Economics is the scientific study of the ways in which humans make choices about production, consumption and wealth. It is the Social Science of studying a balance between needs and available resources.
There are three concepts relating to production of a commodity.
Resources or means of production remain either in private ownership with full individual freedom to use them for the profit motive or they can be in collective ownership (government control) and can be used for the collective welfare of the society as a whole.
Human wants are satisfied by goods and services, which are carried through various economic activities. These goods and services are as diverse as wants. For example, when we are hungry, we take food. When we are thirsty, we take water. In a similar way we need many goods such as pen and paper to write, house to live in, chairs to sit, a washing machine to wash the clothes, a television to watch the programmes.
It is human nature to have many goods in life. There would be an endless list of such wishes or desires. One may desire a good house, a car, a computer, good food, decent clothes and so on. If one does not have enough money, then only one or two of these or none of these could be purchased. Which of our desires are to be fulfilled depends upon our capacity to pay or purchasing power.
Economics is a vast subject. So it is not easy to give a precise definition or meaning of economics as its scope and the area it covers are very large. Ever since, it emerged as a separate branch of study in social science, various scholars and authors have tried to give its meaning and objectives. With development of time and civilisation the definition of economics has undergone modification and change.
In India, government budget is normally presented in the Parliament in the month of February every year. The budget of a government is a summary of the item-wise intended or expected revenues and anticipated expenditures of the government during a fiscal year or financial year. In India, the financial year spans from 1st April to 31st March over two calendar years.
Production, consumption and investment are important economic activities of an economy. In carrying out these economic activities, people make transactions between different sectors of the economy. Because of these transactions, income and expenditure move in circular form. This is called circular flow of income.
India is a vibrant country with quite an impressive economic growth profile and as expected, improvement in economic growth and per capita income has translated, at least partly, into reduction in the level of poverty in the country. It is a fact that there has been a secular decline in the share of poor in the population.
Poverty is a situation when people are unable to satisfy the basic needs of life. The definition and methods of measuring poverty differs from country to country. The extent of poverty in India is measured by the number of people living below the Poverty Line.
After forty years of planned development after independence, India was able to achieve a strong industrial base and became self-sufficient in the production of food grains. In 1991, a crisis in the balance of payments led to the introduction of economic reforms in India.
India is a vast country with multiple problems faced by its population. The British ruled the country for nearly two centuries and exploited its resources for their benefit leaving the country reeling under absolute poverty. When the British left India in 1947 there was nothing to be proud of or be happy except for the freedom. The problems were many before the Indian government.
Each and every citizen of the country has a right to lead a decent life. Every body must be able to fulfil his minimum needs such as food, health care, housing, basic education, etc. However, India is a poor country where a large section of the population cannot afford all these.
The structure of India’s present day economy has its roots steeped in history, particularly in the period when India was under British rule which lasted for almost two centuries before India became independent on 15 August, 1947. The sole purpose of the British colonial rule in India was to reduce the country to being a raw material supplier for Great Britain’s rapidly expanding modern industrial base.
An open economy is one that trades with other nations in goods and services and also in financial assets. Total foreign trade (exports + imports) as a proportion of GDP is a common measure of the degree of openness of an economy. when goods move across national borders, money must move in the opposite direction.
People earn money to fulfil both their present and future needs. If they spend their whole income today then nothing will remain for future and then they won’t be able to satisfy their wants tomorrow. But if there is saving, then it can be used in future. So saving is the amount of income which is carried forward to future after meeting the current expenditure on goods and services and other things.
Money and banking go together. They are complementary to each other. A bank is an institution which accepts money from public as deposits and gives loans to them. Banking refers to accepting for the purpose of lending or investment of deposits of money from the public, payable on demand or otherwise and withdrawal by cheque, draft, order or otherwise.
In the past, when people were living in small societies and there was not much development as you see today. They were helping each other through barter system to mutually benefit one another. Barter system means exchange of one kind of goods and services for another kind of goods and services. There was no involvement of money in barter system.
The equilibrium price of a commodity is determined by the forces of demand and supply without any intervention of the government. But the price so determined may be so high that some consumers may not afford to buy the commodity at this price or it may be so low that the producers may not be willing to sell their products at this price or it may not even cover their cost of production of the commodity.
Market refers to the arrangement in a given area whereby buyers and sellers come in contact with each other directly or indirectly, to buy or sells goods. Buyers and sellers can carry on their transaction indirectly, through agents, telephone, mobile or internet. Whatever way the buyers and sellers interact, they do so to exchange goods and services for money. In the process, the price and quantity of the goods and services traded are also determined.
The buyers are able to buy a commodity only when it is available in the market. A commodity must be produced first, stored properly and transported to the market in order to be available for the buyers. Buyers buy these items from the sellers in the market. The original producer and the seller in the market could be the same person or different persons. If they are different, it simply means that the sellers in the market have procured these items from the original producers to sell them to the buyers in the market.
A producer has to work very hard to produce a good or service. He has to make a lot of effort in the process. In the beginning, the producer must arrange money to organise the production activity. Various factors in the form of land, labour, and capital are required to produce goods. These factors are not available for free. The producer must purchase them in the right quantity needed for production.
A firm is an individual production unit which produces goods and services for sale in the market. There are certain production units like charitable schools, charitable hospitals and government units provide services not to earn profit. They work for social welfare. Normally, a firm is concerned with the production of a single commodity.
After increasing temporarily for some time the marginal product of labour eventually decreases. In general, with continuous increase in the variable factor labour, its marginal product will increase initially till certain point is reached, but after that it will decrease and may become negative, keeping all other factors unchanged. This is popularly known as the Law of diminishing Marginal Product of labour.
Goods and services can be produced in more than one way. For example, the production of cloth can be made either with the help of hand loom or with the help of power loom. The first one is labour intensive technology of production and the second one is capital intensive technology of production.