TyroCity: Economics Notes

Meaning of Government Finance

TyroCity.com — Sun, 18 Aug 2013 05:41:42 +0000

Government finance is the deliberate manipulation of revenues and expenditures of the government. It is the financial plan of the government. The government uses the different types of revenues and expenditures as fiscal tools to achieve different objectives. The main objectives are high economic growth, price stability, favorable balance of trade and payment, equitable distribution of income and wealth, proper allocation of resources, balanced and stable economic growth and so on. The government should avoid inflation and deflation, recession or depression. Improper use of resources, price fluctuation, high inequality and so on. For all these things revenues and expenditures are increased and decreased as per the situation of the country.

Government finance has two sides, they are

Government revenues
Government expenditures

In government revenues, the money received by the government in the form of royalties, taxes, escheats, penalties, fines, cess etc are included. In the government expenditure we include development expenditure, administrative expenditures, diplomatic expenditure, difference expenditure, payments of public debts and interest and miscellaneous expenditure. They are used as fiscal tools to solve different economic problems.

Economics XI Questions

TyroCity.com — Sun, 18 Aug 2013 05:41:42 +0000

Meaning

Meaning of Government Finance

Relatively elastic demand

Economics 12 Notes — Sun, 08 Apr 2012 05:41:42 +0000

If the percentage change in quantity demand is greater than the percentage change in price is known as relatively elastic demand. For example 10% change in demand due to 5% change in demand; we can explain it by following figure

On the above figure, when price is OP then quantity demand for that commodity is OQ. When prices become P1 by increasing by 5% then quantity demand decreases from Q to Q1 by 10% and when price decreases by 5% to Po then quantity demand increases from Q to Qo by 10%.

Organization

Economics 12 Notes — Sun, 08 Apr 2012 05:41:42 +0000

The business organization is defined as a firm established and run to earn profit by producing and selling commodities. The main objective of every business organization is to earn profit. To maximize profit, each firm has to fulfill demand for goods or services made by consumers or other firms. For maximum profit, each firm must supply the quantity just equal for demand in the market and there must be maximum difference between revenue and cost of production. There are different types of organizations. There are mainly three types of organization. They are

Sole proprietorship
Partnership
Joint stock

Determinants of supply

Economics 12 Notes — Sun, 08 Apr 2012 05:41:42 +0000

Price: Supply is directly proportional to price. If price rises, supply increases and vice versa. It is because the firm can make more profit selling at higher price than at lower price

Prices of inputs: Supply is inversely related to the prices of inputs. Inputs are land, labor, capital and raw materials. Their prices are wage rate, rent rate, interest rate etc. if the prices of inputs rise then the cost of production also increases then the firm supplies less than before and vice versa.

Level of technology: Supply is positively related to the level of technology. If there is advancement in technology, the firm can produce and more at the same price but if there is destruction of technology due to any cause then supply decreases.

Resources available: Supply is positively related to resources available. If there is appropriate availability of resources, then the firm can produce and supply more quantity at the same price. But if there is depletion of resources supply decreases.

Expected profit margin: If there is more profit margins to the firm, the firm supplies more and vice versa but if the firm expects more profit in the near future, currently it supplies less and vice versa.

Taxes : Supply is inversely related to taxes. If there is high tax rate, there is less supply but if the government imposes less tax, supply increases (subsidies to increase supply).

Income elasticity of demand equal to one

Economics 12 Notes — Sun, 08 Apr 2012 05:41:42 +0000

If the percentage change in quantity demand is equal to percentage change in income is known as income elasticity of demand equal to one. We can explain on the basis of the given figure:

On the above figure, initial income is OI and quantity demand is OQ. When income is increased from I to I1 by 10% then the quantity demand is also increased from Q to Q1 by 10%.

Problem of cottage and small scale industry

Economics 11 Notes — Sun, 08 Apr 2012 05:41:42 +0000

1. Lack of rural infrastructure
Nepal’s rural area is sympathies and have no infrastructure life is extremely difficult and hard to earn livelihood. To run an industry, infrastructure is essential but Nepal lacks infrastructure.

2. Lack of skilled manpower

Nepal does not have sufficient manpower basically skilled one Brain drain is the main problem of Nepal. All skilled manpower move abroad which is the major problem.

3. Lack of modern technology

Farmers in our country use traditional method of farming. They do not know about modern technology. They totally depend upon tradition. They depend upon monsoon rain and use low quality seed.

4. Lack of credit facilities

Farmers are poor and there is no proper banking facility in Nepal which lends money in low interest. So, farmers depend upon money- lender, traders etc and charge very high rate interest.

5. Limited market

Due to lack of infrastructure (communication and transportation) farmers do not get opportunity to sell their product in reasonable price.

6. Intermediary Exploitation

Intermediary or middlemen are the price maker of Nepalese economy. They exploit the entire economy. They charge very amount to farmers and sell/supply to market in very huge amount. They are the profit maker and exploiter.

Protectionism

Economics 12 Notes — Sun, 08 Apr 2012 05:41:42 +0000

The doctrine of international trade with governmental intervention is called protectionism. According to it, the government must protect the national interest with tariff a non tariff barriers. Domestic consumer, industries and domestic socio-cultural values should be protected or preserved by the government through taxes, subsidies, and other different types of direct and indirect policy measures. The government may prohibit the export to make available in sufficient quantities in domestic market. Ti may promote export to earn money from the rest of the world. For it, it may impose taxes, less heavily or exempt or provide subsidies from the export. However on the import it imposes custom duty heavily and so on. Most of the less developed countries advocate in favor of protectionism.

Argument in favor of protectionism

Import independency:
If their protectionism, the countries that are less developed can compete with the developed countries. There is increase in export too. The domestic market will not be under the control of foreign industries.

No fear of colonization:
The countries that are import independent in nature, have no fear of being colonized. It is because foreign industries will not take the control of domestic market firstly, and then they will not control on domestic resources and government.

No dumping:
The developed nations will not be able to sell their cheap and wasted goods to the less developed countries and prices will be usually low.

National Identity:
Every county has its own socio-cultural and linguistic values. The people have their own identity and if there is protectionism, there will not be import of the products against such socio-cultural values and goods that are injurious to health and society.

Infant industries:
There may be industries just established. If there is protectionism, such infant industries will be able to compete with the foreign industries.

Less dispute:
The countries involved in protectionism, will have less dispute because they will have equal benefits from the trade to them.

Balance of payment:
The country can export more when there is protectionism and if there is decrease only in import. There is inflow of money in large amount than outflow of money. The balance of payment of the country becomes favorable.

Employment:
The import independent country can give employment opportunities to the people. There is high employment if the country can compete with other countries in international trade.

Proper use of resources:
If there is protectionism, the resources will used to produce the goods demanded in the domestic market. It may bring proper use of resources.

Argument against protectionism

No technical know-how:
If there exists protectionism then there exists many barriers and each country can’t easily import technical equipments, plants, machines, tools and manpower from other nations. It brings problems in consumption or use of these capital goods and human resource can thus limits in technical know how.

Lack of specialization:
Countries must use only those products which can be produced using local resources, technology and human resource. They can’t more benefit of specializing in the production of goods which can be produced using international resources, technology and human resource. No International specialization leads to improper allocation of world’s resources and leads to lesser production of goods under unfavorable conditions.

Lack of Varieties of products:
In the domestic market, large number of goods and services can’t be supplied and all required commodities cannot be produced within a single country because of lack of required resources in limited area. 4. Wide market: The domestic products can have wide market even in the foreign countries.

Small scale productions:
Since, domestic product cannot be sold in foreign market without any barrier, there is small scale production. It thus creates difficulty in raising the income level and employment level too. There is no completion among the local and foreign markets.

No compensation for lack of resources:
If there is protectionism then there arises lack of some resources which cannot be compensated by the resources available in the country. The resources cannot be easily imported either with manpower or exchanging with resources available in the country.

Low employment level:
Protectionism doesn’t help the country to create employment opportunities. Each product is produces only to fulfill domestic demand not to fulfill the demand in foreign market. Therefore, there is decrease in production and so there is lesser requirement of increment in labor in field of insurance, trade, industry, transportation and so on.

Less capital formation:
For the capital formation the investment is required. For the investment, investible fund is required. But the investible fund doesn’t easily come from export due to many barriers.

Not good diplomatic relationship:
The countries involved in protectionism do not give and take products and services benefitting each other. They will not have good diplomatic relationship.

No diversification and modernization:
The varieties of goods for luxury, efficiency, high productivity etc cannot be imported from different countries and the life is not made more luxurious, well facilitated and efficient.

Law of variable production

Economics 12 Notes — Sun, 08 Apr 2012 05:41:42 +0000

The law of variable production explains about the short run production phenomenon. In the short run if we want to change output we can change only variable factor but not the fixed factor.

This law states that, if we use more and more units of variable i.e. labor with given fixed factor i.e. capital then in initial phase total production increases at increasing rate to some extent and increases at decreasing rate then reaches to maximum and remains constant after that it start to decline at increasing rate.

This law is based on following assumptions:

Production technology remains constant
Labor is single variable factor which is homogeneous
There must be the possibility of changing the proportion of factors of production

We can explain this concept with the help of following table:

Fixed factor (i.e. Capital)	Variable factor (i.e. Labor)	TP	AP = TP/L	MP = ∆TP/∆L	Stage of Production
2	1	8	8	8	1^st stage
2	2	20	10	12
2	3	36	12	16
2	4	48	12	12
2	5	55	11	7	2^nd stage
2	6	60	10	5
2	7	60	8.57	0
2	8	56	7	-4	3^rd stage
2	9	45	5	-11	3^rd stage

The above table shows when the more and more labor are used then TP increases at increasing rate to some extent then increases at decreasing rate. AP gradually increases and reaches to maximum. MP sharply increases and reaches to the maximum and starts to decline> In second stage TP increases at decreasing rate, reaches to the maximum. AP gradually decline, MP tends to zero. In the third stage, TP starts to decline, AP gradually declines and MP negatively decline. The same concept can be explained by the given figure.

On the above figure we can observe three stage of production which is given below:

1. 1st Stage:
First stage covers 0 to L1. In this stage TP increases at increasing rate to point A and increases at decreasing rate. AP gradually increases and MP gradually increases, reaches to maximum and starts to fall. At the ending point of 1^st stage AP =MP.

In the 1^st stage increasing return to scale crop up due to the increase in efficiency of fixed factor and variable factor.

2. 2nd Stage:
Second stage covers L1 to L2. In this stage TP increases at decreasing rate and reaches to the maximum. AP gradually declines; MP also declines and reaches to zero. In the second stage diminishing return to scale crop up due to the imperfect substitution of factors of production and scarcity of resources.

3. 3rd Stage:
Third stage starts from L2. In this stage TP increases at increasing rate, AP gradually decreases, MP negatively declines. In the third stage negative return to scale crop up.

Features of agriculture

Economics 11 Notes — Sun, 08 Apr 2012 05:41:42 +0000

1. Sustenance farming

Nepal carries out sustenance farming rather than commercial. In the Nepali Market, demand of food is equal to its supply. In last 3-4 decades Nepal use to export wheat to Bangladesh but now its vice versa. The production of agro-products makes just equal to its demand.

2. Monsoon based agriculture

Due to lack of irrigation facilities, almost all the farmers depend upon monsoon rain. Nepal’s government has not made any irrigation plant till today. Only few places are reaching to irrigation facilities. Only 69.48% of land has irrigation facilities where only 50% of land or cultivable lands have year round facilities.

3. Predominance of food crops

Food crops are the type of crops that are basically used as primary source of food. Such as paddy, maize, etc. From centuries back in Nepal has been continuously growing more amounts of food crops and today also it shares around 48.9% of total food which is nearly half.

4. Traditional technology
Nepal is practicing traditional method of farming since past. To plough the field, we never use improved seed and pesticides. GON also does not have any attention towards it.

5. Low productivity

It’s obvious to have low productivity because farmers entirely depend upon monsoon rain which is uncertain. No proper irrigation facilities and traditional method of farming causes low production.

Labor division

Economics 12 Notes — Sun, 08 Apr 2012 05:41:42 +0000

Labor division

It is defined as assignment of different works to different workers in such a way so that the productivity or efficiency can be increased. It is the process of placing of right persons to right jobs. It is always made according to the nature of works and the qualities required and qualities the workers have. The works are different in nature. To perform different works, different qualities are required. Some are mental works whereas some are physical works. Labor division is made vertically and horizontally. The division of labor form MD to the workers is vertical labor division and division of labor between departments or sections or in different places is horizontal labor division.

Advantages of labor division:

It helps in the best selection of employed because each person gets the job over which he or she is best suited.
It helps in increasing production because work is divided into smaller parts
It helps in invention because when the same job is done by same man again and again then he/she can find better and quicker ways of doing it.
It helps in saving great time because a worker doesn’t have to waste time in moving from one part to another part of work.
It helps in saving of learning time because a worker has to do only a part of the work and s/he can learn that easily
Production becomes less expensive
It helps in increases cooperation and discipline amongst workers.
It facilitates greater mobility of labor. If the labor is depressed or there is strike in a factory the workers can easily go to another factory.
It helps in increasing efficiency of workers.

Disadvantages of labor division

It increases monotony amongst the workers.
It increases the dependence of worker. The worker becomes a link in a chain of various processes.
It reduces responsibility. No one can be held responsible for overall manufacturing defects because a worker is concerned with only a part of the job.
It results in many losses; loss of efficiency, loss of personality and mental development.
When the worker gets to do only a part of the job then s/he knows only that much and becomes an expert. S/he finds it hard to get job on other places.
There is no direct relationship between workers and the employers and there are large numbers of employees. This gives rise to conflict in return strikes may occur.

Meaning of Production

Economics 12 Notes — Sun, 08 Apr 2012 05:41:42 +0000

Meaning:
The process of transformation of input into output is known as production. In other words the process of creating utility is known as production.

Production Function:
Production function explains the technological relationship between inputs and outputs. It shows the functional relationship between physical input and output. Or it shows how much physical output can be produced by using the given physical input and given state of technology. Mathematically production function is expressed as
Q = F (L, Ld, C, M, T, N, ……..)
Where,
Q = quantity of output
F = functional relationship
L = labor
Ld = land
C = capital
M = management
T = technology
N = national resources

But generally production function is written as Q = F (L, C)

Production function is divided into two parts:

Short run production function:
Short run is short time period where producer can change the output only by changing labor not capital. So, in short run production function is written as Q = F(L, C)
Where,
Q = output
F = functional relationship
L = labor
C = constant capital
Long run production function:
Long run is the long time period and in the long time period producer can change all input to change the output. So, in long run Q = F ( K, L)
Where,
Q = output
F = functional relationship
K = capital
L = labor