraph services etc. are required. These can be considered as basic services. In a
developing country, the government has to take responsibility for the provision of these
services.
○ Second, the development of agriculture and industry leads to the development of services
such as transport, trade, storage.
○ Third, as income levels rise, certain sections of people start demanding many more services
like eating out, tourism, shopping, private hospital, private school.
 ○ Fourth, over the past decade or so, certain new services such as those based on information
and communication technology have become important and essential.
● A remarkable fact about India is that while there has been a change in the share of the three sectors
in GDP, a similar shift has not taken place in employment. The primary sector continues to be the
largest employer even now. More than half of the workers in the country are working in the country
are working in the primary sector, mainly in agriculture, producing only a quarter of the GDP.
○ The secondary and tertiary sectors produce three-fourth of the produce whereas they
employ less than half the people. It means that there are more people in agriculture than is
necessary. So, even if you move a few people out, production will not be affected. In other
words, workers in the agricultural sector are under-employed.
● The underemployment is hidden in contrast to someone who does not have a job and is clearly
visible as unemployed. Hence, it is also called disguised unemployment. We see other people of the
service sector on the street pushing a cart or selling something where they may spend the whole
day but earn very little. They are doing this work because they do not have better opportunities.
How to Create More Employment? A way by which we can tackle this problem is to identify, promote and
locate industries and a large number of people may be employed. A study conducted by the Planning
Commission estimates that nearly 20 lakh jobs can be created in the education sector alone. Every state or
region has the potential for increasing the income and employment for people in that area. The same study
by the Planning Commission says that if tourism as a sector is improved, every year we can give additional
employment to more than 5 lakh people. We must realize that some of the suggestions discussed above
would take a long time to implement. Recognizing this, the central government in India made a law
implementing the Right to Work. Mahatma Gandhi National Rural Employment Guarantee Act 2005
(MGNREGA 2005). Under MGNERGA 2005, all those who are able to, and are in need of, work are
guaranteed 100 days of employment in a year by the government. If the government fails in its duty to
provide employment, it will give unemployment allowances to the people.
DIVISION OF SECTORS AS ORGANISED AND UNORGANISED:
● The organized sector covers those enterprises or places of work where the terms of employment
are regular and therefore, people have assured work. It is called organized because it has some
formal processes and procedures.
● The unorganized sector is characterized by small and scattered units which are largely outside the
control of the government. Jobs here are low-paid and often not regular. Employment is not secure.
This sector includes a large number of people who are employed on their own doing small jobs such
as selling on the street or doing repair work.
How to Protect Workers in the Unorganized Sector? The organized sector offers jobs that are the most
sought-after. It is also common to find many organized sector enterprises in the unorganized sector. Since
the 1990s, it is also common to see a large number of workers losing their jobs in the organized sector.
● In the rural areas, the unorganized sector mostly comprises of landless agricultural labourers, small
and marginal farmers, sharecroppers and artisans. Nearly 80% of rural households in India are in
small and marginal farmer category.
● In the urban areas, unorganized sector comprises mainly of workers in the small-scale industry,
casual workers in the construction, trade and transport etc., and those who work as street vendors,
head load workers, garment makers, rag pickers etc.
SECTORS IN TERMS OF OWNERSHIP: PUBLIC AND PRIVATE SECTORS:
● In the public sector, the government own most of the assets and provide all services. In the private
sector, ownership of assets and delivery of services is in the hands of private individuals or
companies. Activities in the private sector are guided by the motive to earn profits.
● The purpose of the public sector is not just to earn profits. Governments raise money through taxes
and other ways to meet expenses on the services rendered by it. There are several things needed
by the society as a whole but which the private sector will not provide at a reasonable cost.
● Collecting the money from thousands of people who use these facilities is not easy. Even if they
provide these things they would charge a high rate for their. Thus, governments have to undertaken
such heavy spending and ensure that these facilities are available for everyone. There are some of
the activities, which the government has to support.
 ● The private sector may not continue their production or business unless government ensures it. The
government has to bear part of the cost. There are a large number of activities which are the
primary responsibility of the government. The government must spend on these. Providing health
and education facilities for all is one example. The government also needs to pay attention to
aspects of human development. It is also the duty of the government to take care of the poorest and
most ignored regions of the country through increased spending in such areas.

Chapter 3 - Money and Credit

MONEY AS A MEDIUM OF EXCHANGE:
● A person holding money can exchange it for any commodity or service that he or she might want.
Thus, everyone prefers to receive payments in money and then exchange the money for things that
they want. Both parties have to agree to sell and buy each other commodities. This is known as a
Double coincidence of wants.
● What a person desires to sell is exactly what the other wishes to buy. In a barter system where
goods are directly exchanged without the use of money, the double coincidence of wants is an
essential feature. In contrast, in an economy where money is in use, money by providing the crucial
intermediate step eliminates the need for double coincidence of wants. Money acts as an
intermediate in the exchange process, it is called a medium of exchange. This is known as Barter
System.
MODERN FORMS OF MONEY: We have seen that money is something that can act as a medium of
exchange in transactions. Before the introduction of coins, a variety of objects was used as money. For
example, since the very early ages, Indians used grains and cattle as money.
● Currency: Modern forms of money include currency – paper notes and coins. Money is accepted as
a medium of exchange because the currency is authorized by the government of the country. In
India, the Reserve Bank of India issues currency notes on behalf of the central government. As per
Indian law, no other individual or organization is allowed to issue currency. No individual in India can
legally refuse a payment made in rupees.
● Deposits with Bank: The other form in which people hold money is as deposits with the bank.
People deposit money with the banks by the opening a bank account in their name. Banks accept
the deposits and also pay an amount as interest on the deposits. People also have the provision to
withdraw the money as and when they require. Since the deposits in the accounts can be withdrawn
on demand, these deposits are called demand deposits. It is this facility which lends it the essential
characteristics of money. You would have heard of payments being made by cheques instead of
cash. For payment by cheque, the buyer who has an account with the bank, make out a cheque for
a specific amount. A cheque is a paper instructing the bank to pay a specific amount from the
person’s account to the person in whose name the cheque has been issued. The facility of cheque
against demand deposits makes it possible to directly settle payments without the use of cash.
Since demand deposits are accepted widely as a means of payment, along with currency, they
constitute money in the modern economy. But for the banks, there would be no demand and no
payments by cheques against these deposits. The modern forms of money – currency and deposits
– are closely linked to the working of the modern banking system.
LOAN ACTIVITIES OF BANKS: Banks keep only a small proportion of their deposits as cash with
themselves. This is kept as a provision to pay the depositors who might come to withdraw money from the
bank on any given day. Since, on any particular day, only some of its many depositors come to withdraw
cash, the bank is able to manage with this cash. Banks use the major portion of the deposits to extend
loans. There is a huge demand for loans for various economic activities. Banks make use of the deposits to
meet the loan requirements of the people. In this way, banks mediate between those who have surplus
funds and those who are in need of these funds.Banks charge a higher interest rate on loans than what
they offer on deposits. The difference between what is charged from borrowers and what is paid to
depositors is their main source of income.
TERMS OF CREDIT: Every loan agreement specifies an interest rate which the borrower must pay to the
lender along with the repayment of the principal addition, lenders may demand collateral against the loan.
Collateral is an asset that the borrower owns and uses this as a guarantee to a lender until the loan is
repaid. The interest rate, collateral and documentation requirement, and the mode of repayment together
comprise what is called the terms of credit.
FORMAL SECTOR CREDIT IN INDIA: We have seen that people obtain loans from various sources. The
various types of loans can be conveniently grouped as formal sector and informal sector loans. Among the
former are loans from banks and cooperatives. The informal lenders include moneylenders, traders,
employers, relatives and friends, etc. The Reserve Bank of India supervises the functioning of formal
sources of loans. For instance, we have seen that the banks maintain a minimum cash balance out of the
deposits they receive. The RBI monitors the banks in actually maintaining a cash balance. Periodically,
banks have to submit information to the RBI on how much they are lending, to whom, at what interest rate,
etc. There is no organization that supervises the credit activities of lenders in the informal sector. They can
lend at whatever interest rate they choose. There is no one to stop them from using unfair means to get
their money back. Compared to the formal lenders, most of the informal lenders charge a much higher
interest on loans. Thus, the cost to the borrower of informal loans is much higher. The Higher cost of
borrowing means a large part of the earnings of the borrowers is used to repay the loans.
● Formal and Informal Credit: Who gets what? 85% of the loans taken by poor households in the
urban areas are from informal sources. Urban households take only 10% of their loans are from
informal sources, while 90% are from formal sources. The rich households are availing cheap credit
from informal lender whereas the poor households have to pay a large amount of borrowing. The
formal sector still meets only about half of the total credit needs of the rural people. The remaining
credit needs are met from informal sources. Thus, it is necessary that banks and cooperatives
increase their lending particularly in the rural areas so that the dependence on informal sources of
credit reduces. While formal sector loans need to expand, it is also necessary that everyone
receives these loans. It is important that the formal credit is distributed more equality so that the
poor can benefit from the cheaper loans.
SELF-HELP GROUPS FOR THE POOR: In the previous section, we have seen that poor households are
still dependent on informal sources of credit. Banks are not present everywhere in rural India. Even when
they are present, getting a loan from a bank is much more difficult than taking a loan from informal sources.
The absence of collateral is one of the major resources which prevent the poor from getting the bank loans.
Informal lenders such as moneylender, on the other hand. Known the borrowers personally and hence are
often willing to give a loan without collateral. However, the moneylenders charge very high rates of interest,
keep no records of the transactions and harass the poor borrower. In recent years, people had tried out
some newer ways of providing loans to the poor.

Chapter 4 - Globalisation and the Indian Economy

PRODUCTION ACROSS COUNTRIES: Until the middle of the 20th century, production was largely
organized within countries. Colonies such as India export the raw materials and food stuff and imported
finished goods. Trade was the main channel connecting distant countries. This was done before large
companies called multinational corporation (MNCs) emerged on the scene. An MNC is a company that
owns or controls production in more than one nation. MNCs set up offices and factories for production in
regions where they can get cheap labour and other resources. MNCs are not only selling its finished
products globally but more important, the goods and services are produced globally. As a result, production
is organized in increasingly complex ways.
INTERLINKING PRODUCTION ACROSS COUNTRIES: In general,
● MNCs set up production where it is close to the markets;
● where there is skilled and unskilled labour available at low costs; and
● where the availability of other factories of production is assured.
The money that is spent to buy assets such as land, building, machines and other equipment is called
investment. The investment made by the MNCs is called foreign investment. The benefit to the local
company of such joint production is two-fold.
● MNCs can provide money for additional investments, like buying new machines for faster
production.
 ● MNCs might bring with them the latest technology for production.
But the most common route for MNC investments is to buy up local companies and then to expand
production. Many of the top MNCs have wealth exceeding the entire budget of the developing country
government. We see that there are a variety of ways in which the MNCs are spreading their production and
interacting with local producers in various countries across the globe. MNCs are exerting a strong influence
on production at these distant locations. As a result, production in these widely dispersed locations is
getting interlinked.
FOREIGN TRADE AND INTEGRATION OF MARKETS: Foreign trade creates an opportunity for the
producers to reach beyond the domestic markets i.e., markets of their own countries. For the buyers, import
of goods produced in another country is one way of expanding the choice of goods beyond what is
domestically produced. In general, with the opening of trade, goods travel from one market to another.
Foreign trade thus results in connecting the markets or integration of markets in different countries.
WHAT IS GLOBALISATION? A large part of the foreign trade is also controlled by MNCs. A result of
greater foreign trade has been greater foreign trade has been greater integration of production and markets
across countries. Globalization is this process of rapid integration or interconnection between countries.
MNCs are playing a major role in the globalization process. More and more goods and services,
investments and technology are moving between countries.
FACTORIES THAT HAVE ENABLED GLOBALISATION: Rapid improvement in technology has been on a
major factor that has stimulated the globalization process. For instances, the past 50 years have seen
several improvements in transportation technology. Even more remarkable have been the development of
information and communication technology. Technologies in the areas of telecommunications, computers,
and internet have been changing rapidly.
Liberalization of foreign trade and foreign investment policy: Tax on imports is an example of trade
barrier. It is called a barrier because some restriction has been set up. The government can use trade
barriers to increase or decrease foreign trade and to decide what kind of goods and how much of each,
should come into the country. The Indian government, after Independence, had put barriers to foreign
investment. This was considered necessary to protect the producers within the country from foreign
competition. Barriers to foreign trade and foreign investment were removed to a large extent. This meant
that goods could be imported and exported easily and also foreign companies could set up factories and
offices here. Removing barriers or restriction set by the government is what is known as liberalization. The
government imposes much less restriction than before and is therefore said to be more liberal.
WORLD TRADE ORGANISATION: We have seen that the liberalization of foreign trade and investment in
India was supported by some very powerful international organization. These organizations say that all
barriers to foreign trade and investment that are harmful. There should be no barriers. World Trade
Organization (WTO) is one such organization whose aim is to liberalize international trade. Though WTO is
supposed to allow a free trade for all, in practice, it is seen that the developed countries have unfairly
retained trade barriers. On the other hand, WTO rules have forced the developing countries to remove the
trade barriers.
IMPACT OF GLOBALISATION IN INDIA: In the last 20 years, globalization of the Indian economy has
come a long way. Globalization and greater competition among producers – both local and foreign
producers – has been of advantage to consumers, particularly the well-off sections in the urban areas.
As a result, these people today, enjoy much higher standards of living than was possible earlier. MNCs
have increased their investments in India over the past 20 years, which means investing in India has been
beneficial for them. Several of the top Indian companies have been able to benefit from the increased
competition. Moreover, globalization has enabled some large Indian companies to emerge as
multinationals themselves. Globalization has also created new opportunities for companies providing
services, particularly those involving it.
THE STRUGGLE FOR A FAIR GLOBALISATION: People with education skill and wealth have made the
best use of new opportunities. On the other hand, there are many people who have not shared the benefits.
Fair globalization would create opportunities for all and also ensure that the benefits of globalization are
shared better. The government can play a major role in making this possible. Its policies must protect the
interests, not only of rich and the powerful but all the people in the country. It can support small producers
to improve their performance till the time they become strong enough to compete. If necessary, the
government can use trade and barriers. In the past few years, massive campaigns and representatives by
people’s organizations have influenced important decisions relating to trade and investments at the WTO.
This has demonstrated that people also can play an important role in the struggle for fair globalization.

Chapter 5 - Consumer Rights

The Consumer in the Marketplace: Rules and regulations are required for the protection of the
consumers in the marketplace. Exploitation in the marketplace happens often. Markets do not work in a fair
manner when producers are few and powerful whereas consumers purchase in small amounts and are
scattered. This happens especially when large companies are producing these goods. These companies
with huge wealth, power and reach can manipulate the market. At times, false information is passed on
through the media, and other sources to attract consumers.
Consumer Movement: In India, the consumer movement as a ‘social force’ originated with the necessity of
protecting and promoting the interests of consumers against unethical and unfair trade practices.
● Rampant food shortages, hoarding, black marketing, adulteration of food and edible oil gave birth to
the consumer movement in an organised form in the 1960s.
● Till the 1970s, consumer organisations were largely engaged in writing articles and holding
exhibitions. They formed consumer groups to look into the malpractices in ration shops and
overcrowding in the road passenger transport. More recently, India witnessed an upsurge in the
number of consumer groups.
Rights of Consumers : Rights which are provided by law : -
● Right to safety: Consumers have the right to be protected against the marketing of goods and
delivery of services that are hazardous to life and property. Producers need to strictly follow the
required safety rules and regulations. There are many goods and services that we purchase that
require special attention to safety.
● Right to be informed: Consumers have the right to be informed about the particulars of goods and
services that they purchase. Consumers can then complain and ask for compensation or
replacement if the product proves to be defective in any manner. Similarly, one can protest and
complain if someone sells a good at more than the printed price on the packet. This is indicated by
‘MRP’ — maximum retail price.
● Right to choose: Any consumer who receives a service in whatever capacity, regardless of age,
gender and nature of service, has the right to choose whether to continue to receive the service.
● Right to be heard: Consumers have the right to be heard in case of a grievance.
● Right to seek redressal: Consumers have the right to seek redressal against unfair trade practices
and exploitation. If any damage is done to a consumer, he or she has the right to get compensation
depending on the degree of damage.
● Right to represent in consumer courts: The consumer movement in India has led to the
formation of various organisations locally known as consumer forums or consumer protection
councils. They guide consumers on how to file cases in the consumer court. On many occasions,
they also represent individual consumers in the consumer courts. These voluntary organisations
also receive financial support from the government for creating awareness among people.
Factors causing exploitation of Consumers :
● Limited information
● Limited supplies
● Limited competition
● Low literacy
Duties of Consumers :
● To purchase quality marked products such as ISI, AGMARK etc.
● To ask for cash memo for the items purchased whenever possible.
● To complain for genuine grievances, consumers must know their rights and must exercise them.
Demerits of Consumer Redressal Process : The Consumer Redressal Process is becoming
cumbersome, expensive and time consuming. Many a time, consumers are required to engage lawyers.
These cases require time for filling and attending the court proceedings etc. In most purchases, cash
memos are not issued hence evidence is absent. Most purchases in the market are small retail sales. The
enforcement of laws that protect workers, especially in the unorganised sectors is weak. Rules and
regulations for working of markets are often not followed.
Consumer Protection Act - 1986 (COPRA) To protect and promote the interest of consumers. Under
COPRA, a three-tier quasi-judicial machinery at the district, state and national levels is set up for redressal
of consumer disputes.
● The district level court deals with the cases involving claims upto Rs. 20 lakhs;
● The State level courts between Rs. 20 lakhs and Rs. 1 crore and the national level court deals with
cases involving claims exceeding Rs. 1 crore.
If a case is dismissed in district level court, the consumer can also appeal in state and then in national level
courts. Thus, the Act has enabled us as consumers to have the right to represent in the consumer courts.
India has been observing 24 December as the National Consumers’ Day.
It was on this day that the Indian Parliament enacted the Consumer Protection Act in 1986. India is one of
the countries that have exclusive courts for consumer redressal. There are today more than 700 consumer
groups in the country of which only about 20-25 are well organised and recognized for their work.
 Economics-Class-XI (NCERT)

Chapter 1- INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

● Economy of a country includes all production, distribution or economic activities that relate with
people and determines the standard of living. On the eve of independence Indian economy was in
very bad shape due to the presence of British colonial rule.
● The sole purpose of the British colonial rule in India was to reduce the country to being a feeder
economy for Great Britain’s own rapidly expanding modern industrial base. Thus, in 1947, when
British transferred power back to India, we inherited a crippled economy.
Conditions in the Indian economy on the eve of independence:
● Low level of economic development: The colonial govt., never made any sincere attempt to
estimate India’s national and per capita income. The estimates given by Dr. V.K.R.V. Rao
suggested that growth rate of GDP was about 2% per annum while the growth of per capita output
was just 1/2 (0.5) percent per annum.
● Backward agricultural sector: Due to Land tenure system- Zamindari system, Mahalwari system
and Ryotwari system, Forced commercialisation of Agriculture & Partition of the country.
● Less developed Industrial sector: De-industrialization- Decline of Indian handicraft industry,
Capital good industries were lacking, Limited operation of public sector, Discriminatory tariff policy.,
Competition from Machine made products, Introduction of Railways in India & Lack of Heavy and
Basic Industries.
● Foreign trade characteristic: Net exporter of raw material and importer of finished good, Britain
had the monopoly control on foreign trade & Drain of India’s wealth.
● Adverse demographic condition: High death and Birth rate-40 and 48 per thousand respectively,
High infant mortality rate-218 per thousand, Mass Illiteracy-84% illiterate, Low life expectancy- 44
years, Low standard of living- People used to spend 80% to 90% of their income on basic needs,
Lack of public health facilities & Female Literacy level was about 7%.
● Underdeveloped infrastructure: Absence of good roads, electricity generation, health, education
and communication. However, some efforts have been made to develop basic infrastructure like
roads, railways, ports, water transport, post & telegraph by the British rulers. The main motive was
not to provide basic amenities to the Indian people but for their colonial interest.
● More dependence on primary sector: Largest share of workforce which was 72% was engaged in
agriculture, 10% in manufacturing while 18% workforce were engaged in service sector.
Positive side-effects of the British rule in India
● Provided transport facilities, largely in terms of railway.
● Development of ports.
● Provision of post and telegraph services.
● British Govt. left a base of a strong and efficient administrative set up.
● Political and economic unification of the country.
● Evolution of banking and monetary system.

Chapter 2 - INDIAN ECONOMY (1950-90)

● Economic Planning: Means utilisation of country’s resources in different development activities in
accordance with national priorities.
Goals of Planning in India
● Long Term Goals(To be achieved over a period of 20 years)
● Short Term Goals(To be achieved over a period of five years)
LONG TERM GOALS - OBJECTIVES OF PLANNING
● Modernisation - Adoption of new technology and changes in social outlook
● Self reliance - Reducing dependence on imports.
● Economic Growth - Increase in the aggregate output of Goods & services.
● Equity - Reduction in inequality of income and wealth
 ● Full employment - Refers to a situation when all the people in the working age group is actually
engaged in some gainful employment.
SHORT TERM GOALS / OBJECTIVES OR OBJECTIVES OF FIVE YEAR PLANS: Short term objectives
vary from plan to plan depending on current needs of the country. For example first plan (1951-56) focused
on higher agricultural production while in second plan (1956-61) shifted the focus from agriculture to
Industry. In India growth and equity are the objectives of all the five year plans. The goal of current five year
plan (12th, 2012-17) is INCLUSIVE DEVELOPMENT.
● AGRICULTURE
○ Main Features of Indian Agriculture: Low productivity, Disguised unemployment,
Dependence on rainfall, Subsistence farming-objective of farmer is to secure subsistence for
his family not to earn profit, Traditional inputs, Small holdings, Backward technology &
Landlord tenant conflict.
○ Problems of Indian Agriculture:
■ General Problems: Pressure of population on land, Land degradation, Subsistence
farming, Social environment & Crop losses-by pest, insect, flood drought etc.
■ Institutional Problems: Small and scattered holdings, Poor implementation of land
reforms & Lack of credit and marketing facilities.
■ Technical Problems: Lack of irrigation facilities, Wrong cropping pattern & Outdated
technique of production.
○ Reforms in Indian Agriculture:
■ Institutional Reforms also called Land reforms: Abolition of intermediaries,
Regulation of rent, Consolidation of holdings, Ceiling on land holdings & Cooperative
Farming
■ General reforms: Expansion of irrigation facilities, Provision of credit, Regulated
markets and co-operative marketing societies & Support price policy.
■ Technical Reforms or Green Revolution: Use of HYV seeds, Use of chemical
fertilisers, Use of insecticides and pesticides for crop protection, Scientific rotation of
crops & Modernised means of cultivation.
■ ACHIEVEMENTS OF GREEN REVOLUTION: Rise in production and productivity,
Increase in income, Rise in commercial farming, Impact on social revolution-use of
new technology HYV seeds, fertilisers etc., Increase in employment & Substantial
Rise in Average
■ FAILURES OF GREEN REVOLUTION: Restricted to limited crops and areas such
as two crops wheat & rice growing states like Punjab, Haryana, U.P. and Andhra
Pradesh, Partial removal of poverty, Neglected land reforms, Increase in income
disparity between small and big farmers & Ecological degradation.
● INDUSTRY - Industrialisation is important for overall growth of a country.
○ ROLE OF INDUSTRIAL SECTOR IN INDIA: Provides employment, Raises national income,
Promotes regional balance, Leads to modernisation, Helps to modernise agriculture, Leads
to self-sustainable development, High potential for growth, Key to high volume of exports,
Growth of civilisation, Change in basic structure of economy, source of Employment &
Imparts Dynamism to Growth Process. Industrialisation is a precondition for the final take-off
of an economy.
○ INDUSTRIAL DEVELOPMENT SINCE INDEPENDENCE : Share of industrial sector in the
GDP has increased upto 20% in 2013-14.
○ The following important changes have taken place:
■ Development of infrastructure like power transport, communication, banking &
finance, qualified and skilled human resource.
■ Much progress in the field of research and development.
■ Expansion of public sector.
■ Building up of capital goods industry.
■ Growth of non-essential consumer goods industries.
○ PROBLEMS OF INDUSTRIAL DEVELOPMENT IN INDIA
 ■ Sectoral imbalances- Agriculture and infrastructure have failed to provide the
support to the industrial sector.
■ Regional imbalance- Restricted to few states.
■ Industrial sickness- which raised the problem of unemployment.
■ Higher cost of industrial product due to lack of healthy competition.
■ Dependence on the Government- for reduction in tax or duty to make import easier.
■ Poor performance of the public sector
■ Under utilisation of capacity.
■ Increasing capital-output ratio
● ROLE OF PUBLIC SECTOR/GOVT. IN INDUSTRIAL DEVELOPMENT: Direct intervention of the
state was considered essential in view of the following factors:
○ Lack of capital with the private entrepreneurs.
○ Lack of incentive among the Pvt. entrepreneurs demand due to limited size of the market.
○ Socialistic pattern of society-main aim of Govt. is to generate employment rather than profits.
○ Development of infrastructure.
○ Development of backward areas.
○ To prevent concentration of economic power.
○ To promote import substitution.
INDUSTRIAL POLICY RESOLUTION (IPR) 1956: Industrial policy is an important instrument through
which the govt. regulates the industrial activities in an economy.
● The 1956 resolution laid down the following objectives of industrial policy.
○ To accelerate the growth of industrialization.
○ To develop heavy industries.
○ To expand public sector.
○ To reduce disparities in income and wealth.
○ To prevent monopolies and concentration of wealth and income in the hands of a small
member of individuals.
● FEATURES OF INDUSTRIAL POLICY RESOLUTION (IPR) OF 1956: Features of Industrial policy
resolution of 1956 were.
○ New classification of Industries: Industries were classified into three schedule depending
upon role of state.
■ Schedule-A- 17 industries listed in schedule-A whose future development would be
the responsibility of state.
■ Schedule-B- 12 industries were included in schedule-B, Private sector could
supplement
■ the efforts of the Public Sector, with the state taking sole responsibility for starting
new units.
■ Schedule-C - other residual industries were left open to private sector.
○ Stress on the role of cottage and small scale industries.
○ Industrial licensing: Industries in the pvt. sector could be established only through a
licence from the government.
○ Industrial concessions-were offered-pvt. entrepreneurs for establishing industry in the
backward regions of the country. Such as tax rebate and concessional rates for power
supply.
SMALL SCALE INDUSTRY (SSI): A small scale industry is presently defined as the one whose investment
does not exceed Rs. 5 crore.
● CHARACTERISTICS OF SSI OR ROLE OF SMALL SCALE INDUSTRIES: Labour intensive-
employment oriented, Self-employment, Less capital intensive, Export promotion, Seed beds for
large scale industries, Shows locational flexibility.
● PROBLEMS OF SMALL SCALE INDUSTRIES: Difficulty of finance, Shortage of raw material,
Difficulty of marketing, Outdated machines & equipment & Competition from large scale industries.
FOREIGN TRADE: At the time of independence raw material was exported from India to Britain in
abundance, on the other hand finished goods from Britain were imported into India. Notably our balance of
trade was favourable (exports > imports)
● After independence India’s foreign trade recorded a noticeable change such as.
○ Decline in percentage share of agricultural exports.
○ Increase in percentage share of manufactured goods in total exports.
○ Change in direction of export trade and import trade.
○ Decline of Britain as main trading Partner.
TRADE POLICY: In the first seven five year plans of India, the trade was commonly called an 'inward
looking' trade strategy. This strategy is technically known as ‘import substitution’.
● Import substitution means substituting imports with domestic production. Imports were protected
by the imposition of tariff and quotas which protect the domestic firms from foreign competition.
● Impact of Inward looking Trade strategy on the domestic industry.
○ It helped to save foreign exchange by reducing import of goods.
○ Created a protected market and large demand for domestically produced goods.
○ Helped to build a strong industrial base in our country which directly lead to economic
growth.
● Criticism of import substituting strategy
○ It did not lead to growth.
○ Lack of competition implied lack of modernisation.
○ Growth of inefficient public monopolies.
● It did not lead to efficiency.
INDUSTRIAL LICENSING: Licensing is a tool for channelising scarce resources in predetermined priority
sector of an Economy. The Industries development and resolution act (IDRA) was enacted in 1951.
● MAIN OBJECTIVES OF IDRA act of 1951
○ Regulation of industrial development in accordance with planned priorities.
○ Avoidance of monopoly.
○ Balanced regional development.
○ Prevention of undue competition between large-scale industries and small scale
○ industries.
○ Optimum utilisation of scarce foreign exchange resources.
● Under this act the following were applicable.
○ All the scheduled industries should be registered with the govt.
○ A licence must be obtained by all the new industries.
○ Govt. is authorised to examine the working of any industrial undertaking.
○ If the undertaking continued to be mismanaged, govt. can take over its management.
● CRITICISM AGAINST INDUSTRIAL LICENSING
○ There was an ad hoc system for accepting or rejecting an application for licence.
○ The quality of techno economic examination conducted by Director General of technical
○ development was generally poor.
○ Licensing policy resulted in under utilisation of capacity in many industries.
○ In reality, the policy helped large business houses in accumulating economic power.
● PERMIT LICENCE RAJ: The licensing authorities many a times granted licence to big business
houses without proper scrutiny of their applications.

Chapter 3 - ECONOMIC REFORMS SINCE 1991

● Economic Reforms: Economic reforms or structural adjustment is a long term multi dimensional
package of various policies (Liberalisation, privatisation and globalisation) and programme for the
speedy growth, efficiency in production and make a competitive environment. Economic reforms
were adopted by Indian Govt. in 1991.
● Factors responsible for Economic reforms.
○ Fall in foreign exchange reserve : as imports grew faster than exports
 ○ Adverse balance of payments resulted repayment crisis
○ Mounting fiscal deficit as govt. expenditure grew faster than revenue
○ Rise in prices, which has the negative impact on Investment.
○ Failure of public enterprises:- very low return on high Investment
○ Gulf crisis increases crude oil prices which negatively affected BOP.
○ High rate of deficit financing
○ Collapse of soviet block.
New Economic Policy:- It refers to economic reforms introduced since 1991 to improve the productivity
and profitability of economy and to make it globally competitive.
● Measures of New Economic policy
○ Stabilisation measures: These are short run measures introduced by Govt to control rise in
price, adverse balance of payment and fall in foreign exchange reserve.
○ Structural adjustment: These are long run policies, aimed at improving the efficiency of the
economy and increasing its international competitiveness by removing the rigidity in various
segment of the Indian economy.
● In the new economic policy 1991, Structural reforms can be seen with respect to: Liberalisation,
Privatisation & Globalisation.
Liberalisation means removing all unnecessary control and restrictions like permits licences, protectionist
duties quotas etc. In other words, It may defined as loosening of govt. regulation in a country to allow for
private sector companies to operate business transactions with fewer restrictions.
● Objectives of liberalisation :-
○ To decrease debt burden of the country
○ To expand size of the market
○ To increase competition among domestic industries
○ To encourage export and import of goods and services.
● Economic reforms under liberalisation.
○ Industrial sector reforms: Abolition of Industrial Licensing, Contraction off Public Sector &
Freedom to Import capital goods
○ Financial sector reforms: Reducing various Ratios(SLR, CRR), Change in role of RBI from
regulator to facilitator & De-regulation of interest rates
○ Fiscal reforms/Tax reforms
○ Foreign exchange reforms: Devaluation of rupee
○ Trade and investment reforms.
Privatisation is the general process of involving the private sector in the ownership or operation of a state
owned enterprises.
● Policies adopted for privatisation
○ Contraction of public sector.
○ Abolish the ownership of Govt. in the management of public enterprises.
○ Sale of shares of public enterprises.
● Objectives of Privatisation:-
○ Raising funds from Disinvestment
○ Improving the financial condition of the govt.
○ Bringing healthy competition within an economy
○ Making Way for Foreign Direct Investment
Globalisation may be defined as a process associated with increasing openness, growing economic
interdependence and deepening economic integration in the world economy.
● Policy promoting globalisation: Increase in equity limit of foreign investment, Partial convertibility,
Long term trade policy & Reduction in tariff.
● An Appraisal of LPG Policies: Increase in foreign investment, Increase in foreign exchange
reserves, A check of inflation, Increase in national income, Increase in exports & Consumer
sovereignty.
 ● Negative Impact: Neglect of agriculture, Jobless growth, Increase income inequalities, Adverse
effect of disinvestment policy, Spread of consumerism, Cultural erosion & Encourages economic
colonialism
World Trade Organisation(WTO): World Trade Organisation, as an institution was established in 1995. It
replaced General Agreement on Trade and Tariffs (GATT) which was in place since 1946.
● The overriding objective of the World Trade Organisation is to help trade flow smoothly, freely, fairly
and predictably; to meet its objective WTO performs the following functions:-
○ Administering W.T.O Trade Agreements.
○ Acting as a Forum for trade negotiations.
○ Settling and Handling Trade disputes
○ Monitoring and reviewing national trade policies,
○ Assisting the member in trade policies through technical assistance and training
programmes
○ Technical assistance and training for developing countries.
○ Cooperation with other International Organisation

Chapter 4 - POVERTY
Poverty is the inability to fulfill the minimum requirement of life like food, clothing, housing education and
health facilities etc. Relative poverty refers to poverty of people in comparison to other people in different
region or nations. Absolute poverty refers to total number of people living below the poverty line.
● Absolute poverty is measured on the basis of two criteria:-
○ Minimum Calories Consumption Criteria - People who are not getting 2400 calories per
person per day in rural areas and 2100 calories in urban area is considered to be living
below poverty line.
○ Minimum Consumption Expenditure Criteria - The new poverty line, thus, translates to a
monthly per capita consumption expenditure of Rs 972 in rural areas and Rs 1,407 in urban
areas in 2011-12. Or, Rs 32 in rural areas and Rs 47 in urban areas on a per capita daily
basis.
Poverty line refers to that line which expresses per capita average monthly expenditure that is essentially
required by the people to satisfy their minimum needs.
● As per Tendulkar committee, poverty line is estimated in monthly basis as Rs. 816 in rural areas
and Rs. 1000 in urban areas. People who are not able to earn even such amount in a month are
considered below poverty line.
● According to a survey, approx. 22% population in India is below poverty line.
● Estimation of poverty line: Calories based estimation— For rural area intake calorie was
estimated at 2,400 calories and for urban area it is 2,100 calories,
○ In 1999-2000 new ways of measuring started i.e. monthly per capita expenditure–it
estimates for rural area as consumption worth Rs. 816 per persons and for urban areas it is
Rs. 1000
● Presently as per Tendulkar committee: Three approach of govt to combat poverty.
○ Enhancing Economic Growth
○ Specific Programmes for Poverty Alleviation
○ Fulfilling Minimum Needs of the poor
● Vicious Circle of Poverty:- It refers to situation of self reinforcing forces in which there are certain
factors that are related in a circular way and results in continuation of poverty and under
development.
● Causes of Poverty: Rapid increase in population, Low level of National product, Rise in price,
Unemployment, Low rate of growth, Capital deficiency, Rural Indebtedness, Exploitation under
British rule, Low education, Inflationary Pressure, High Level of Migration from rural areas & Failure
to implement land reforms.
● Measures adopted by the Government to remove poverty.
○ Food for work programme: Swarnjayanti Gram Swarozgar Yojana, Pradhan Mantri
Gramodoya Yojana, Sompoorna Gramin Rozgar Yojana, Swarn Jayanti Shahri Rozgar
 Yojana, Mahatma Gandhi National Rural Employment Guarantee Scheme & Jawahar Gram
Samridhi Yojana
○ Programme adopted by govt. to help elderly and poor people and also destitute
women:- National social assistance programme which includes National Old Age Pension
Scheme, National Family Benefit Scheme, National Maternity benefit scheme, Annapurna
Yojana & On the job training

Chapter - 5 - HUMAN CAPITAL FORMATION IN INDIA

● Human capital refers to the stock of skill, ability, expertise, education and knowledge in a nation at
a point of time. Physical capital refers to assets which themselves have been manufactured and
are used for production of other goods and services.
● Difference between Physical Capital and Human Capital :-
○ Physical Capital: It is tangible. It is separable from its owners. It is perfectly mobile between
the Countries. It depreciates over time due to constant use or due to change in technology.It
creates only private benefit.
○ Human Capital: It is intangible. It cannot be separated from its owners. Its mobility is
restricted by nationality and culture. It though depreciates with ageing but can be made up
through continuous investment in education and health. It creates private benefit as well as
social benefit.
● Human capital formation is the process of adding to the stock of human capital over a period of
time.
● Sources of human capital formation: Expenditure on education, Expenditure on health, On the
job training, Study programmes for adults, Migration and expenditure on information.
● Human Resource Development:- It refers to the development of the set of individual that makes
up the workforce of an organisation, business sector or economy.
● Role of human capital formation in economic growth: Raises production, Change in emotional
and physical environment of growth, Improves quality of life, Raises life expectancy,Innovative
skills., Raises social justice and equality.
● Problems facing human capital formation: Rising population, High regional and gender
inequality, Brain drain, Insufficient manpower planning, Insufficient on the job training in agriculture,
High poverty levels & Low academic standards.
● Education :- It implies the process of teaching, training and learning especially in schools, colleges,
to improve knowledge and develop skills.
● Importance and objectives of education: Education produces good citizens, Education facilitates
use of resources in the country, Develops science and technology, Expands mental horizon of the
people, Promotes cultural standard of the citizens,Develops human personality.
● Problems relating to development of education in India: Large number of illiterates, Inadequate
vocationalisation, Gender bias, Low rural access level & Low government expenditure on education.
● Human capital formation in India: The seventh five year plan stressed upon the importance of
human capital.
○ In India, ministry of education at the Centre and state level, NCERT (National Council of
Educational Research and Training), UGC (University Grant commission), AICTE (All India
Council of Technical Education) regulate the education sector.
○ In India, Ministry of Health at the Union and the State level and ICMR (Indian Council of
Medical Research) regulate the health sector.
○ World Bank states that India will become the knowledge economy. Also if India uses its
knowledge as much as Ireland does, than the per capita income will rise by $ 3000 by the
year 2020.
● Interrelationship between human capital formation and economic growth: Human capital
formation raises the process of Economic Growth and economic growth raises the process of
human capital formation.
 ○ Rise in human capital raise economic growth: Rise in Human Capital => Modern attitude
and outlook, better quality of life, Higher life expectancy => More Efficiency => More
Production => More economic growth
○ Rise in economic growth raises human capital formation: Rise in Economic Growth =>
Rise in per capita income => More investment in education and health =>Rise in human
capital
EDUCATION SECTOR IN INDIA
● Elementary education: Elementary education covers students from class 1 to class 8 (primary and
middle) in the age-group of 6 to 14 years. The number of primary and middle schools has
considerably increased from 2.23 lakhs (in 1950-51) to 11.92 lakhs (in 2011-12). Near about 97%
children in the age-group of 6-14 years have been receiving education in schools.
○ Various policies such as Sarva Shiksha Abhiyan, mid day meal scheme, district primary
education programme, right to education have been playing major role in enhancing primary
education in India.
● Secondary and senior secondary education: As per a survey, number of secondary and senior
secondary schools rose to 2.12 lakhs and number of students getting education at this level rose up
to 482 lakhs.
○ At central level, Navodaya schools and Kendriya Vidyalayas are playing a vital role in
promoting education at this level.
● Higher education: As per a survey in India near about 665 universities are imparting education at
higher level and number of colleges imparting general education is 35829.
○ Number of students getting higher education is about 130 lakhs.
● In addition to it, since independence, the number of institutions imparting technical and professional
education has increased significantly in India in which polytechnical institutions, engineering
colleges, medical colleges, research centres like IIT, agriculture research institute, Indian statistical
institute, IIM etc. are playing prominent roles.

Chapter - 6 - RURAL DEVELOPMENT

Rural development is a comprehensive term which essentially focuses on action for the development of
area which is lagging behind in overall development of village economy.
● Objectives of rural development: Increasing productivity of agricultural sector, Generating
alternative means of livelihood in rural sector, Promoting education and health facilities in the rural
areas.
● Key issues in rural development.
○ A robust system of rural credit.
○ A system of marketing that ensures remunerative price to the farmer for his produce.
○ Diversification of crops that reduce risks of production and induces commercialisation of
farming.
○ Diversification of production activity with a view to find alternative means of sustainable living
other than crop-cultivation.
○ Promotion of organic farming with a view to make crop cultivation environmental friendly as
well as a sustainable process over a long period of time.
○ Honest system of land reforms.
○ Development of human resource like health, addressing both sanitation and public health.
○ Development of human resource including literacy, education and skill development.
○ Development of Infrastructure like electricity, irrigation, transport facility, etc.
Rural credit means credit for the farming communities. Farmers require credit for various purposes like
purchasing agricultural tools and machines, digging wells and tube wells, purchasing seeds, fertilizers,
pesticides, etc. The gestation period between sowing and harvesting is high. so, farmers have to borrow to
fulfill their needs during this period.
● Sources of rural credit in India.
 ○ Non-institutional sources are money lenders, traders and commission agents, landlord,
relatives and friends.
○ Institutional sources: Co-operative credit societies, Commercial Banks, Regional Rural
Banks, NABARD (National Bank for Agriculture and Rural Development.) (established in
1982) & Self Help Groups (SHGs).The above institutional structure of rural banking which is
called multi agency system which has initiated by govt. in 1969.
Agricultural marketing means all those activities which includes-gathering the produce after harvesting,
processing the produce, grading the produce according to its quality, packaging the produce according to
preferences of buyers, storing the produce for future sale and selling the produce when price is lucrative.In
other words, Agricultural marketing covers the services involved in moving an agricultural product from the
farm to the consumer.
● Defects of agricultural marketing: Inadequate warehouses, Multiplicity of middlemen, Malpractice
in unregulated markets, Lack of Adequate finance & Inadequate means of transport and
communication.
● Measures adopted by the government to improve marketing system: Regulation of markets,
Cooperative agricultural marketing societies, Provision of warehousing facilities, Subsidised
transport, Dissemination of marketing information, Buffer stocks and minimum support price (MSP),
Public Distribution System (PDS), Alternative marketing channels & Improvement of physical
Infrastructure
● Diversification in agriculture activities-It has the two aspects.
○ Diversification of crop production refers to a system of multiple cropping rather than
mono cropping. It may also mean a shift from subsistence farming to commercial farming. It
has the three advantages:
■ It lowers the risk of farmer on account of failure of monsoon.
■ It enhances the scope for commercialisation of farming.
■ Minimise the market risk arising due to price fluctuation.
○ Diversification of productive activities imply a shift from crop farming to non-farming
areas of employment. Non-farm areas of employment include Animal husbandry, Fisheries,
Horticulture, Cottage and household industry & Information technology-every village a
knowledge Centre. It has following advantages:
■ Reduce the risk from agriculture sector.
■ Provide ecological balance.
■ Provide sustainable livelihood option to people living in village.
Organic farming is a system of farming that maintains, enhances and restores the ecological balance. It
helps in sustainable development of the agricultural sector, In organic farming, farmers use organic
manure, bio fertilizers and organic pesticides. Organic farming involves labour-intensive process of
production of labour so India has comparative advantage in organic farming.

● Advantages of organic farming: Inexpensive process, Generates income, Healthier and tastier
food, Solves unemployment problem & Environment friendly
● Limitation of Organic farming:
○ Yields from organic farming is less than modern agricultural farming in initial years.
○ Organic produce have shorter shelf life than sprayed produce.
○ Choice in production of off-season crops is quite limited in organic farming.
Operation Flood: It is a system of milk cooperatives, launched in 1966. This system emphasised the
pooling of milk by farmers through cooperatives societies. This increased the quantum of sale as well the
market value of product. The production in milk increased four fold. This system is commonly called
operation flood.
Labour force: It refers to actual member of people available for work.
Non-farm sector: It refers to jobs in govt. manufacturing, services, construction, mining, retail, etc.
Labour intensive Process: It refers to the process or industry that requires a large amount of labour to
produce its goods.
 Chapter - 7 - EMPLOYMENT: GROWTH, INFORMALISATION AND OTHER ISSUES
Work plays an important role in our lives as an individual and as members of society. A worker is an
individual, who is involved in some productive activity, to earn a living.
An economic activity refers to the activity performed by people to earn the living. The main three types of
economic activities are consumption, production and distribution. Production activity refers to all those
activities which are undertaken to produce goods and services for generation of income.
● Labour force: All persons, who are working (have a job) and those are not working but able to work
and willing to work at the existing wage rate constitutes labour force.
● Labour Force: Persons working + persons seeking and/or available for work.
● Work force: The number of persons, who are actually employed at a particular time are known as
workforce. It includes all those persons who are actually engaged in productive activities. This
includes person between age group of 15-60 years.
● Labour supply: It refers to various amount of labour that workers are willing to work, corresponding
to a particular wage rate.
● Work Force Participation Rate(Ratio):- It is measured as the ratio between workforce and total
population of a country.
● Types of workers: Self employed, Hired workers: Casual Workers, Regular Workers(Salaried)
○ Self Employed:- The worker who own and operate an enterprise to earn their livelihood are
known as self employed.
○ Hired workers:- Those people who are hired by others and are paid wages or salaries as a
reward for their services are called hired workers.
■ Casual Workers:- Those people, who are not hired by their employers on a
regular/permanent basis and do not get social security benefits are said to be casual
workers.
■ Regular Workers(Salaried):- When a worker is engaged by someone or by an
enterprise and paid his or her wages on a regular basis, they are known to as regular
salaried employees or regular workers.
● About two fifth of the total population in the country is engaged in various economic activities. Men
particularly rural men, form the major section of workforce in India. Majority of workers in India are
self employed, casual wage labourers and regular salaried employees together account for less
than half the proportion of India’s workforce. About three fifth of India’s workforce depends on
agriculture and other allied activities as the major source of livelihood.
● Jobless Growth: It is defined as a situation where GDP grows faster than the employment
opportunities resulting in unemployment.
● Casualisation and informalisation of employment: Casualisation refers to a situation when the
percentage of casually hired workers in the total workforce tends to rise over time.
● Informalisation: Refers to a situation when people tend to find employment more in informal sector
of the economy, and less in formal sector of the economy.
● Unemployment: It is a situation where a person is ready and willing to work at the prevailing wage-
rate but doesn’t get work.
● Unemployment Rate: It is calculated as percentage of labour force who are unemployed, not as
percentage of total population.
● Types of unemployment:
○ Rural unemployment: Seasonal Unemployment, Disguised Unemployment
○ Other types of unemployment: Open Unemployment, Frictional Unemployment, Structural
Unemployment, Cyclical Unemployment
○ Urban Unemployment: Industrial Unemployment, Educated Unemployment, Technological
Unemployment
● Frictional unemployment is defined as the unemployment that occurs because of people moving
or changing occupations.
● Structural unemployment is defined as unemployment arising from technical change such as
automation, or from changes in the composition of output due to variations in the types of products
 people demand. For example, a decline in the demand for typewriters would lead to structurally
unemployed workers in the typewriter industry.
● Cyclical unemployment is defined as workers losing their jobs due to business cycle fluctuations in
output, i.e. the normal up and down movements in the economy as it cycles through booms and
recessions over time.
● Open Unemployment refers to that situation wherein the worker is willing to work and has the
necessary ability to work yet he does not get work and remains unemployed for full time.
● Seasonal Unemployment:- It refers to a situation where a number of person that are not able to
find a job in a particular season.
● Disguised unemployment is a kind of unemployment in which some people look like being
employed but are actually not employed fully. This situation is also known as
● Hidden Unemployment. In such a situation more people are engaged in a work than required.In
other words it refers to a situation of employment with surplus manpower in which some workers
have zero marginal productivity. For example in rural areas, this type of unemployment is generally
found in agricultural sector.
● Technological Unemployment:- A somewhat structural unemployment may take place in an
economy as a result of technological improvement. Such unemployment may be described as
technological unemployment. Due to the introduction of new machinery, improvement in methods of
production, labour-saving devices etc., some workers tend to be replaced by machines. Their
unemployment is termed as “technological unemployment.”
● Educated Unemployment:- Among the educated people, apart from open unemployment, many
are underemployed because their qualification does not match the job. Faulty education system,
mass output, preference for white collar jobs, lack of employable skills and dwindling formal salaried
jobs are mainly responsible for unemployment among educated youths in India. Educated
unemployment may be either open or underemployment.
● Causes of unemployment: Slow rate of economic growth, Population explosion, Underdeveloped
agriculture, Defective educational system, Slow growth of Industry, Decline of cottage and small
industry, Faulty planning, Inadequate employment planning, Low capital formation, Excessive use of
Foreign Technology, Lack of financial resources & Increase in labour force
● Remedial measures for unemployment: Accelerating growth rate of GDP, Control of population
growth, Development to small scale enterprises, Encouragement in infrastructure, Special
employment programmes, Rapid industrialisation.
● Special programmes to fight poverty and unemployment:
○ Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) - Its a significant
recent attempt of govt, offering guaranteed employment to those in the rural areas who are
below poverty line.
○ Swarna Jayanti shahari Rozgar yojna.
○ Swarna Jayanti Gram Swarojgar yojna.
○ Pradhan Mantri Gramodaya Rozgar yojna.

Chapter - 8 - INFRASTRUCTURE
Infrastructure refers to all such services and facilities, which are needed to provide different kinds of
services in an economy and which are essential in raising the place of economic growth of a country.
● It contributes to economic development of a country both by raising the productivity of factors of
production and improving the quality of life of its people.
● It provides supporting services in the main areas of industrial and agricultural production, domestic
and foreign trade and commerce.
● Types of Infrastructure
○ Economic Infrastructure: Transport, Power, Communication, Irrigation and watershed
management, Science and Technology, Financial Institutions
○ Social Infrastructure: Education, Health, Housing, Civic Amenities & Law and Order etc.
● Difference between Social and Economic Infrastructure
 ○ Social Infrastructure - It helps the economic system from outside(indirectly). It improves
quality of human resource. For ex-Health,Education and housing
○ Economic Infrastructure - It helps the economic system from inside(directly). It improves
the quality of economic resource. For ex- Energy,Transport and communication
● Importance of infrastructure: Raises productivity, Provides employment, Induces foreign
investments, Raises ability to work, Facilitates outsourcing, Raises economic development, Raises
size of the market, Generates linkages in Production
● The state of infrastructure in India: India invests approximate 5% of its GDP on infrastructure,
which is far below than that of china and Indonesia. With government, private sector in partnership
with the public sector is also playing a very important role in the infrastructure development. India
needs to develop its infrastructure especially in the area of rural energy requirement, water, basic
amenities and sanitation.
● Energy: Energy is the lifeline of all production activities. Rapid growth in agriculture and industrial
sector is not possible without it.
● Sources of Energy:
○ Commercial sources are coal, petroleum and electricity: Conventional sources of energy
include both commercial and noncommercial sources of energy. Example : national gas,
coal, petroleum etc.
○ Non-commercial sources of energy are firewood agricultural waste and dried dung. Non-
conventional sources of energy are renewable resources of energy like biomass, solar
energy, wind energy, tidal energy, etc.
● Power/electricity: The most visible form of energy, which is often identified with progress in
modern civilization is power/electricity.
● Different Sources of Energy: Thermal 70%, Hydro and Wind Power 28%, Nuclear 2%
● Some challenges in the power sector: Insufficient installed capacity, Under Utilisation of capacity,
Losses incurred by SEBS, Uncertain role of private sector, Public unrest, Shortage of raw materials,
Transmission and distribution losses & Operational inefficiency
● Measures to meet challenges facing the power sector: Reduce transmission and distribution
losses, Improve plant load factor, Promote the use of CFLs & LEDs to save energy, Encourage
private sector participation, Encouragement to Non-conventional sources of Energy, Biogas
generation programmes, Encouragement to FDI and privatisation in Energy production
● Health: Health is not only absence of disease but also the ability to realise one’s potential. It is a
yardstick of one’s well being. Health is the holistic process related to the overall growth and
development of the nation.
● State of health infrastructure: There has been significant expansion in physical provision of health
services and improvements in health indicators since independence, but it is insufficient for rapidly
increasing population in India. Public health system and facilities are not sufficient for bulk of the
population.There is a wide gap between rural urban areas and between poor and rich in utilising
health care facilities. Women’s health across the country has become a matter of great concern with
reports of increasing cases of female foeticide and mortality. Regulated private sector health
services can improve the situation and at the same time, NGOs and community participation is very
important in providing health care facilities and reading health awareness. Indian system of
medicine (ISDM) AYUSH (Ayurveda, yoga and naturopathy, unani, siddha, homoeopathy needs to
be explored. At the village level, a variety of hospitals known as Primary Health Centres(PHCs)
have been set.
● India's Health Infrastructure and Healthcare is made up of a three tier system:- Primary
Healthcare, Secondary Healthcare, Tertiary Healthcare
● Primary Healthcare:- It includes Maternal and child health care, Promotion of health and provision
of essential drugs, Immunisation, Educating the people about identifying, preventing and controlling
diseases.
● Secondary Healthcare:- Health care institute having better facilities for surgery, x-ray, ECG are
called Secondary Healthcare institutes. Patients are referred here when their condition is not
managed by PHC.
● Tertiary Healthcare:- In this sector, there are the hospitals which have advanced level equipment
and medicines and undertake all the complicated health problems. which could not be managed by
primary and secondary hospitals.
● Expansion of health infrastructure has resulted in the eradication of smallpox, guinea worms and
the near eradication of polio and leprosy.
● Development of health Services in India:- Decline in Death Rate, Rise in expectancy of life,
Decline in Infant Mortality Rate, Control over Deadly Diseases.
● Health as an Emerging Challenge:- Unequal distribution of health care services, Increasing
privatisation of health services, Poor sanitation Level, Poor upkeep and maintenance of govt. health
centres and poor management.

Chapter - 9 - ENVIRONMENT AND SUSTAINABLE DEVELOPMENT

● Environment is defined as the total planetary inheritance and the totality of all resources. It
includes all the biotic and abiotic elements that influence each other. All living elements-the birds,
animals and plants, forests, fisheries etc. are biotic elements.
● Abiotic elements of the environment includes non-living elements like air, water, land, rocks and
sunlight etc.
● Functions of the Environment: Environment supplies resource (both renewable and
nonrenewable resources) for Production, Environment assimilates waste,Environment sustains life,
Environment enhances quality of life.
○ The environment is able to perform these functions without any interruption as long as
demand on these functions are within its carrying capacity.
● Carrying capacity implies two things:
○ Resource extraction should remain below the rate of resource regeneration.
○ Generation of wastes should remain within the absorption capacity of the environment.
■ If these two conditions are not fulfilled, then environmental crisis occurs.
● Absorptive capacity of the environment means the ability of the environment to absorb
degradation.
● The various reasons for environmental crisis are as under:
○ Population explosion and advent of industrial revolution.
○ The intensive and extensive extraction of both renewable and nonrenewable resources.
○ The affluent consumption and production standards of developed countries.
● Renewable resources are those which can be used without the possibility of the resource
becoming depleted or exhausted. That is, a continuous supply of resource remains available for e.g.
trees in forest and the fish in the oceans.
● Non renewable resources are those which get exhausted with extraction and use. For example,
fossil fuel.
● Two basic problems related to environment are Problem of pollution. Problem of excessive
exploitation of natural resources.
● Pollution is contamination of useful things such as air, water, land etc. with undesirable or harmful
materials like foul gases, smoke, poisonous chemicals, etc.
● Major forms of pollution: Air pollution, Water Pollution, Noise Pollution, Land Pollution
● Global warming is a gradual increase in the average temperature of the earth’s lower atmosphere.
Global warming is caused by man-made increase in carbon dioxide (Co2 ) and other greenhouse
gases through the burning of fossil fuels and deforestation.
● Long term results of global warming:
○ Melting of polar ice with a resulting rise in sea level and coastal flooding.
○ Extinction of species as ecological niches disappear.
○ more frequent tropical storms and
○ An increased incidence of tropical diseases.
● Ozone depletion refers to reduction in the amount of Ozone (a protective layer) in the stratosphere.
The problem of Ozone depletion is caused by high levels of CFC used as cooling substances in air
 conditioners and refrigerators or as aerosol propellants and bromofluorocarbons used in fire
extinguishers. As a result of depletion of the ozone layer, more ultra violet (UV) radiation comes to
earth causing damage to living organism.
● The threat to India’s environment poses a dichotomy-threat of poverty induced environmental
degradation and, at the same time, threat of pollution from affluence and rapidly growing industrial
sector. Air pollution, water contamination, soil erosion, deforestation and wildlife extinction is some
of the most pressing environmental concerns of India.
● Priority issues identified in India are: Land degradation, Biodiversity loss, Air pollution with
special reference to vehicular pollution in urban cities, Management of freshwater & Solid waste
management.
● Land degradation refers to a decline in the overall quality of soil, water or vegetation condition,
commonly caused by human activities.
● Factors responsible for land degradation: loss of vegetation occurring due to deforestation,
Forest fires and overgrazing,Improper crop rotation,Encroachment into forest lands, Shifting
cultivation, Indiscriminate use of agrochemical such as fertilizers and pesticides, Improper planning
and management of irrigation systems, Extraction of ground water in excess of the recharge
capacity, Poverty of the agriculture-dependent people, Non-adoption of adequate soil conservation
measures. Chipko and Appiko movements are related to protect forests.
● In order to address two major environmental concerns in India, viz, water and air pollution, the
government set up the central pollution control board (CPCB) in 1974. Board investigate collect
and disseminate information relating to water, air and pollution, lay down standards of sewage/trade
effluent and emissions.
● Functions of the Central Board at the National Level
○ Advise the Central Government on any matter concerning prevention and control of water
and air pollution and improvement of the quality of air.
○ Plan and cause to be executed a nation-wide programme for the prevention, control or
abatement of water and air pollution;
○ Coordinate the activities of the State Board and resolve disputes among them;
○ Provide technical assistance and guidance to the State Boards, carry out and sponsor
investigation and research relating to problems of water and air pollution, and for their
prevention, control or abatement;
○ Plan and organise training of persons engaged in programme on the prevention, control or
abatement of water and air pollution;
○ Organise through mass media, a comprehensive mass awareness programme on the
prevention, control or abatement of water and air pollution;
○ Collect, compile and publish technical and statistical data relating to water and air pollution
and the measures devised for their effective prevention, control or abatement;
○ Prepare manuals, codes and guidelines relating to treatment and disposal of sewage and
trade effluents as well as for stack gas cleaning devices, stacks and ducts;
○ Disseminate information in respect of matters relating to water and air pollution and their
prevention and control;
○ Lay down, modify or annul, in consultation with the State Governments concerned, the
standards for stream or well, and lay down standards for the quality of air; and
○ Perform such other function as may be prescribed by the Government of India.
● India’s rapid economic development has made us aware of two realities:
○ Economic development has lifted millions out from poverty.
○ Economic development has been accompanied by accelerated depletion of natural
resources and rapid deterioration in environment quality.
● Sustainable development is that process of development which meets the needs of present
generation without reducing the ability of future generation to meet their own needs.
● Main features of sustainable development: Sustained rise in Real per Capita Income and
Economic welfare, Rational use of natural resources, No reduction in the ability of the future
generation to meet their own needs, Check on pollution.
 ● To achieve sustainable development, the following needs to be done: Limiting the human
population,Technological progress should be input efficient and not input consuming, Renewable
resources should be extracted on a sustainable basis, that is, the rate of extraction should not
exceed rate of regeneration, For non-renewable resources, rate of depletion should not exceed the
rate of creation of renewable substitutes.Inefficiencies arising from pollution should be corrected.
● Strategies for Sustainable Development: Use of non-conventional sources of energy. Use of
cleaner fuels: LPG, Gobar gas in rural areas and CNG in Urban areas. Use of Solar energy and
wind power. Shift to organic farming. Recycle the wastes. Public means of transport. Traditional
knowledge and practices. Establishment of Mini-Hydel plants. Biopest Control

Chapter - 10 - DEVELOPMENT EXPERIENCE OF INDIA: A COMPARISON WITH NEIGHBOURS

Development Path of India, Pakistan and China: All the three countries started their development path at
the same time. India and Pakistan got independence in 1947 and people’s Republic of China was
established in 1949.
● All the three countries had started planning their development strategies in similar ways. India
announced its First Five Year Plan in 1951, Pakistan announced in 1956 and China in 1953. India
and Pakistan adopted similar strategies, such as creating a large public sector and raising public
expenditure on social development.
● Both India and Pakistan had adopted ‘mixed economy’ model but China had adopted ‘Command
Economy’ model of economic growth. Till 1980s, all the three countries had similar growth rates and
per capita incomes. Economic Reforms were implemented in China in 1978, in Pakistan in 1988
and in India in 1991.
Development Strategy - China:
● After the establishment of People’s Republic of china under one party rule, all the critical
sectors of the economy, enterprises and lands owned and operated by individuals, were brought
under government control. A Programme named ‘The Great leap Forward (GLF) campaign was
initiated in 1958, which aimed at industrialising the country on a massive scale. Under this
programme, people were encouraged to set up industries in their backyards.
● 1965, Mao Tse Tung introduced the ‘Great Proletarian Cultural Revolution (1966-1976)’, under
which students and professionals were sent to work and learn from the countryside (rural areas).
● In rural areas, commune system was started, under which people collectively cultivated lands.
● Reforms were introduced in China in phases. In the initial phase, reforms were initiated in
agriculture, foreign trade and investment sectors. In the later phase, reforms were initiated in the
industrial sector.
○ The reforms process also involved dual pricing. This means fixing the prices in two ways;
farmers and industrial units were required to buy and sell fixed quantities of raw materials
and products on the basis of prices fixed by the government and rest were purchases and
sold at market prices.
○ In order to attract foreign investors, special Economics Zones (SEZ) were set up. SEZ is a
geographical region that has economic laws different from a country’s typical economic laws.
Usually the goal is to increase foreign investment.
Development Strategy - Pakistan:
● Pakistan followed the mixed economy model with coexistence of public and private sectors.
Pakistan Introduced tariff protection for manufacturing of consumer goods, together with direct
import controls on competing imports.
● The introduction of Green Revolution and increase in public investment in infrastructure in select
areas, led to a rise in the production of food grains. In 1970s, Capital goods industries were
nationalised. In 1988, structural reforms were implemented. Major thrust areas were
denationalisation and encouragement to private sector.
● Pakistan also received financial support from western nations and remittances from emigrants to the
Middle countries. This helped the country in stimulating economic growth.
Development Strategy - India:
 ● After Independence, India has adopted mixed economy as economic development strategy. Both
public and private sector co-exist side by side. In order to achieve rapid economic growth, planned
development economy was introduced.
● Economic Development Strategy after Independence: Both public and private sectors were
allotted to carry business activities. Public sector was allotted activities like coal, mining, steel,
power, roads etc. Private sector was allotted to establish industries subject to control and
regulations in the form of law.
○ Public sector was given major push by the Government. Maximum revenues in this sector
was invested which increased from Rs. 81.1 crore in First Five-Year Plan (1951-56) to Rs
34,206 crores in Ninth Five-Year Plan (1992-97).
○ Public sector was given importance in order to eliminate poverty, unemployment etc. Public
sector contributed to the industrialisation of the economy. It also helped Indian economy to
achieve a considerable degree of self-sufficiency.
Comparative Study – India, Pakistan and China:
● Demographic Indicators: The population of Pakistan is very small and accounts for roughly about
one-tenth of China and India. Though China is the largest nation geographically among the three, its
density is the lowest.
○ Population growth is highest in Pakistan followed by India and China. One child norm which
was introduced in China in the late 1970s is the major reason for low population growth. But
this measure led to a decline in the sex ratio, that is the proportion of females per 1000
males.
○ The sex ratio is low and biased against females in all the three countries. There is strong
son-preference prevailing in all these countries.
○ The Fertility rate is low in China and very high in Pakistan. Urbanisation is high in both China
and Pakistan- with India having 28% of its people living in Urban areas.
● Gross Domestic Product (GDP) and Sectors : China has the second largest GDP (PPP) of 10.1
trillion(approx) in 2013 whereas India’s GDP (PPP) and Pakistan GDP (PPP) are 4.2 trillion
(approx) and $0.47 trillion (approx) respectively.
○ On this path of Development china’s average growth rate is about 9.5% while India’s and
Pakistan’s average growth rate is about 5.8% and 4.1% respectively.
○ In China, in the year 2011. with 37% of its workforce engaged in agriculture, its contribution
to GDP is 9% (approx). While in India and Pakistan the contribution of agricultural sector in
GDP is about 19% and 21% respectively. In India about 56% are engaged in agricultural
sector, while in Pakistan this figure is about 45%.
○ In china, manufacturing contributes the highest to GDP at 47 percent whereas in India and
Pakistan, it is the service sector which contributes the highest (more than 50% of GDP)
○ Though china has followed the classical development pattern of gradual shift from
agriculture to manufacturing and then to services, India and Pakistan’s shift has been
directly from agriculture to service sector.
○ In the 1980s, India, China and Pakistan employed 17, 12 and 27% of its workforce in the
service sector respectively. In 2011, It reached the level of 25, 33 and 35% respectively
(approx.).
○ China’s growth is mainly contributed by the manufacturing sector where as in both India and
Pakistan, the service sector is emerging as a major player of development.
● Human Development Indicators: In most areas of human development, China has performed
better than India and Pakistan. This is true for many indicators-per Capita GDP or proportion of
population below poverty line, health indicators such as mortality rates, access to sanitation,
literacy, life expectancy or malnourishment etc.
○ Pakistan is ahead of India in reducing proportion of people below the poverty line and also
its performance in transferring labour force from agricultural sector to industrial sector and
access to water is better than India.
○ Contrary to it, India is ahead of Pakistan is education sector and providing health services.
India and Pakistan are ahead of China in providing improved water sources.
● Conclusion
○ India-India performed moderately as is clear from - majority of its people still depend on
agriculture.Infrastructure is lacking in many parts of the country. It is yet to raise the level of
living of more than 22% of its population that lives below the poverty line.
○ Pakistan-Pakistan has performed poorly. The reasons for the slowdown of growth and re-
emergence of poverty in Pakistan’s economy are: Political instability.Volatile performance of
agriculture sector. Over dependence on remittances. Growing dependence on foreign loans
on the one hand and increasing difficulty in paying back the loans on the other.
○ China-China has performed comparatively the best as is clear from: - Success in raising the
level of growth along with alleviation of poverty. It used the market mechanism to create
additional social and economic opportunities without political commitment. By retaining
collective ownership of land and allowing individuals to cultivate lands, China has ensured
social security in rural areas. Public intervention in providing social infrastructure has brought
about positive results in human development indicators in China.

Chapter - 11 - INFLATION : PROBLEM AND POLICIES

● By inflation in ordinary language, we mean a process of rising prices. Inflation is a situation of
persistent and appreciable rise in prices, leading to fall in purchasing power of money. A chief
measure of price inflation is the inflation rate. It is the annualised percentage change in a general
price index over time.
● Indicators of Inflation:
○ Index Numbers of Prices: Wholesale Price Index(WPI), Consumer Price Index(CPI)
○ Gross Domestic Product(GDP) Deflator
● Types of Inflation: Demand pull Inflation, Cost push inflation
● Demand-pull inflation arises when there is an excess of demand for goods over their supply.
When there is persistent increase in demand and supply does not increase proportionately then
prices tend to rise.
● Causes of demand pull Inflation: Increase in public expenditure, Increase in investment, Increase
in money supply, Growth in black money, Increase in population, Erratic Agricultural growth, Deficit
Financing, Credit Expansion
● Cost push inflation occurs when rise in price is due to rise in the cost of production. In this type of
inflation, demand factor plays a minor and supply factor plays an important role. Once, this type of
inflation sets in one industry, it spreads to all other industries of an economy.
● Causes of cost-push inflation: Higher wage rate, Higher profit margin, Higher taxes, Fall in the
availability of basic inputs, Administered higher prices of inputs, Agriculture price Policy of Govt.,
Increase in the rates of Indirect taxes.
● Causes of inflation:
○ Demand factors: Growth of population, Rise in employment and income, Increase in pace
of urbanisation.
○ Supply factors: Irregular agricultural supply, Hoarding of essential goods, Rise in
administered prices, Agricultural price policy, Rising prices of imports, Inadequate growth of
industrial production.
○ Monetary and fiscal factors: Rising levels of government expenditure, Deficit financing.
● Effect of Inflation:
○ Micro-on Individual: Real income declines, Wealth value declines, Income redistribution
causes social tensions.
○ Macro-On Economy: Hoarding and black marketing, Speculation increases, Nominal pay
increase, Higher tax bracket, Deterioration of quality of goods and standard of living.
● Policy measures to control inflation
○ Monetary measures: A check on the supply of money, Increases in rate of interest,
Decrease in the supply of credit, By Raising cash reserve ratio and statutory liquidity ratio
 and by Open market operations, Increase in Bank Rate, Open market Operation( selling of
eligible security by RBI)
○ Fiscal Measures: A check on the public expenditure, Increase in taxes, Public borrowings
○ Physical or non monetary measures: Increasing output or increasing imports, Controlling
money wages, Price control and rationing, Check on hoarding: Economic planning,
Population planning
○ Price Policy: Price control on essential goods. Procurement and support price.
 Class–12 Economics - Chapter 1 - Introduction to Microeconomics
● Study of Economics is divided into two branches: Micro economics & Macro economics
● Microeconomics studies the behaviour of individual economic units. Ex-Consumer equilibrium,
producers equilibrium, product pricing, factor pricing etc. Microeconomics is also called price theory.
● Macroeconomics studies the behavior of the economy as a whole.Ex- National income, aggregate
demand, aggregate supply, general price level, Inflation etc. Macroeconomics is also called theory
of income and employment.
● Economy is a system in which people earn a living to satisfy their wants through process of
production, consumption, investment and exchange.
● Economic problem is the problem of choice arising from use of limited means which have the
alternative use for the satisfaction of various wants.
● Cause of economic problems are : Unlimited Human Wants, Limited Economic Resources,
Alternative uses of Resources.
● Central Problems of an Economy: what to produce, how to produce, for whom to produce.

●
○ The central problem of "what to produce" refers to which goods and services will be
produced in an economy and in what quantities. An economy has to produce those goods
and services where there will be maximum social utility. This problem is studies under price
theory.
○ The central problem of "how to produce" refers to what technique of production (i.e., labour
intensive or capital intensive) should be used to produce goods. An economy has to select
that technique which maximizes the output at minimum cost. This problem is studies under
theory of production.
○ The central problem "for whom to produce" is related to distribution of produced goods and
services(i.e., income and wealth) among factors of production in the form of rent, wages,
interest and profit.This is explained under the theory of distribution. For the selection of an
opportunity, the sacrifice of next best alternative use is called opportunity cost.In other
words, it is the amount of one commodity that is to be sacrificed to increase the production of
other commodity.
● Production possibility frontier or production possibility curve shows all possible combinations
of two set of goods that an economy can produce with available resources and given technology,
assuming that all resources are fully and efficiently utilized.
● Economizing of resources means utilisation of resources in best possible manner to maximize
output.
● Production Possibility Frontier or Curve - Features:

●
○ Slopes downward from left to right because if production of one commodity is to be
increased then production of other commodity has to be sacrificed as there is scarcity of
resources.
○ Concave to the origin because of increasing marginal opportunity cost or (MRT)
● The Production possibility curve will shift under following two condition:(a) change in resources,
(b) Change in technology of production for both the goods.
●
● Rightward shift of PPF shows increase in resources or improvement in technology. Ex. Labour
becoming more skilled, improvement in technology, increase in productivity of land.
● Leftward shift of PPF shows the decrease in resources or degradation of technology in the
economy.
● The Production possibility curve will rotate outward under following two condition: (a)
Improvement in technology in favour of one commodity (b) Growth of resources for the production of
one commodity

●
● Marginal Rate of Transformation (MRT)- It is the amount of one commodity that is to be sacrificed
to increase the production of other commodity by one unit. MRT can also called Marginal
Opportunity Cost. It is defined as the additional cost in terms of number of units of a good sacrificed
to produce an additional unit of the other good.
● MARGINAL RATE OF TRANSFORMATION: MRT is the ratio of units of one good sacrificed to
produce one more unit of other good. (Marginal= at the border or adjacent/next to/adjoining)
(Transformation= a change in form, shape appearance or size)

●
● ECONOMY: It is a system spread over a particular area that reveals the nature and level of
economic activities in that area. It shows how people of a particular area earn their living.
● SERVICES: A type of economic activity that is intangible, is not stored and does not result in
ownership. A service is consumed at the point of sale. Services are one of the two key components
of economics, the other being goods.e.g; services of a doctor.
● WANTS: Wants are mere desires to buy the object irrespective of price and capacity.
● RESOURCES: service or asset which is used to produce goods and services that meet human
needs and wants are called resources.
● GOODS: All physical and tangible things which are used to satisfy people's want, provide utility and
have an economic value. e.g. books
● HOUSEHOLD: All persons living under one roof having either direct access to the outside or a
separate cooking facility. Where member of a household is related by blood or law, they constitute a
family.
● FIRMS: Firm is an organisation that employ productive resources to obtain products and/or services
which are offered in the market with the aim of making a profit.
● PRODUCTION: Production is a process through which inputs are transformed into output(i.e. in
order to make something for consumption).
● CONSUMPTION: The process of using up of goods and services for direct satisfaction of individual
or collective human wants are called consumption.
● MICROECONOMICS: It is that branch of economics which deals with the behavior of individual
economic units of the economy such as individuals or households.
● MACROECONOMICS: Macroeconomic is that branch of economics which deals with the behaviour
of the economy or as a whole. It is the study of aggregates such as national income, full
employment, aggregate consumption etc.
● ECONOMIC PROBLEM: Economic problem is the problem of choice arising out of fact that,
resources are scarce and it has the alternative uses.It is mainly the problem of choice.
● MARGINAL OPPORTUNITY COST: It is the rate at which the quantity of output of one commodity
is sacrificed to produce one more unit of other commodity.
● OPPORTUNITY COST: It is the cost of next best alternative foregone.
● Example of Opportunity Cost: (i) Mohan decides to use the train to get to work rather than driving
each day. The train fare each month will be Rs.350. After one month, he calculates that he is
spending Rs.250 less on petrol and about Rs.25 less on maintaining her car. What is the
opportunity cost of using the train? Cost of using train pm= Rs.350. Cost of using the car pm =
Rs.250 + Rs.25 = Rs. Opportunity cost of using the train = Rs.350 - Rs.275 = Rs.75 per month
○ (ii) Ruth has a mobile shop. She wants to employ 2 students to work for her between June
and August. She expects each employee to generate Rs.250 a day each of the 78 working
days of this period. However, if she lost 2 days at the start of the period and fully trained her
employees they could generate Rs.260 a day. What is the opportunity cost of not training her
employees? Earnings from her 2 employees without training = (Rs.250 x 78) x 2 = Rs.39000
If she trained the employees she would lose 2 working days worth of revenue. The revenue
would be = (260 x 76) x 2 = Rs.39520 The opportunity cost of not training her employees =
Rs.39520 - Rs.39000 = Rs.520
○ (iii) Jim, a consultant, earns Rs.85 an hour. Instead of working one night, he goes to a
Premier League cricket match in Delhi which costs him Rs.55 and lasts two hours. What is
the opportunity cost of watching the football instead of working? Jim earns Rs.85 per hour. In
2 hours he earns 2 x 85 = Rs.170 Opportunity of attending match = Rs.170 + 55 = Rs.225
● PRODUCTION POSSIBILITIES: Different combination of goods and services which an economy
can produce with its available resources and given technology.
● A PRODUCTION POSSIBILITY CURVE: It is a curve which depicts all possible combination of two
goods that an economy can produce with the utilization of available resources and technique of
production. It is an important tool to solve central economic problem. It is also known as
transformation curve or production possibility frontier.
● LABOUR-INTENSIVE TECHNOLOGY: When goods are produced using large quantity of labor and
only a very few simple machines it is L I technology. The degree of labor intensity is typically
measured in proportion to the amount of capital required to produce the goods or services; the
higher the proportion of labor costs required, the more labor intensive the business.
● CAPITAL-INTENSIVE TECHNOLOGY: Under this technique, capital is used more than labour.
That is investment in purchase, maintenance, and amortization of capital equipment is more than
labour.It is C I technology.
● CAUSES OF ECONOMIC PROBLEM: i) Scarcity of resources, ii) Unlimited wants iii) Limited
resources having alternate uses (Scarcity= a state of being in short supply) (alternate uses = other
uses)
○ Features of resources: 1) limited 2) alternate uses
○ Features of wants: 1) unlimited 2) recurring 3) can be satisfied by using goods and
services.
● CENTRAL ECONOMIC PROBLEMS
○ Allocation of resources: (Allocation = the act of sharing something/ an amount of
resources allowed or assigned for something)
■ What to produce and of what quality :-consumer goods or capital goods, war time
goods or peacetime goods
■ How to produce:- technology –capital intensive or labour intensive
■ For whom to produce:- functional distribution or personal distribution
○ Efficient Utilization of resources-no wastage- no overutilization or underutilization.
Economic efficiency refers to efficiency in production and efficiency in distribution.
 ○ Growth of resources: It refers to increase in productivity of resources through improvement
in technology.
● SCARCITY OF RESOURCES: Scarcity of resources means shortage of resources in relation to
their demand.

Class–12 Economics - Chapter 2 - Consumers Equilibrium & Demand

● Consumer : is an economic agent who consumes final goods or services for a consideration.
● Utility: is want satisfying power of a commodity.
● Total utility: It is the total satisfaction derived from consumption of given quantity of a commodity at
a given time. In other words, It is the sum total of marginal utility.
● Marginal Utility: It is the change in total utility resulting from the consumption of an additional unit
of the commodity.In other words, It is the utility derived from each additional unit.

●
● Relation between total utility and marginal utility

●
○ when Mu diminishes but positive Tu increases at a diminishing rate.
○ when Mu is zero, Tu is maximum.
○ when Mu is negative, Tu diminishes.
● Law of Diminishing Marginal Utility : As consumer consumes more and more units of commodity
the Marginal utility derived from each successive units go on declining. This is the basis of law of
demand.
● Consumer’s Bundle :It is a quantitative combination of two goods which can be purchased by a
consumer from his given income.
● Law of equi-marginal utility- It states that when a consumer spends his income on different
commodity he will attain equilibrium or maximize his satisfaction at that point where ratio between
marginal utility and price of different commodities are equal and which in turn is equal to marginal
utility of money.
● Budget set :It is quantitative combination of those bundles which a consumer can purchase from
his given income at prevailing market prices.
● Consumer Budget :It states the real purchasing power of the consumer from which he can
purchase the certain quantitative bundles of two goods at given price.
● Budget Line: A graphical representation of all those bundles which cost the amount just equal to
the consumer's money income gives us the budget line.
● Monotonic Preferences:Consumer’s preferences are called monotonic when between any two
bundles, one bundle has more of one good and no less of other good as it offers him a higher level
of satisfaction.
● Change in Budget Line :There can be parallel shift (leftwards or rightwards) due to change in
income of the consumer and change in price of goods. A rise in income of the consumer shifts the
budget line rightwards and vice-versa.In case of change in price of one good, there will be rotation
in the budget line. Fall in price cause outward rotation due to rise in purchasing power and vice-
versa

●
● Marginal Rate of Substitution (MRS) :It is the rate at which a consumer is willing to substitute
(good Y/ good X) one good to obtain one more unit of the other good. Generally, It is the slope of
indifference curve.

●
● Indifference Curve is a curve showing different combination of two goods, each combinations
offering the same level of satisfaction to the consumer.
● Characteristics of IC
○ Indifference curves are negatively sloped(i.e. slopes downward from left to right).
○ Indifference curves are convex to the point of origin. It is due to diminishing marginal rate of
substitution.
○ Indifference curves never touch or intersect each other. Two points on different IC cannot
give equal level of satisfaction.
○ Higher indifference curve represents higher level of satisfaction.
● Consumer’s Equilibrium: A consumer is said to be in equilibrium when he maximizes his
satisfaction, given his money income and prices of two commodity. He attains equilibrium at that
point where the slope of IC is equal to the slope of budget line.

●
● Condition of Consumer’s Equilibrium:
 ○ Cardinal approach (Utility Analysis) : According to this approach utility can be measured.
“Utils” is the unit of utility.

■ Condition : In case of one community

Where, MUm = Marginal utility of money. MUx = Marginal utility of ‘x’, Px = Price of
‘x’

■ Condition : In case of two commodity. xy and MU must be

decreasing.

■
■ Assumption, Px = Rs.3, Py = Rs.4
■ Y = Rs.20 Here, MUm = 9
■
○ Ordinal approach (Indifference Curve Analysis): According to this approach utility cannot
be measured but can be expressed in order or ranking.
■ Condition of Equilibrium: or budget line must be tangent to indifference curve.

■ MRS must be diminishing or, Indifference curve must be convex to the origin.
● Quantity Demanded : It is that quantity which a consumer is able and is willing to buy at particular
price and in a given period of time.
● Determinants of Demand: Price of Good, Income of Consumers, Taste & Preference of
Consumer, Change in Price of Related Goods, Future Expectation to Change in price
● Change of Demand :
○ Change in quantity Demanded or Movement along Demand curve
 ■
○ Change in Demand or Shift in Demand

■
● Market Demand: It is the total quantity of the commodity demanded in the market by all consumers
at different prices at a point of time.
● Demand Function: It is the functional relationship between the demand for a commodity and
factors affecting demand.
● Law of demand:The law states that when all other thing remains constant then there is inverse
relationship between price of the commodity and quantity demanded of it. That is, higher the price,
lower the demand and lower the price,higher the demand.
● Change in Demand: When demand changes due to change in any one of its determinants other
than the price.
● Change in Quantity Demanded: When demand changes due to change in its own price keeping all
other factors constant.
● Demand curve and demand schedule : The tabular presentation of price and quantity demanded
is called demand schedule and a demand curve is the graphical representation of the demand
schedule.
● Demand curve and its slope :
 ○
●
● Price Elasticity of Demand: Price Elasticity of Demand is a measurement of change in quantity
demanded in response to a change in price of the commodity.

○
● Percentage Method:

● Total Expenditure Method : It measures price elasticity of demand on the basis of change in total
expenditure incurred on the commodity by a household due to change in its price. There are three
conditions :
○ Ed=1 When due to rise or fall in price of a good, total expenditure remains unchanged.
○ Ed >1 When due to fall in price, total expenditure goes up and due to rise in price, total
expenditure goes down.
○ Ed <1 when due to fall in price, total expenditure goes down and due to rise in price, total
expenditure goes up.
 ○
● Geometric Method: Elasticity of demand at any point is measured by dividing the length of lower
segment of the demand curve with the length of upper segment of demand curve at that point. The
value of ed is unity at mid point of any linear demand curve.
● Diagram to show Geometric or point method : Elasticity of demand at given point. D is mid point
of the demand curve.

○
○
● Factors influencing Price elasticity of Demand: Nature of the Commodity, Availability of
Substitute goods. Income level of the consumer. Price level of the commodity. Time Period.
Different use of the commodity. Behavior of the consumer. Postponement of consumption

Class–12 Economics - Chapter 3 - Producer behaviour and Supply files

● Production Function: It shows the functional relation between physical inputs and physical output
of a good. It can be expressed as Q = (f1, f2, f3......... fn). Where Q = Physical output of a good; f1,
f2, f3, .......fn= Physical inputs. Production is creation of utility.
● Types of Production Function: There are two types of Production Function.
○ Short-run Production Function: In this production function one factor of production is
variable and all others are fixed. So, law of return to a factor is applied. It is also called
variable proportion type of production function. It is a time period which is not enough to
make change in all inputs. In this level of production can be changed by changing the
variable factors.
 ○ Long-run Production Function: In this production function all the factors of production are
variable. So, law of returns to scale is applied. It is also called constant proportion type of
production function. It is a time period which is enough to make change in all inputs, all
inputs are variable in the long run. In this level of production can be changed by changing all
inputs.
● Total product or Total physical product refers to total quantity of a goods and services produced
by a firm in a given period of time.

○
● Average production is the per unit production of variable factor.

○
● Marginal product refers to the change in total product resulting from the employment of an
additional unit of variable factor. In other words, it is the contribution of each additional unit of
variable factor to output.

○
● Relation between Total, Average and Marginal Product
○ When TP increases at an increasing rate, MP also increases.
○ When TP increases at a diminishing rate, MP declines.
○ When TP is maximum,MP=0.
○ When TP begins to decline, MP becomes negative
 ○

○ When MP > AP, AP rises.

○ When MP = AP, AP is maximum and constant.
○ When MP < AP, AP falls.
○ MP may be zero or negative, but AP continues to be positive.
○ AP increases, even when MP falls but MP should lie above AP.
● Returns to a factor: It refers to the behaviour of output when only one variable factor of production
in increased in short run and fixed factors remain constant.
● Law of variable proportion: The law states that when more and more units of variable factors are
employed to increase the output, initially output increases at an increasing rate and finally falls.

○
● Stage I (Stage of Increasing Return to factor): TP Increases at increasing rate: In the initial
phase as more and more units of variable factors are employed with fixed factor total physical
production increases at increasing rate, MP increases. Cause for increasing return: (a) Under
utilisation of fixed factor (b) Indivisibility of factor (c) Increased efficiency of variable factor
● Stage II(Stage of Diminishing Return to factor): TP increases at decreasing rate: As more and
more units of variable factors are employed with fixed factors then total product increases at
diminishing rate, MP decreases but is positive. At the end of this phase TP maximum and MP
becomes zero. Cause of diminishing return: (a) optimal use of fixed factor (b) imperfect factor
substitutability.
● Stage III(Stage of negative return to factor): TP falls: As more and more units of variable factors
are employed with fixed factors, total production starts decreasing and marginal product becomes
negative. Cause of negative return: (a) Poor coordination between fixed factor and variable factor.
(b) Over utilisation of fixed factor
● Economic Cost : It is the sum total of explicit and implicit cost.
● Explicit Cost : Actual money expenditure incurred by a firm on the purchase and hiring the factor
inputs for the production is called explicit cost. These are entered into books of accounts. For
example-payment of wages, rent, interest, purchases of raw materials etc.
● Implicit cost is the cost of self owned resources of the production used in production process. Or
estimated value of inputs supplied by owner itself. These are not entered into books of accounts.
● Normal Profit: It is the minimum amount required to keep the producers into business. In other
words, it is the minimum supply price of the entrepreneur. It is also called the wage of an
entrepreneur.

●
● Total cost refers to total amount of money which is incurred by a firm on production of a given
amount of a commodity. Total cost is the sum of total fixed cost and total variable cost. TC = TFC +
TVC or TC = AC × Q
● Total fixed cost:- It is also called supplementary cost. It is the total expenditure incurred by the
producer for employing fixed inputs. Ex- Rent of land and building, interest on capital,license fee
etc. TFC = TC – TVC or TFC = AFC × Q

●
● Features of Total Fixed Cost:- (a) It remains constant at all levels of output. It is not zero even at
zero output level. Therefore, TFC curve is parallel to X-axis. (b) Total cost at zero level of output is
equal to total fixed cost.
● Total variable cost is the cost which vary with the quantity of output produced. It is zero at zero
level of output. TVC curve is parallel to TC curve.Ex-cost of raw material,expenses on power etc.
TVC = TC – TFC or TVC = AVC × Q
● Features of Total variable cost:- (a) It is zero when output is zero. (b) It increases with increase in
output. (c) Initially TVC increases at diminishing rate due to increasing returns and later it increases
at an increasing rate due to diminishing return.
● Average cost is per unit cost of production of a commodity. It is the sum of average fixed cost and
average variable cost.

○
● Average fixed cost is per unit fixed cost of production of a commodity.
 ○
● Features of Average fixed cost:- (a) AFC diminishes with increase in output. (b) AFC curve is a
rectangular hyperbola.(c) It can not intersect X-axis or Y-axis.

○
● Average variable cost is per unit variable cost of production of a commodity. AVC is Ushaped due
to law of variable proportion.

○
● 27. Marginal Cost - It refers to change in TC, due to additional unit of a commodity is produced. MC
= ΔTC/ΔQ or MCn = TCn – TCn–1. But under short run, it is calculated from TVC.

○
● Total cost curve and total variable cost curve remains parallel to each other. The vertical
distance between these two curve is equal to total fixed cost. TFC curve remains parallel to X-axis
and TVC curve remains parallel to TC curve.

○
○ With increase in level of output, the vertical distance between AFC curve and AC curve goes
on increasing. On contrary the vertical distance between AC curve and AVC curve goes on
decreasing but these two curves never intersect because average fixed cost is never zero.
● Relation between MC and AVC.
○ When MC < AVC, AVC falls.
○ When MC = AVC, AVC is minimum and constant
○ When MC > AVC, AVC rises. MC curve cuts AVC curve at its lowest point. Both curves are
U-shaped and starts from the same point.
 ○
● Relation between MC and AC:-
○ when AC falls, MC < AC.
○ when AC rises, MC > AC.
○ when AC is constant and minimum, MC = AC.

○
● Money received from the sale of product is called revenue.
● Total revenue is the total amount of money received by a firm from the sale of given units of a
commodity.

○
● Per unit revenue received from the sale of given units of a commodity is called average revenue.
Average revenue is equal to price. Per unit price of a commodity it also called AR.

○
● Marginal revenue is net addition to total revenue when one additional unit of output is sold.

○
● Relation b/w TR, AR, and MR when more quantity sold at the same price: under perfect
competition.
○ Average revenue and marginal revenue remains constant at all levels of output and AR and
MR curves are parallel to ox-axis. AR= MR.
○ Total revenue increases at constant rate MR is constant and TR curve is positively sloped
straight line passing through the origin.
● Relation between TR, AR and MR when more quantity by selling at a lower price or there is
monopoly or monopolistic competition in the market.
○ Average revenue and marginal revenue curves have negative slope. MR curve lies below
AR curve. AR > MR.
○ Marginal revenue falls, twice the rate of average revenue.

■
○ So long as marginal revenue decreases and positive, total revenue increases at a
diminishing rate. When marginal revenue is zero, total revenue is maximum and when
marginal revenue becomes negative, TR starts falling.
 ■

● Relation b/w AR and MR (General relationship)

○ When MR = AR, AR is maximum and constant. MR can be negative, but not AR.
○ When MR < AR, AR falls. When TR increases at an increasing rate, MR and AR also
increases.

■
● Concept of Producer’s Equilibrium: If refers the stage where producer is getting maximum profit
with given cost and he has no incentive to increase or decrease the level of output.
● MR and MC Approach: Conditions of producers equilibrium according to this approach are :
○ MC = MR and also AR = MR, hence AR = MR = MC. MC should be rising.
○ MC curve should cut the MR curve from below at the point of equilibrium. Or MC should be
more than MR after the equilibrium point, with increase in output

○
● Normal Profit:- It is a no profit no loss situation, it is achieved when P = AC.It is the minimum return
that a producer expects from his capital invested in the business.
● Break-even Point:- It occurs when AR = AC or (TR = TC). At this point, firm is earning zero
economic profit or normal profit. OR we can say it is just covering all its costs.
● Shut-down Point:- It occurs when a firm is covering its variable costs only, here, the firm is
incurring loss of fixed cost. (TR < TVC OR AR < AVC)
● Supply: Refers to the amount of the commodity that a firm or seller is willing to sell at different
prices during a given period of time.
● Factors affecting the supply of a commodity: Price of the commodity. Prices of other related
goods. Level of Technology. Prices of inputs. No. of firms. Government policy regarding Taxation
and subsidies. Goals of the firm.

○
● Individual Supply: Refers to quantity of a commodity that an individual firm is willing and able to
offer for sale at different prices during a given period of time.
● Market supply: It is the sum total of quantity supplied of a commodity by all sellers or all firms in the
market at different price and in a given period of time.
● Stock: Refers to the total quantity of a particular commodity available with the firm at a particular
point of time.
● Supply Schedule: Refers to a tabular presentation which shows various quantities of a commodity
that a producer is willing to supply at different prices, during a given period of time.
● Supply curve: Refers to the graphical representation of supply schedule which represents various
quantities of a commodity that a producer is willing to supply at different prices during a given period
of time.
● Slope of supply curve = ΔP/ΔQ. A supply curve has a positive slope.
● Law of Supply: States the direct relationship between price and supply of a commodity, keeping
other factors constant. i.e. higher the price, the higher the supply and lower the price, lower the
supply.
● Price Elasticity of Supply: Refers to the degree of responsiveness of supply of a commodity with
reference to a change in the price of the commodity. It is always positive due to direct relationship
between price and quantity supplied.

○
● Methods for measuring price elasticity of supply:
○ Percentage Method

■
○ Geometric Method

■
● There are three possibilities of Elasticity of Supply:
○ If a straight line supply curve passes through the point of origin doesn’t matter what it makes
angles, Es at any point is equal to unity.
○ If a straight line supply curve passes through the left side of the point of origin and intersect
Y-axis, Es > 1.
 ○ If a straight line supply curve passes through right side of point of origin and intersect X-axis,
Es < 1.
● Change in Q.Supplied Vs change in Supply:
○ Change in Q.Supplied or Movement along supply curve - Due to change in the price of
Commodity other factors remain constant

■
● Change in Supply or Shift in supply curve - Due to change in factors other than price of the
commodity

○
● In simple words, Increase in supply--More supply at the same price or same supply at lower price.
Decrease in supply-- Less supply at the same price or the same supply at a higher price.

Class–12 Economics - Chapter 4 - Forms of Market and Price Determination

● Market is a mechanism or arrangement through which the buyers and sellers of a commodity or
service come into contact with one another and complete the act of sale and purchase of the
commodity or service on mutually agreed prices.

○
● Perfect competition- It is a market structure where there are a large number of buyers and sellers
selling identical products at uniform price with free entry and exit of firms and absence of govt.
control.
● Under perfect competition, price remains constant therefore, average and marginal revenue
curves coincide each other i.e., they become equal and parallel to x-axis.
 ○
● Under perfect competition price is determined by the industry on the basis of market forces of
demand and supply. No individual firm can influence the price of the product. A firm can take the
decision regarding the output only. So industry is price maker and firm is a price taker.
● Feature of perfect competition : Very large no. of buyers and sellers. Homogeneous product. Free
entry and exit of firms in the market. Perfect knowledge. Perfect Mobility. Perfectly elastic demand
curve. No transportation cost.
● Monopoly Market: Monopoly is that type of market where there is a single seller and large number
of buyers. There is an absence of close substitutes to the products.
● Features : Single seller and large number of buyers. Restrictions on the entry of new firms.
Absence of close substitutes. Full control over price. Price discrimination. Price maker. Downward
sloping less elastic demand curve.
● AR or MR Curve in Monopoly market: AR (Demand) Curve slopes downward from left to right and
less elastic than that of monopolistic competition. It means that to increase demand, he has to
reduce the price. Given the demand for his product, the monopolist can increase his sales by
lowering the price, the marginal revenue also falls but the rate of fall in marginal revenue is greater
than average revenue.

○
● A monopolist either decides price or output. He cannot decides both at a time.
● Monopolistic Competition: It is that type of market in which there are a large number of buyers
and sellers. The Sellers sell differentiated product but not identical. The products are close
substitutes of each other.
● Features of Monopolistic Competition:
○ Large no. of buyers and sellers
○ Product Differentiation: The products of each firm is differentiated from the other on the
basis of colour, taste, packing, trademark, size and shape.
○ Selling Cost: Cost on advertisement and sales promotion.
○ Free entry or exit of firms.
○ Lack of perfect knowledge.
○ Partial control over price.
○ Imperfect mobility: Factors of production and products are not perfectly mobile.
○ Elastic and downward sloping demand curve.
● AR or MR in Monopolist Market: AR (Demand) Curve is left to right downward sloping curve and
more elastic / flatter than that of monopoly. It means that in response to change in price, the change
in demand will be relatively more for a monopolistic competitive firm than a monopoly firm. AR and
 MR curves are both downward sloping because more units can be sold only by lowering the price.
MR lies below AR.

○
● Oligopoly - Oligopoly is the form of market in which there are few sellers or few large firms,
intensely competing against one another and recognising interdependence in their decision-making.
● Features of Oligopoly:
○ Few Sellers
○ All the firms produce homogeneous or differentiated product.
○ c. Under oligopoly demand curve cannot be determined. It has a kinked demand curve.
○ d. All the firms are interdependent in respect of price determination.
○ e. Price rigidity.
● On the basis of production, oligopoly can be categorised in two categories:
○ Collusive oligopoly is that form of oligopoly in which all the firms decide to avoid
○ competition and determine the price and quantity of output on the basis of cooperative
○ behaviour.
○ Non-collusive oligopoly is that form of oligopoly in which all the firms determine the price
and quantity of output according to the action and reaction of the rival firms.

● On the basis of product differentiation,Oligopoly,can be categorised in two categories:

○ Perfect Oligopoly: The Oligopoly is perfect or pure when the firms deal in the
homogeneous products.
○ Imperfect Oligopoly: Whereas the Oligopoly is said to be imperfect, when the firms deal in
heterogeneous products, i.e. products that are close but are not perfect substitutes.
● Equilibrium Price: The price at which the quantity demanded and supplied are equal is known as
equilibrium price.
● Equilibrium quantity:The quantity demanded and supplied at an equilibrium price is known as
equilibrium quantity.
● Market equilibrium is a state in which market demand is equal to market supply. There is no
excess demand and excess supply in the market.

○
● Application of Demand of Supply
○ Maximum Price Ceiling: It means the maximum price the sellers are allowed to charge less
than the equilibrium market price. Government imposes such a ceiling when it finds that the
demand for necessary goods exceeds its supply. That is, when consumers are facing
shortages and equilibrium price is too high. Government does it in the interest of consumers.
Excess demand may be fulfilled by:(a) Rationing (b) Dual marketing

■
○ Minimum Price Ceiling: It means that producers are not allowed to sell, the goods below
the price fixed by Government, When government finds that equilibrium price is too low for
the produce, then Govt. fixes a price ceiling higher than equilibrium price to prevent the
possible loss to the producers. The price is also called floor price or minimum support price.
Generally, government buys the excess supply at this price.
 Class–12 Economics - Chapter 5 - Forms of Market and Price Determination
● CBSE Class–12 economics
● Revision Notes
● Macro Economics 05
● National Income and Related Aggregate
● Goods :In economics a goods is defined as any physical object, manmade, that could
● command a price in the market and these are the materials that satisfy human wants and
● provide utility
● Consumption Goods : Those final goods which satisfy human wants directly. ex- ice-cream
● and milk used by the households.
● Capital Goods :Those final goods which help in production. These goods are used for
● generating income. These goods are fixed assets of the producers.ex- plant and machinery.
● Final Goods are those goods which are used either for final consumption or for investment.
● Intermediate Goods refers to those goods and services which are used as a raw material for
● further production or for resale in the same year.
● These goods do not fulfill needs of mankind directly.
● Investment :Addition made to the physical stock of capital during a period of time is called
● investment. It is also called capital formation.
● capital formation:- Change in the stock of capital is also called capital formation.
● Depreciation :means fall in value of fixed capital goods due to normal wear and tear and
● expected obsolescence. It is also called consumption of fixed capital.
● Gross Investment :Total addition made to physical stock of capital during a period of time. It
● includes depreciation. OR Net Investment + Depreciation
● Net Investment :Net addition made to the real stock of capital during a period of time. It
● excludes depreciation.
● Net Investment = Gross investment – Depreciation
● Stocks :Variables whose magnitude is measured at a particular point of time are called stock
● variables. Eg. National Wealth, Inventory etc.
● Flows :Variables whose magnitude is measured over a period of time are called flow
● variable. Eg. National income, change in stock etc.
● Circular flow of income :It refers to continuous flow of goods and services and money
● income among different sectors in the economy. It is circular in nature. It has neither any
● end and nor any beginning point. It helps to know the functioning of the economy.
● Leakage :It is the amount of money which is withdrawn from circular flow of income. For
● eg. Taxes, Savings and Import. It reduces aggregate demand and the level of income.
● Injection :It is the amount of money which is added to the circular flow of income. For e.g.
● Govt. Exp., investment and exports. It increases the aggregate demand and the level of
● income.
● Economic Territory :Economic (or domestic) Territory is the geographical territory
● administrated by a Government within which persons, goods, and capital circulate freely.
● Scope of Economic Territory :
● (a) Political frontiers including territorial waters and airspace.
● (b) Embassies, consulates, military bases etc. located abroad.
● (c) Ships and aircraft operated by the residents between two or more countries.
● (d) Fishing vessels, oil and natural gas rigs operated by residents in the international waters.
● Normal Resident of a country: is a person or an institution who normally resides in a
● country and whose Centre of economic interest lies in that country.
● Exceptions:- (a) Diplomats and officials of foreign embassy.
● (b) Commercial travellers, tourists students etc.
● (c) People working in international organizations like WHO, IMF, UNESCO etc. are treated as
● normal residents of the country to which they belong
● The related aggregates of national income are:-
● (i) Gross Domestic Product at Market price (GDPMP)
● (ii) Gross Domestic Product at Factor Cost (GDPFC)
● (iii) Net Domestic Product at Market Price (NDPMP)
● (iv) Net Domestic Product at FC or (NDPFC)
● (v) Net National Product at FC or National Income (NNPFC)
● (vi) Gross National Product at FC (GNPFC)
● (vii) Net National. Product at MP (NNPMP)
● (viii) Gross National Product at MP (GNPMP)
● (i) Gross Domestic Product at Market Price : It is the money value of all the
● final goods and services produced within the domestic territory of a country
● during an accounting year.
● GDPMP = Net domestic product at FC (NDPFC) + Depreciation + Net
● Indirect tax.
● (ii) Gross Domestic Product at FC : It is the value of all final goods and services
● produced within domestic territory of a country which does not include net
● indirect tax.
● GDPFC = GDPMP – Indirect tax + Subsidy
● or GDPFC = GDPMP – NIT
● (iii) Net Domestic Product at Market Price : It is the money value of all final
● goods and services produced within domestic territory of a country during an
● accounting year and does not include depreciation.
● NDPMP = GDPMP – Depreciation
● (iv) Net Domestic Product at FC : It is the value of all final goods and services
● which does not include depreciation charges and net indirect tax. Thus it is
● equal to the sum of all factor incomes (compensation of employees, rent,
● interest, profit and mixed income of self employed) generated in the domestic
● territory of the country.
● NDPFC = GDPMP – Depreciation – Indirect tax + Subsidy
● (v) Net National Product at FC (National Income) : It is the sum total of factor
● incomes (compensation of employees + rent + interest + profit) earned by
● normal residents of a country in an accounting year
● or
● NNPFC = NDPFC + Factor income earned by normal residents from abroad -
● factor payments made to abroad.
● (vi) Gross National Product at FC: It is the sum total of factor incomes earned
● by normal residents of a country along with depreciation, during an accounting
● year.
● GNPFC = NNPFC + Depreciation OR
● GNPFC = GDPFC + NFIA
● (vii) Net National Product at MP : It is the sum total of factor incomes earned by
● the normal residents of a country during an accounting year including net
● indirect taxes.
● NNPMP = NNPFC + Indirect tax – Subsidy
● (viii) Gross National Product at MP : It is the sum total of factor incomes earned
● by normal residents of a country during an accounting year including
● depreciation and net indirect taxes.
● GNPMP = NNPFC + Dep + NIT
● Domestic Aggregates
● Gross domestic Product at Market Price is the market value of all the final
● goods and services produced by all producing units located in the domestic territory of a
● country during an accounting year. It includes the value of depreciation or consumption of
● fixed capital.
● Net Domestic Product at Market Price Depreciation
● (consumption of Fixed capital). It is the market value of final goods and services produced
● within the domestic territory of the country during a year exclusive of depreciation.
● It is the factor income accruing to owners of factors of
● production for suppling factor services with in domestic territory during an accounting year.
● NATIONAL AGGREGATES
● Gross National Product at Market Price ) is the market value of all the final
● goods and services produced by normal residents (in the domestic territory and abroad) of a
● country during an accounting year.
● National Income :It is the sum total of all factors incomes which are earned by
● normal residents of a country in the form of wages. rent, interest and profit during an
● accounting year.
● Methods of Estimation of National Income:
● National Income at Current Prices : It is also called nominal National income. When goods
● and services produced by normal residents within and outside of a country in a year valued
● at current years prices i.e. current prices is called national income at current prices.
● Y=QxP
● Y = National income at current prices
● Q = Quantity of goods and services produced during an accounting year
● P = Prices of goods and services prevailing during the current accounting year
● National Income at Constant Prices :It is also called as real national income. When goods
● and services produced by normal residents within and outside of a country in a year valued
● at constant price i.e. base year's price is called National Income at Constant Prices.
● Y' = Q x P'
● Y' = National income at constant prices
● Q = Quantity of goods and services produced during an accounting year
● P' = Prices of goods and services prevailing during the base year
● Value of Output :Market value of all goods and services produced by an enterprise during
● an accounting year.
● Value added :It is the difference between value of output of a firm and value of inputs
● bought from the other firms during a particular period of time.
● Problem of Double Counting :Counting the value of a commodity more than once while
● estimating national income is called double counting. It leads to overestimation of national
● income. So, it is called problem of double counting.
● Ways to solve the problem of double counting.
● (a) By taking the value of only final goods.
● (b) By value added method.
● Components of Added by all 3 sectors
● 1. Value Added by Primary Sector(=VO-IC)
● 2. Value Added by Secondary Sector(=VO-IC)
● 3. Value Added by Tertiary Sectors(=VO-IC)
● Hints
● VO=Value of output
● IC=Intermediate Consumption
● VO=Price X quantity OR
● Sales + Change in stock
● (Change in stock = Closing Stock - Opening Stock)
● Components of Final Expenditure:
● 1. Final Consumption Expenditure
● a. Private Final Consumption Expenditure(C)
● b. Government Final Consumption Expenditure(G)
● 2. Gross Domestic Capital Formation
● a. Gross Domestic Fixed Capital Formation
● i. Gross business Fixed Investment
● ii. Gross Residential Construction Investment
● iii. Gross public Investment
● b. Change in Stock or Inventory Investment
● 3. Net Export(X-M)
● a. Export(X)
● b. Import(M)
● Components of Domestic Income :
● 1. Compensation of Employees
● a. Wages and salaries(Cash/or kinds)
● b. Employers Contribution of Social security Schemes
● 2. Operating surplus
● a. Rent
● b. Interest
● c. Profit
● i. Corporate Tax
● ii. Dividend
● iii. Undistributed corporate profit
● 3. Mixed Income for self-Employed person
● Net Factor Income from Abroad NFIA = It is difference between factor income
● received/earned by normal residents of a country and factor income paid to non-residents of
● the country.
● Components of NFIA :
● 1. Net Compensation of Employees
● 2. Net Income from Property and entrepreneurship
● 3. Net Retained earning of resident companies abroad
● Hints :NFIA : Net Factor Income Earned from Abroad.
● NFIA = Factor Income Received from Abroad.
● –Factor Income Paid to Abroad.
● OR
● NFIA = Net compensation of Employees
● + Net income from property and entrepreneurship.
● + Net retained earning of resident companies abroad.
● Net National Disposable Income (NNDI): It is defined as net national product at Market
● price plus net current transfer from rest of the world.
● NNDI = NNPMP
● + Net current transfers from rest of the world.
● =National income + net indirect tax + net current transfers from the rest of the world.
● Gross National Disposable Income (Gross NDI + Net current Transfers from
● rest of the world.
● Net National Disposable Income (Net NDI) + Net current Transfers from rest of
● the world.
● OR
● = Gross NDI – Depreciation.
● Concept of Value Added of One Sector or One Firm
● 1. Value output = Sales + Change in Stock. or value of output = price × qty. sold + ΔS.
● 2. Gross value added at market price = Value of output – Intermediate
● consumption.
● 3. Net value added at market price = – Depreciation.
● 4. Net value added at factor cost = – Net indirect tax.
● Note: By adding up of all the sectors, we get or Domestic Income.
● Personal Disposable Income from National Income
● Private Income :Private income is estimated income of factor and transfer incomes from all
● sources to private sector within and outside the country.
● Personal Income :It refers to income received by house hold from all sources. It includes
 ● factor income and transfer income.
● Personal Disposable Income :It is that part of Personal income which is available to the
● households for disposal as they like.
● GDP and Welfare :
● In general GDP and Welfare are directly related with each other. A higher GDP implies that
● more production of goods and services. It means more availability of goods and services. But
● more goods and services may not necessarily indicate that the people were better off during
● the year. In other words, a higher GDP may not necessarily mean higher welfare of the
● people. There are two types of GDP:
● Real GDP : When the goods and services are produced by all producing units in the domestic
● territory of a country during an a/c. year and valued these at base year’s prices or constant
● price, it is called real GDP or GDP at constant prices. It changes only by change in physical
● output not by change price level. It is called a true indicator of economic development.
● Nominal GDP : When the goods and services are produced by all producing units in the
● domestic territory of a country during an a/c. year and valued these at current year’s prices
● or current prices, it is called Nominal GDP or GDP at current prices. It is influenced by
● change in both physical output and price level. It does not consider a true indicator of
● economic development.
● Price index plays the role of deflator deflating current price estimates into constant price
● estimates. In this way it may be called GDP deflator.
● Welfare mean material well being of the people. It depends on many economic factors like
● national income, consumption level quality of goods etc and non-economic factor like
● environmental pollution, law and order etc. the welfare which depends on economic factors
● is called economic welfare and the welfare which depends on non-economic factor is called
● non-economic welfare. The sum total of economic and non-economic welfare is called social
● welfare. Conclusion thus GDP and welfare directly related with each other but this relation is
● incomplete because of the following reasons.
● Limitation of percapita real GDP/GDP as a indicator of Economic welfare :
● Non-monetary exchange
● Externalities not taken into GDP but it affects welfare.
● Distribution of GDP.
● All product may not contribute equally to economic welfare.
● Contribution of some products may be negative.
● Inflation may give falls impression of growth of GDP.

CBSE Class–12 economics

Revision Notes
Macro Economics 06
Money and Banking
Money: Money may be defined as anything which is generally acceptable as a medium of
exchange and at the same time acts as a measure, store of value and standard of deferred
payment.
Functions of Money:
1. Primary Functions
a. Medium of exchange
b. Common measure of value or unit of value
2. Secondary Functions
a. Standard of deferred payment
b. Store of value
c. Transfer of value
3.Contingent Functions
a. Basis of credit
b. Liquidity
c. Basis of price mechanism
d. Maximum profit to the producers
e. Maximum satisfaction to the consumers
f. Basis of distribution of income
Barter Exchange: It implies the direct exchange of goods for goods without the use of
money.
Difficulties involved in the Barter Exchange:
1. Lack of a common measure of value.
2. Lack of double coincidence of wants
3. Lacks of standard of deferred payments.
4. Lack of store of value.
5. Lack of divisibility.
6. Difficulty in exchange of services
Supply of Money: Total stock of money (currency notes, coins and demand deposit of banks)
in circulation are held by the public at a given point of time.
Supply of money does not include cash balance held by central and state govt. and stock of
money held by banking system of country as they are not in actual circulation of the country.
Measures of Money Supply = Currency held by Public + Net Demand Deposits held by
commercial banks
M1 = C + DD + OD
C = Currency and coins with the public
DD = Demand deposits of the public with the banks
OD = Other deposits
M2 = M1+ Post office savings deposits
M3 = M1+ Time deposits of commercial banks
M4= M3+ Total deposits with the post office saving organisation excluding the deposits on
NSC
Banks:
Commercial Banks: Commercial Banks are financial institution who accepts deposits from
the public and provide loans facilities for investment with the aim of earning profit.
Functions of Commercial Banks
1. Primary functions:-
(a) Accepting deposits
(b) Advancing loans
(c) Discounting bill of exchange.
2. Secondary functions:-
1. Agency function
(a) Transfer of fund
(b) Collection of funds
(c) Purchase and sale of shares and securities on behalf of the customers
(d) Collection of dividend and interest
(e) Payment of bills and insurance premium on behalf of customers
(f) Acting as executor and trustee of will
(g) Acting as correspondent and representative of customer and provide letter of credit to the
customer.
2. General utility function
(a) Purchase and sell of foreign exchange.
(b) Issuance of travelers cheque.
(c) Safe custody of valuable goods in lockers.
(d) Underwriting of securities.
Central Banks: The central Bank is the apex institution of monetary and financial system of
a country. It makes monetary policy of the country in public interest. It manages, supervises
and facilitates the banking system of the country.
Functions of Central Banks
1. Bank of Issue
2. Banker to the Government
3. Banker’s Bank and Supervisor.
4. Controller of credit.
5. Lender of last resort
6. Custodian of foreign exchange reserves
MONEY CREATION OR CREDIT CREATION BY COMMERCIAL BANKS
CREDIT is defined as finance made available by one party to another party on a certain rate
of exchange.
The capacity of banks to create money or credit depends on (i) Amount of primary deposits
and (ii) Legal reserve ratio(LRR).
Legal Reserve Ratio(LRR):- is fixed by the central bank of a country and it is the minimum
ratio of deposit legally required to be kept as cash by banks.
Cash Reserve Ratio(CRR):- It is a part of LRR which is to be kept with the central bank.
Statutory Liquidity Ratio(SLR):- It is a part of LRR which is to be kept with the bank
themselves.
Commercial bank’s demand deposits are a part of money supply. Commercial banks lend
money to the borrowers by opening demand deposit account in their names. The borrowers
are free to use this money by writing cheques. According to definition demand deposits are a
part of money supply. Therefore, by creating additional demand deposits bank create
money. Money creation depends upon two factor: Primary deposits and Legal Reserve Ratio
(LRR). Deposit Multiplier = 1/LRR Total Deposit creation = Initial deposit X 1/LRR.
Repo rate : Repo rate is the rate at which the central bank of a country (Reserve Bank of
India in case of India) lends money to commercial banks in the event of any shortfall of
funds. Repo rate is used by monetary authorities to control inflation.
Description: In the event of inflation, central banks increase repo rate as this acts as a
disincentive for banks to borrow from the central bank. This ultimately reduces the money
supply in the economy and thus helps in arresting inflation.
Reverse repo rate : Reverse repo rate is the rate at which the central bank of a country
(Reserve Bank of India in case of India) borrows money from commercial banks within the
country. It is a monetary policy instrument which can be used to control the money supply in
the country.
Description: An increase in the reverse repo rate will decrease the money supply and viceversa, other
things remaining constant. An increase in reverse repo rate means that
commercial banks will get more incentives to park their funds with the RBI, thereby
decreasing the supply of money in the market.

CBSE Class–12 economics

Revision Notes
Macro Economics 07
Determinations of Income and Employment
Aggregate Demand refers to total value of all final goods and services that are planned to
buy by all the sectors of the economy at a given level of income during a period of time. AD
represents the total expenditure on goods and services in an economy during a period of
time.
Components of Aggregate demand are:
(i) Household consumption expenditure (C).
(ii) Investment expenditure (I).
(iii) Govt. consumption expenditure (G).
(iv) Net export (X – M).
Thus, AD = C + I + G + (X – M)
In two sector economy AD = C + I
Aggregate Supply is the money value of all final goods and services available for purchase
by an economy during a given period. It is the flow of goods and services in the economy.
Since, money value of final goods and services is equal to net value added, AS is nothing but
the national income.
AS = C + S
Aggregate supply represents the national income of the country.
AS = Y (National Income)
Consumption function shows functional relationship between consumption and Income.
C = f(Y)
where C = Consumption
Y = Income
f= Functional relationship.
Equation of Consumption Function
C = + MPC * Y
C = Consumption
= Autonomous consumption.
MPC(b)= Marginal Propensity to consume
does not changed/affected by change in income. It is minimum level of consumption ,
even when income is zero. Consumption expenditure at zero level of income is called
autonomous consumption. It is income inelastic.
Induced consumption is the expenditure which is affected by change in income. It is
indicated by MPC × Y. Induced consumption is the portion of consumption that varies with
disposable income.
Propensity to consume:- It is a schedule that shows consumption expenditure at different
levels of income in an economy.
Consumption function (propensity to consume) is of two types:
(a) Average propensity to consume (APC)
(b) Marginal propensity to consume (MPC)
Average propensity to Consume (APC): It refers to the ratio between total consumption(C)
and total income(Y) at given level of income in the economy
Important Points about APC
(i) APC is more than 1: as long as consumption is more than national income before the
break-even point, APC > 1.
(ii) APC = 1, at the break-even point, consumption is equal to national income.
(iii) APC is less than 1: beyond the break-even point. Consumption is less than national
income.
(iv) APC falls with increase in income.
(v) APC can never be zero: because even at zero level of national income, there is
autonomous consumption.
Marginal Propensity to Consume (MPC): Marginal propensity to consume refers to the
ratio of change in consumption expenditure to change in income.
Important Points about MPC
(1) Value of MPC varies between O and 1: If the entire additional income is consumed, then
ΔC = ΔY, making MPC = 1. However, if entire additional income is saved, than ΔC = 0, making
MPC = 0
(2) MPC is the slope of consumption curve and remain constant throughout in the short run.
(3) Value of APC > MPC
Saving function refers to the functional relationship between saving and national income.
S = f (y)
Equation of Saving function
S = +MPS.Y