Secondary Production: This involve the transformation or conversion of basic raw materials or semi- finished

goods into final forms that are acceptable to the consumers.

Tertiary Production: This is concerned with the provision of commercial and professional services to the people.
The goods produced at the primary and secondary production level are distributed to the people for consumption are
those people involved in the aspect of production are those in the commercial service like, wholesalers, retailers,
transporter, are well known as those involved in rendering services like doctors, lawyers e.t.c

FACTORS THAT DETERMINE THE VOLUME OF PRODUCTION

1. Availability of natural resources
2. Availability of capital
3. Technology
4. Factors of Production
5. Transport Facilities
6. Efficiency the people
7. Climate
8. Political conditions
9. Methods of organization
10. Storage facilities

IMPORTANCE OF PRODUCTION
 Helps in creating value by applying labour and on land and capital
 Improves welfare as more utility
 Generates employment ‘and income, which develops the economy
 Helps in understanding the relations between cost and output
 Increase in export potential

FACTORS OF PRODUCTION
These are agents, inputs, component or resources that are used for producing the final output with the aim of earning an
economic profit. There are four factors of production. These are:
 Land
 Labour
 Capital
 Entrepreneur

LAND
Land is a gift of nature and the dry surface of the earth and natural resources on or under the earth’s surface such: as
forest, river, mineral resources e.t.c. The reward for land is rent

CHARACTERISTICS OF LAND
1. Land is a free gift of nature
2. Land is immobile
3. Land is heterogeneous
4. The supply of land is fixed
5. Land is subject to diminishing returns
 IMPORTANCE OF LAND
1. As collateral security
2. Sources of mineral
3. Social or recreational purposes
4. For industrial buildings
5. Construction purposes

LABOUR
Labour is the physical and the mental effort of human beings that undertake the production process. It includes
unskilled labour also called brown collar job, semi-skilled and skilled labour also called white collar job. The return for
labour is called wages and salary.

CHARACTERISTICS OF LABOUR
 Human effort
 Labour is perishable
 Labour is mobile
 Labour as poor bargaining power
 Labour is an active factor

IMPORTANCE OF LABOUR
I. Provision for personnel
II. Operation of machines
III. Production of goods and services
IV. It influences other factors of production actively
CAPITAL
Capital is the wealth created by human beings. It is one of the important factors of production of any kind of goods and
services, as production cannot take place without the involvement of capital. Capital is an output of a production
process that goes into another production process as an input. Capital as a factor of production is divided into two
parts, namely:
 Physical capital
 Human capital
Physical capital includes tangible resources, such as buildings, machine, tools and equipment e.t.c
Human capital includes knowledge and skills of human resources, which is gained by education, training and
experience. Return for capital is termed as interest

TYPES OF CAPITAL
I. Fixed capital
II. Circulating capital
III. Real capital
IV. Human capital
V. Tangible capital
VI. Individual capital
VII. Social capital
 CHARACTERISTICS OF CAPITAL
a) Capital is man made
b) Capital is subject to depreciation
c) It ensure large scale production
d) It promotes division of labour
e) Capital is durable
IMPORTANCE OF CAPITAL
 Capital facilitate production
 Capital boost efficiency
 It assist in location of industry
 It increases standard of living
 Production of quality goods

ENTREPRENEUR
An entrepreneur can be defined as the factor of production that co-ordinates and organizes other factors
Of production (Land, Labour and Capital) in order to produce goods and services.
Entrepreneur is a person who creates an enterprise.
An enterprise is an organization that undertakes commercial purposes or business ventures and focuses on
providing goods and services.
Entrepreneurship consists of three major functions. These are:

1. Co-ordination
2. Management
3. Supervision

CHARACTERISTICS OF ENTREPRENEUR
1. Risk bearer
2. Organization
3. Decision making
4. Control other factors

IMPORTANCE OF ENTREPRENEUR
1. Initiating business entreprise and resource co-ordination
2. Risk bearing or uncertainty bearing
3. Innovation
4. Efficient management
5. Efficient organization
6. Provision of capital

CAPITAL FORMATION OR ACCUMULATION

Capital formation refer to increasing a country’s stock of real capital. It refers to increasing the net investment
in form of fixed assets.
Vicious circle of poverty implies that poverty is the cause of poverty. A poor person, in order to repay his
existing debt, will borrow some more, thereby adding to his debt. Further, he will also incur interest payment
obligations. This will only increase his total amount of debt.
Low income Low saving
Low output
Low investment Low investible capital
 CAUSES OF LOW CAPITAL FORMATION IN WEST AFRICAN COUNTRIES
1. Existence of a vicious circle of poverty
2. Wasteful expenditure
3. Low savings
4. Inequitable distribution of income ‘
5. Higher prosperity to consumer

CAPITAL CONSUMPTION
Capital consumption refers to the using up of existing capital stock and not replacing worn-out capital goods used in
production

EXTERNAL ECONOMIES AND EXTERNAL DISECONOMIES

External economies are the benefits a firm derives from concentration or localization of industries in a particular area .
External diseconomies refer to the dis economies refers to the disadvantages a firm experiences when the activities of
one or more industries increase the cost of production or output of that firm within the same location.

DIVISION OF LABOUR AND SPECILISATION

Division of labour is the breaking down of a production process into a number of separate operations, whereby each
operation is undertaken or performed by one person or a group of people
Specialization is the concentration of the productive efforts of an individual, a firm or a country in a given aspect of
economic activity or on a particular line of production in which it has the greatest advantage over others

TYPES OF SPECILIZATION
a) Specialization by process: This is a type of specialization in which a production process is divided into
different operations or stages and each worker, or firm or country now concentrates on only one operation or
stage.
b) Specialization by sex: This is the type of specialization in which certain occupation are exclusively either for
males or females as dictated by custom, tradition or by law.
c) Specialization by product: This is the type of specialization in which a producer (individual, a firm or
government) concentrates on the production of a particular commodity.
d) Geographical or territorial specialization: This is the type of specialization in which certain geographical
region or territory specialize in the production of a particular commodity

ADVANTAGES OF DIVISION OF LABOUR AND SPECIALIZATION

1. Time saving
2. Less fatigue
3. Large scale production
4. Creation of employment
5. It leads to specialization
6. Production of standard of goods
7. Lower unit of cost
8. Increase in production
9. Economy in the use of tools
10. Development of greater skill
 DISADVANTAGES OF DIVISION OF LABOUR AND SPECIALIZATION

1. Monotony of repetition
2. Decline in craftsmanship
3. Reduction in employment opportunities
4. Problem of mobility of labour
5. Problems from increased interdependence

LIMITATION TO DIVISION OF LABOUR AND SPECIALIZATION

1. The size of the market.

2. The nature of the product.
3. Level of technology.’
4. Availability of capital.
5. Government policy.

FIRMS (SMALL AND LARGE)

A firms may be defined as an independently administered business unit which is capable of carrying out production,
construction or distribution activities. Firms may be small or large depending on capital outlay and the level of
production.

CHARACTERISTICS OF SMALL AND LARGE FIRMS

SMALL FIRMS

1. It requires small capital outlay.

2. They are mainly involved in primary production, agriculture and some different services.
3. They require small market due to low output of goods.
4. They usually employ few workers.
5. They employ simple techniques as most of the operation are manual.

LARGE FIRMS

1. They require large capital outlay.

2. They are mainly involved in secondary and tertiary production.
3. They require large market because of their high output of goods.
4. They usually employ large number of workers.
5. They employ heavy techniques, with machinery and equipment.

ECONOMIES OF SCALE OR SCALE OF PRODUCTION

Economies of scale id the growth of the4 expansion of the volume of productive capacity resulting in the increase in
output and a decrease in its cost of production per unit of output.

TYPES OF ECONOMIES OF SCALE.

1. Internal economies and internal diseconomies.

2. External economies and external diseconomies.
 Internal economies is also known as economies of large scale production is the advantage which a firm derives or
obtains as a result of its increase in size and expansion of its output.
Internal diseconomies is the disadvantages which a firm undergoes as a result of expansion, resulting in less
efficiency and increase in the cost per unit of output as a result of managerial problems.

CLASSIFICATION OF INTERNAL ECONOMIES.

1. Financial economies: A large business firm or unit can easily raise fund from bank or other sources, purchase raw
materials in bulk at a cheaper rate of the finished product.
2. Marketing economies: A large firm can buy raw materials in bulk, produce in large quantities and distribute to
many areas where they are required.
3. Risk-bearing economies: A large firm is more likely to withstand losses as a result of certain risks taken than a
smaller firms.
4. Specialization economies: As a result of increase in size and strong financial base, a firm, through division of
labour, enables individuals to specialize in certain operation.

LIMITATIONS TO THE SCALE OF PRODUCTION

1. Extent to the market

2. Availability of capital
3. Increased risks
4. Nature of business
5. Increasing management costs.

PRODUCTION POSSIBILITY CURVE

Production passivity curve is also known as production possibility boundary(PPB) and also production possibility
frontier. PPC is a curve on a graph that illustrates the possible quantities to be produced of two products if both depend
upon the same finite resource for their manufacture.
PPE refers to a graph or a curve showing the possible combinations of different commodities that can be produced
in a given economy, given the prevailing level of technology, if all the available productive resources are efficiently
utilized.
PPF is that in order to produce a particular commodity, the production of another commodity has to be
sacrificed. It has a downward slope from left to right, indicating that there is an opportunity cost of producing more of
one type of commodity.
A
F

Good A

D
Good B
 The points show how much of each good will be produced when resources shift, thus impacting more
production of one good and less of the other. It doesn’t indicate how much of each good should be produced, but the
production sacrifice needed to make more of the other good. It demonstrates the concept of opportunity cost.
Point A, more of goods A are being produced and none of goods B are being produced .
Point D, none of goods A are being produced and more of B are being produced.
Point F, any point outside the PPF curve is impossible, more of both goods cannot be produced with current
resources.
Point E, all resources are not being used.

CONCEPT OF PRODUCTIVITY
Productivity is the ratio between the output volume and the volume of inputs. It measures how efficiently production
input such as labour and capital are being used in an economy to produce a given level of output.
CONCEPT OF TOTAL AVERAGE AND MARGINAL PRODUCTIVITY
1. Total product: it refers to the total amount of output that a firm produce within a given period, utilizing given
inputs.
TP=AP* Labour
Question: if 50 men were employed in a farm and they produce an average of 20 tons of cassava per person. Calculate
the total product.
T.P=AP *L =50*20=1000

2. Average product: It refers to the output per unit of the variable factors (Labour and Capital) employed
AP= Total product
No of labour or Capital employed
Question: if 5000 tons of cassava were harvested by 50 men in a farm land daily basis. Calculate the average output.
Solution
AP= T.P = 5000 =100tons
Q 50
3. Marginal product: This is an addition to total output brought about as a result of the employment of an addition
unit of a variable factor.

Marginal product = Changes in Total production TP1-TP2

Changes in Variable Factor VF1-VF2
Question: If 5,100 tons of cassava were harvested from the same form as a result of an additional man to the 50 men,
calculate the marginal product
Solution
MP= 5100-5000 =100 =100
51-50 1
 RELATIONSHIP BETWEEN TOTAL, AVERAGE AND MARGINAL PRODUCT
The total product (TP) curve, in the beginning increases at increasing rate later at decreasing rate, reaches maximum
and starts falling. The average product curve rises in the beginning, reaches maximum with the increase input and
output. The marginal product (MP) rises, reaches maximum level before AP and falls it becomes zero when TP is
maximum. When TP starts falling the MP curve crosses x-axis to become negative.

Y
T.P
Production
TP

M.P
Input

A.P

M.P

LAW OF DIMINISHING RETURNS

Law of diminishing returns is also known as law of diminishing marginal productivity. States that in productive
processes increasing a factor of production by one unit, while holding all other production factors constant, will at
some point return a low unit of output per incremental unit of input.

PRODUCTION FUNCTION
This is the equation that the expresses the relationship between the quantities of productive factors (such as labour and
capital) used and the amount of product obtained. It states the amount of product that can be obtained from every
combination of factors, assuming that the most efficient available methods of production are used.
The general production function formula is: Q= F(K,L)
Q is the output quantity,
L is the labour
K is the capital invested for production of the goods
A
Output

Input

The graph shows the short run functional relation between the output and only one input i.e labour, by keeping other
inputs constant. The x-axis represents the labour (independent variable), and y-axis the quantity of output (dependent
variable).
The curve start from the origin O, indicating zero labour. It get flattered with the increase in labour. One can notice that
with increasing in labour, the level of output to a level. Further, it curves downwards. It is because the increase in
capital stock leads to lower output as per the capital’s decreasing marginal product. In short, the short-runcurve slopes
upwareds till the product reaches the optunum condition, if the producers add more lavour further, the curve slopes
downwards due to diminishing marginal product of labour.

TYPES OF PRODUCTION FUNCTION

There are two main types of productivity functions based on the input variables, such as:

1. Long run: in the long run production, all the inputs are variable such as labour or raw materials during a certain
period.
2. Short-run: the firm cannot vary its input quantities in the short-run production function. The law of variable
proportion gets applicable here. There is no change in the level of activity in the short-run function

RETURNS OF SCALE
Return to scale describe what happens to long-run returns as the scale of production increases, when all input levels
including physical and capital usage are variable (able to be set by the firm)

TYPES OF RETURNS TO SCALE

There are three possible types of returns to scale:
1. Constant returns to scale: If output increases by the same proportional change as all input change.
2. Decreasing return to scale: If output increases by less than the proportional change in all inputs
3. Increasing return to scale: If output increases by more than the proportional change in all input

ISOQUANT –ISOCOST
Isoquant broken down in latin, means equal quantity, with “ISO” meaning equal and “QUANT” meaning quantity.
Essentially, the curve represents a consistent amount of output. It may also be called an iso- product curve. An isoquant
shows combination of capital and labour and technological tradeoff between the two. How much capital would be
required to replace a unit of labour at a certain production point to generate the same output. Labour is often placed
along the x-axis of the iso-quant graph, and capital along the y-axis.
15 -a

12 -b

9 -c

3
1 2 3 4 5

The graphs show that, factors k represents capital, and factor l stands for labour. The curve shows that when a firm
moves down from point a to point b and it uses one additional unit of labour, the firm can give up of unit capital
(k)and yet remain the same isoquant at point b if the firm hires another unit of labour and moves from point b to c, the
firm can reduces its use of capital by the three units but remain on the same isoquant.
PROPERTIES OF AN ISOQUANT CURVE
 An isoquant curve slopes downward, or is negatively sloped
 As isoquant curve, because of the (MRTS) marginal rate technical substitution effect, is convex to its original
 Isoquant curves cannot be tangent or intersect one another
 Isoquant curves in the upper portions of the chart yield higher outputs
 An isoquant is oval shape

ISOCOST
Isocost line shows all combination of inputs which cost the same total amount

The isocost line is combined with the isoquant map to determine the optional production point at any given level of
output. The equation of the isocost line is:
C=r*k+w*l
Where k= the amount of capital employed
r= the rental rate of capital
l= the amount of labour employed
 PROPERTIES OF ISOCOST
The isocost line’s properties include assisting the firm in producing a specific output at the lowest possible cost and
assisting them in adjusting between two inputs when the price of one input changes. It helps the firm to produce given
output at minimum cost.
The equation of the isoquant
MRTS(LK)= K = MPL
L MPK

K=capital, L= labour MP= marginal production of each input

K
= Amount of capital that can be reduced when labour is increased
L

QUESTION:
1. The shape of the production possibility frontier is __________________
a) Law of return to scale b) law of diminishing return c) factors of production d) technology
2. The sector which contribute higher to the economy is ________________
a) Primary sector b) secondary school c) tertiary sector d) education sector
3. External economies arises essentially from ________________
a) A firm individual policies b) localization of industry c) government economies d)free policy transferability of
shares
4. Which of the following persons is engaged in secondary production?
I – a bricklayer II- an automobile assembly line worker III- an accountant IV- a cinema projectionist
a) I only b) I,II c) II,III d)I,II,III,IV
5. Let capital formation =CF, production =P, C= consumption then C.F= ___________
a) P-C b) P+C c) PC d) P/C
6. The last link in the channel of distribution is ____________
a)producer b) retailer c) consumer d) wholesaler
7. The diagram below represent a production function. At which of the point does diminishing returns set in _______

8. In the history of economic of concept of division of labour is usually associated with ____________
a) Kari Marx b) Adam Smith c) David Ricardo d) J.M. Keynes
9.
 TAXATION
Taxation is defined as the act of imposing a compulsory levy by the government on the income of individuals,
firms, goods and services. It is a compulsory payment by each eligible citizen towards the expenditure of the
country.
FEATURES OF TAXATION
1.It is a compulsory levy that must be paid by individual or corporate bodies
2.It is a payment made as a sacrifice
3.It is ‘levied only by the government or its agency
4.It is means for the general welfare of everybody
5.Tax payment has age limit
REASON FOR THE IMPOSTION OF TAXES BY THE GOVERNMENT
1. To raise revenue for the government
2. Taxation is used to redistribute income i.e to lower or reduce the income gap between the rich and the poor
3. To stop or discourage the importation of dangerous and harmful goods e.g: cigarettes
4. Taxation is used as a fiscal device to control the economy
5. To encourage industrialization

PRINCIPLE OF TAXATION
 Principle of equity: it emphasis that the tax is imposed must be in consonance with the tax payer’s ability to
pay
 Principle of certainly: the tax payer must know how much he/she to pay, in what medium, where, and how the
tax is to be paid
 Principle to convenience: the method and time of tax collection should be convenient to the tax paye. e.g
wages| salaries earners at the end of the month, farmers during harvesting period
 Principle of economy: the cost of collection of taxes should be small relieve to the amount collected
 Principle of flexibility: a good tax system should be capable of being changed when conditions and situation
warrant such
 Principle of neutrality: a good tax system should not be a disincentive to enterprises or productivity ie it should
not interfere unnecessary with the supply and demand for goods, service and labour
 Principle of simplicity: a good tax system should be simple enough for easy understanding
 Principle of importality: there should be no discrimination in the collection of taxes
 Difficult to evade: a good tax system should ensure that tax evasion\tax accordance are kept a minimum

SYSTEM OF TAXATION\ FORM OF INCOME TAX

1. Proportional tax: This is a form of income tax in which the same rate of tax is applied to the respective income
payers
2. Progressive tax: In this case, the percentage levied (tax rate) increase with the size of one’s income
3. Regressive tax: In this case, the proportion removed as tax from one’s income decrease as the person’s income
i.e The higher the income, the lower the rate of tax e.g poll tax, indirect tax e.t.c. A regressive tax aggravate
inequalities of income of distribution.

TYPES OF TAXATION
Taxes are divided into two broad categories namely:
1. Direct taxes
2. Indirect taxes
 Direct taxes: It is the type of tax which is implied directly on income of individual or organization by the
government or its agency. The burden of direct tax is borne by the player. Examples of direct tax are :
a) Income tax
 b) Company tax
c) Capital gain tax
d) Poll tax

ADVANTAGES OF DIRECT TAXES

I. They are progressive in nature
II. The incidence of direct tax is easy to ascertain
III. They are easy to calculate
IV. Payers find them convenient to pay
V. Some specific group of people, or business could be granted exemption from payment of direct tax
DISADVANTAGES OF DIRECT TAXES
i. They discourage savings
ii. They discourage investment
iii. They are difficult to asses (determined with accuracy) e.g company tax
iv. Cases of tax evasion is high (frequency)
v. They discourage hard work
ECONOMICS EFFECT OF DIRECT TAXES
i. It discourages savings
ii. It discourages hard work
iii. It leads to a redistribution of wealth
iv. It reduces capital available for a company in form of retained profits
v. It disadvantages investment and this would in turn cause unemployment

INDIRECT TAXES
This is the tax levied on goods and services. They are initially by either the manufacturer or importer of the good who,
as far as possible shifts the burden to the consumer in form of high prices. Example of indirect taxes are custom duties
(import duty and export duty) excise duty, purchase tax, e.t.c
CLASSIFICATION OF INDIRECT TAX
This classification reflects the different methods of calculating custom duties:
a) Specific tax: The amount difference of tax to be paid depends on the quantity on the quantity of the goods
bought so that the greater quantity goods bought the greater the tax to be paid
b) Advalorem tax: The amount of tax to be paid depends on the value or quantity of the commodity
ADVANTAGES OF INDIRECT TAXES
 Their collection is less difficult
 They cause less squabbles
 It yields more revenue to the government than direct taxes
 They are not easy to evade
 They burden is shared among all section of the society
DISADVANTAGES OF INDIRECT TAXES

 It causes inflation
 It may cause scarcity of goods
 They are unreliable sources of revenue
  Indirect taxes are regressive in nature
ECONOMICS EFFECT OF INDIRECT TAXES
1. It can lead to inflation
2. It encourages smuggling
3. It reduces production
4. It discourages investment
5. It can lead to changes in the consumption pattern
PROBLEMS ASSOCIATED WITH TAX COLLECTION IN NIGERIA
I. Corruption and non-challant attitudes of revenue officers tax collectors
II. Tax evasion and tax avoidance
III. Lack of proper accounting records by business enterprises
IV. Failure to declare rent income especially those in private firms
V. Ignorance or illiteracy of mass poverty of the populace

TAX EVASION AND TAX AVOIDANCE

Tax evasion refers to an illegal attempt not to pay tax or pay less tax.
Tax avoidance refers to the efforts of a tax payer not to pay tax by finding a legal courses to reduce the amount paid as
tax
CONCEPT OF TAX BASE AND TAX RATE
Tax base refers to the items of the object which is tax i.e the amount of salaries and wages, income, profit, gain, or
asset upon which the calculation of tax to be paid is based.
Tax rate refers to the percentage that is applied to the tax base. i.e order to calculate the amount of tax payable by the
tax payer
INCIDENCE OF TAXTION
Incidence of tax: refers to the point where the tax burden finally rests. It is the final location of the tax burden in term
of the people who feels the financial pains of the tax payment.
Tax burden: refers to the onus, the psychologist paid effect as relate to the amount paid as tax. The burden of taxation
is the financial pain in parting with a proportion of one’s income as tax. The incidence or burden of taxation lives on
the person who finally pays the tax. There two type of tax incidence:
a. Formal incidence: This refers to where the initial burden of taxation lies. The payer of a direct tax. For indirect
taxes, the producer or the middle man bears the initial burden of taxation.
b. Effective incidence: This refers to who bears the ultimate or final burden of taxation. In the case of direct taxes the
payer bears the full burden of taxation. He bears both the formal and the effective incidence.

INCIDENCE OF TAXATION AND ELASTICITY OF DEMAND FOR GOODS

In the case of indirect taxes, the burden of taxation may be borne by the producer (seller) or the consumer, or it
may be shared between producer (seller) and the consumer. The extent to which the producer (or seller) or the
consumer will bear the burden of indirect tax will depend on the elasticity of demand for the commodity which is
taxed

1. Where the demand for the commodity is perfectly inelastic, the whole tax burden can easily be shifted the
consumer by the seller
2.Where the demand for the commodity is perfectly elastic, the seller or producer will bear the whole burden of
taxation. This is because any attempt to increase prices will make the demand for the commodity to fall to zero.
The tax burden cannot, therefore be passed to the consumer.
3.Where the elasticity of demand for the commodity is unitary, tax burden is shared equally between the producer|
seller and the consumer
 4.Where the elasticity of demand for the commodity is moderately elastic or moderately inelastic, the burden of
taxation between the producer (seller) and the consumer depending on the extent of the elasticity.

1.Progressive tax:

Income
2.Proportional tax:

Income
3.Regressive tax:

Income
1. Incident of indirect tax when demand is perfectly
 Tax is represented by AB. This tax increase the manufacture’s cost of production. Since the same quantity is purchased
irrespective of the price, the manufactural increase the price of the producer from P 1 to P2. The consumer bears the full
burden represented by rectangle
2. Incidence of indirect tax when demand is perfectly elastic

Quantity demand and supplied

Tax is represented by if. since the tax increases the manufacture’s (seller) cost of production ,the quantity supplied
decreased from Q1to Q2. However, the price remains at P since any attempt to increase price will make demand to drop
to zero. The manufacturer or seller therefore bears the whole tax burden represented by rectangle PEFG.\
3. Incidence of indirect tax when demand is moderately elastic of moderately inelastic.

Quantity demand and supplied

Quantity demand and supplied

 The producer or seller bears the tax, burden represented by P. Its while the buyer bears P 2 GHP. The producer therefore
bears the greater burden. The area which represented the burden some by the consumers is larger than that or the
producer or seller.

BUDGET
Budget may be defined as a financial statements of the total estimated revenue and the proposes expenditure of the
government in a given period usually a year.

Importance |Function | Uses of Budget

National budget is used to achieve the following
 It is used as a means of raising revenue
 It is used to control inflation
 It is used as a remedy of deflation or recession
 It is used to correct a balance of payment deficit
 It is used as a tool of economical planning
 Allocation of resources
Types of Budget
1.Balance budget: this is when are total estimated revenue is equal to the propose expenditure of the government
2.Surplus budget: this budget is called surplus budget when the total estimated revenue is more than the proposed
expenditure
3.Deficit budget: this is when the government total proposed expenditure for the period is more than the total estimated
revenue.
Economic condition warranty the adoption of different types of budget
1. A budget surplus is required in a period because it is adequate demand therefore reducing inflationary pressure
2. A deficit budget is used in the economy following instances:
a. To reduce unemployment by increasing aggregate demand
b. Finance emergency situation such as war
c. To remedy a deflation trend
NATIONAL DEBIT
This refers to the sum total debit own by a government of a country both internally and external. This may or not have
interest
REASON FOR NATIONAL DEBIT
1. To finance deficit budget
2. To manage emergency situation e.g flood, drought, epidemic, e.t.c
3. To prosecute war ie force the production of ammunties and war materials and other\
4. To correct unfavorable balance of payment
5. To service existing loans
INSTRUMENT OF GOVERNMENT BORROWING
1. Treasure bill-short term loan 90 days
2.Treasure certificate –medium term loan 2years
3.Development stock –long term
4.Stabilization
5.National saving scheme

EFFECTS OF NEW NATIONAL BUDGET

 It reduces the availability of foreign exchange
 It makes a country to be suitable to the dictates of creditors
 It makes it difficult for the country to source fresh ones
 A large domestic debt will influence the distribution of income in the country
 The servicing of an external debt will involve an out low of resources which can otherwise be used for economic
development

CAPITAL MARKET
This is a market for medium and long term loans the capital market serves the need of industries and the
commercial sector. It comprises all institution which are concerned with either the supply of or demand for long
term loans. The capital market provides a system by which money for investment is distributed to institution which
requires funds for their further good.

FUNCTIONS OF CAPITAL MARKET

 It helps to provide long term loan to investors
 It helps to mobilize savings for investment purpose
 It helps to enhance the growth and development

NATIONAL INCOME
An individual and firms keeps accounts of their economic activities such as their annual report while shows all their
activities during the past years. countries to like individual and the firms do record and keep their financial activities.
National income can be defined as the monetary value of the total volume of goods and services produced by a country
in a year. It is the money value of the total income earned by all the factors of production in a given country over a
period of time usually a year.it is the sum of total money value of all individual expenditure on goods and services at
the market price.
The national income is the differences from the income of government which refers to the revenue the government
raise through taxation and borrowing.
CONCEPT OF NATIONAL INCOME
1. Gross domestic product: this is the total monetary value of all the goods and services produced in a country in
a year by all residents of that country regardless of whether they are citizen or foreigners. It relates to a close
economic that is it expected the earning of invest of citizen abroad but include the earning of foreigners or any
unforeign investment in the country. It can be measured as a factor (adding together of production) or at the
menu price. G.D. P=C+I+G+NX.
C= consumption or all private consumer spending within the country economic including durable good and not durable
good.
G= the total government expenditure including salaries of government employers, road construction/repairing public
schools and military expenditure.
I= sum of a country’s investment or capital equipment and housing.
NX= net export or a country’s total export less total income. NX [Export-Import]. This is an expenditure approach.
Approach of G.D.P
 1. Expenditure approach: This is the most commonly used G.D.P formula which is based on money spend by
various good in the economic.
NX= [export-import]
G.D. P=C+G+I+(N-M)
2. Income approach: this G.D.P formula takes the total income generated by goods and services produced.
G.D. P= total national income + sales tax + deprecation + net foreign factor income.’
I). total national income: is the sum of all wages in rent, Interest and the profit.
II). Sales tax: consumer taxes imposed by the government on the sales of goods and services.
III). Depreciation: cost allocate4d to a tangible asset over it useful life
IV). Net foreign factor income: the differences between the total income that a country’s citizen and company
generate in foreign countries and the total income of foreign citizen and company in the domestic company.
Types of G.D.P
G.D.P can be measured in several different ways the most common method includes:
1. Nominal G.D.P: the total value of all goods and services produced at current market price. This include all the
chains in the price during the current market price. This include all the chains in the price during the current year
deflator x real G . D . P
due to inflation or deflation. The nominal G.D.P is calculated to be: Nominal G.D.P= .
100
2. Real G.D.P: The sum of all goods and services produced at constant price. The price used in determining the
gross domestic product are based on a certain base. Year or the previous year. This provide a more accurate
account of economic growth, as it is already inflation adjusted measurement meaning the effect of inflation are
noninal G . D . P 100 nominal
taken out. The real G.D.P is calculated to be: real G.D.P= x or
price level 1 deflator
3. Actual G.D.P: the real time measurement of all output of any interval or any given time. It demonstrates the
existing state of a business economy.
4.Potential G.D.P: it is the calculation of the country economy under ideal condition like a steady currency, low
inflation and full ideal condition with 100 percent employ across all sector steady currency and stable product
price.
5. GDP deflator: piece is a measure of a level of prices of all new domestic product, final goods and services
nominal GDP 100
economy in a year. And this is calculated. G.D.P Deflator= x
Real G . D . P 1
GROSS NATIONAL PRODUCT
This is the total money value of all the goods and services produced in a country in a year plus the net income from
abroad.
G.D. P= GDP+ Net income from abroad, or
GNP=C+I+G+X+Z
When C= consumption
I= investment
X=net export
Z=net income earned by domestic residence from overseas investment – net income earned by foreign
residence from domestic investment.

Assignment 1
Write out all the difference between G.D.P and G.N.P

NET NATIONAL PRODUCT (NNP)

The total value of finishing goods and services by a country’s citizen overseas and domestically-deprecation. The
money value of the total money of production i.e. the gross product after allowance have been made from
depreciation.
NATIONAL INCOME
This means the value of income of goods and services produced in a country during the financial year. It is the net
result of all the economical activity of any country during a period of one year and is the value in terms of money.
NI=C+G+I+X+F-D
Where C= Consumption
G=government expenditure
I= Investment
X=net export (export=import)
F= national residence of foreign product
D= national residence Domestic production

PERSONAL INCOME
This is refers to an individual total earning from wages, investment enterprise and other ventures.
Types of personal income
1. Nominal personal income: the amount of income received from one type of activity. Taxes and mandatory are
not included.
2. Disposable personal income: the amount of money that you actually used. It is the nominal income plus all
mandatory cost such as rental housing, fees of utility, etc. DPI=PI-personal tax (income tax) not tax payment
fine.
3. Real personal income: personal income whole inflation is taken into account. RPI is useful for calculating fixed
payment for an extended period of time.
RPI=DPI- inflation index
PER CAPITAL INCOME
Is also known as income per capital: this measure the average income earned per person in a given aea in a
national income
specified area. Per capita income=
population
Per capital income serves as an economic indicator of the level of standard of living and development.
REAL INCOME
Real income as the term of goods and services it will buy. Real income is also known as real wages. It measures
purchases power in the current after an adjustment for changes in price since a selected based year.
Mathematically.
i) wages-<wages X inflation rate>
ii) wages<it inflation rate>
iii)(i-inflation rate)x wages
formula for calculating national income using expenditure
Approach
NI=c+i+g+x-m+ subsides –taxes – depreciation
Assignment
1. Factors that determine the national income of the country
2. Reasons for measuring income
3. Problems of computing national income