Prelims High-Yield Explanations & Traps

• social goals unselfishly (in areas like employment, administration,
• element of human
• state
• sector in our study
• features of a capitalist economy?
• consideration but even then the resource had to
• here that some commodities like television sets, automobiles
• to introduce the concepts of stocks and flows
• purchase of shares or property or even having an insurance policy has
• here is the element of
• of production (b) production takes place for selling the output in the market (c) there is sale and purchase of labour services at a price which is called the wage rate (the 2021–22 77 77 7 Introduction labour which is sold and purchased against wages is referred to as wage labour)
• of production InputsLand LabourCapital EntrepreneurshipInvestment expenditure Wage labourCapitalist country or capitalist economy FirmsCapitalist firms OutputHouseholds GovernmentExternal sector ExportsImports KKKK K ey Conceptsey Conceptsey Conceptsey Concepts ey Concepts 2021–22 National Income AccountingNational Income Accounting National Income AccountingNational Income Accounting National Income Accounting In this chapter we will introduce the fundamental functioning of a simple economy

Essential Definitions & Formulas

What would be reasonable indicators to show that the economy

better or worse? What steps, if any, can the State take, or the people ask for, in order to improve the state of the economy? These are the kind of questions that make us think about the health of the country’s economy as a whole.

Adam Smith

regarded as the founding father of modern economics (it was known as political economy at that time).

It

not from the benevolence of the butcher, the brewer, of the baker, that we expect our dinner, but from their regard to their own interest.

This school of thought

known as the classical tradition.

The money that is earned

called revenue.

Part of the revenue

paid out as rent for the service rendered by land, part of it is paid to capital as interest and part of it goes to labour as wages.

The rest of the revenue is the earning of the entrepreneurs and it

called profit.

Introduction labour which is sold and purchased against wages

referred to as wage labour).

Wage labour is seldom used and most of the labour

performed by the family members themselves.

Production

not solely for the market; a great part of it is consumed by the family.

It

to be noted that in a capitalist country the factors of production earn their incomes through the process of production and sale of the resultant output in the market.

The external sector

the fourth important sector in our study.

This

what distinguishes it from microeconomics; which mostly examines the functioning of the particular sectors of the economy, assuming that the rest of the economy remains the same.

What

the difference between microeconomics and macroeconomics? 2.

It

not that countries which are endowed with a bounty of natural wealth – minerals or forests or the most fertile lands – are naturally the richest countries.

When it is used in further production it often loses its characteristic as that specific good and

transformed through a productive process into another good.

Such an item that is meant for final use and will not pass through any more stages of production or transformations

called a final good.

But cooking at home

not an economic activity, even though the product involved undergoes transformation.

Home cooked food

not sold to the market.

Thus it

not in the nature of the good but in the economic nature of its use that a good becomes a final good.

Related PYQs (6)