TyroCity: Economics Notes

Economics XI Questions

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Meaning

Meaning of Government Finance

Meaning of Government Finance

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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.

Characteristics of Poor

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

1. Low income
Nepal is poor country and is enlisted in under developed country. In Nepal, more than 60% are illiterate among poor. Adult illiteracy rate is 57.2%, according to human development report 2010.

2. Education

Education is the process of getting knowledge poor people are not aware about education knowledge. So, they think providing education facilities to daughter is useless and son and does not send their daughter to educational institute which causes high illiteracy rate.

3. Housing condition

Housing condition of poor is extremely poor. Moreover, the condition of urban poor is worse than rural poor. Urban poor do not have their own house. They sustain their life on the basis of daily wage. Similarly, the life of rural poor is difficult. They live on small house.

4. Expenditure

The less income, the more expenditure. The expenditure exceeds income in poor. They spend more than 70% income merely in food and rest in other sector.

5. Large family size

Due to lack of education, poor people are not aware of family planning measures (birth control measures). So, they think begetting children is boon of god.

6. Property

The word poor automatically refer to those who do not have property or who have less property. They do not have sufficient land to earn their livelihood. So, they work on other’s land and earn their livelihood.

Labor

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

Labor is mental or physical service provided to others for economical reward. There should be economic objective behind the performance of any work. The economic reward paid to labor may be in any form like wage, salary, commission, bonus, provident fund etc. it is paid per unit of time and per the contract between an employer and an employee. The unit may be day, hour, week, month, and year and so on.

Features of labor

Indispensable factor:
Without labor, production is not possible. It must be used for production because only the other factors of production don’t give production.

Active factor:
Labor is active factor of production. It moves because it is associated with human beings. It activates capital and uses the other factors of production too.

Mobile factor:
Labor is mobile factor of production. It moves from the one place to another place from one organization to another organization. However, its mobility depends upon climate, culture, language, nationality etc. Its mobility is limited by these factors because human are related to these factors.

Laborer sells labor:
The person who provides mental or physical service to others is called laborer. The laborer sells service not him/her.

Not storable:
Labor is not storable. It is used once; the labor used in a time period is not usable in other time. The laborer obtains remuneration for his/her contribution only for labor service. If any work is not done s/he doesn’t obtain any amount.

Not perishable working strength:
Doing work the working strength doesn’t perish. It is restored with rest and refreshment in the regular interval of time.

Paid for productivity:
Generally laborer is paid for productivity. Productivity depends upon ability to work, willing to work and capacity of laborer.

Weak bargaining power:
Labor has weak bargaining power. In most the countries bargaining power of labor is least among the factor of production. However, it may have strong bargaining power if the trade unions are powerful.

Efficiency of Labor

“Efficiency of labor depends partly on the employer and partly on the employee, partly on the organization and partly on individual efforts, partly on the tools and machinery etc. with which the worker is supplied and partly on his skill and industry in making use of them.”

Efficiency refers to production capacity. It is classified into following types they are:

Racial Qualities –
Every person has different qualities acquired from race/community to which he/she belongs. The quality that A person accede to the skill of the parent/community by birth is called racial quality. And so s/he will be more efficient if he gets into the right trade that has been followed by his/her race since the history.

Individual Qualities –
If a labor has good physique, mental fitness, intellectuality, honesty and is responsive then s/he is supposed to be more efficient and qualitative than others. A worker, who is educated and trained, specialized than s/he is much more efficient.

Factory environment –
If the factory environment is healthy and there is sufficient space for movement of machines with proper flexibility then the efficiency will be higher. In addition to that, the climatic or weather conditions have much effect on the efficiency of the laborer. If the climate is too humid then he will get tired soon and his work efficiency will get disturbed.

Working Hours –
Effective working hours with pantry breaks and recreations always improves efficiency of labor.

Wages –
A laborer who is paid reasonable wage will have good efficiency than that of those who receives fewer wages. And also the event of reward and promotion to higher grade will increase efficiency of labor.

Cooperation –
Based on the social condition the cooperation amidst the workers are regarded.

Relationship –
There must be cordial relationship between employee and employer to increase the efficiency of labor.

Social Security –
In the event of injury, sickness or death of any worker must convince the worker that his family would be taken care of to cross the condition. This factor improves efficiency.

Political Stability –
If the state can maintain peace at home then this factor also helps one to work effectively.

Difference between Money and Capital Market

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

Basis	Money Market	Capital Market
Maturity of instruments	Less than one year	More than one year to 25 years
Risks	Less	High
Instruments	Treasury bills, bills of exchange, promissory notes	Bonds, debentures stock, etc
Finance	Short	Long
Relation with central bank	Direct	Indirect

Remedial Measures of poverty reduction

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

1. Population Control

Population is the total number of people living in a certain place for specific period of time. The more population, the more requirements of different aspects. To fulfill the need of huge population is not a simple task. But if the population is small then, fulfillment can be done. All can get job and other requirement. Finally, the number of poor decreases.

2. Industrialization

Industries are the main source of income and employment. Many people can be employment opportunities if the industries are established. Thus, the number of poor decreases with the increase in the number of industries.

3. Education

Educated people are aware about family planning measures, (birth spacing) and helps to reduce population growth. So, poor people should be provided education free of cost, and they should be aware about family planning measures.

4. Use of modern technology

People in Nepal use traditional method of farming. So, the productivity is low which includes about 49% of food crops. In order to increase productivity and standard of farmer, modern technology should be used.

5. Reduce in-equality

Vast inequality between rich and poor should be banished “Education for all”, should be implemented and maintained properly. Poor should also have equal right to go to school. So that all can know about negative impact of large population.

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.

Types of Bank

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

Central bank:
Central bank is the monetary authority or nation. It is the controller, regulator, monitor and supervisor of all kinds of financial institutions. CB issues notes. It is the bank of the bank, bank of the government, adviser of the government agent of the government.

Commercial Bank:
Commercial bank is established to provide short term loan to traders so it is called commercial bank. But at present commercial bank has been providing loan to several sectors like agriculture, industry, trade, tourism, etc. It has been providing not only short term loan rather providing medium and long term loan.

Agricultural Bank:
Agricultural bank is established for the development and modernization of agriculture sectors. It provides short term loan to farmers to purchase fertilizers, seeds as well as to pay wages. It also provides long term loan to farmers to purchase land and heavy agricultural equipment.

Industrial Bank:
Industrial bank provides industrial consultancy and loan for the establishment of industries. It also purchases, sales and underwrites the share and debenture of industries. Not only this as per the requirement it also invests in industries.

Exchange Bank:
Exchange bank deals with foreign currency and its objective is to help in international trade. It provides loan for foreign trade and helps in the settlement of debt between two countries. It provides loan to the importers by discounting their bills and remit the money of the importers to their parties.

Saving Bank:
Saving bank is established to collect the scattered saving of low income people and to mobilize their small savings. In this bank people open their account and there is issue of postal cash certifications. On the basis of postal cash certifications depositors can withdrew a definite amount of money once a week.

Cooperative Bank:
The bank which is organized by the people for their own collective benefit is called cooperative bank. Basically, such banks are established in rural area for promotion of agriculture sectors. But now days there are such banks is every sector.

Importance of concept of Consumers’ Surplus

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

Importance of concept of Consumers’ Surplus:

1. Determination of monopoly price: This concept is useful to determine the price of commodity. Monopoly producer should observe the psychology of consumer while determining the price of product. When they feel that consumers are ready to pay more they raise the price of goods and maximize their profit.

2. Public finance: This concept is helpful to formulate the tax policy which is known as public finance. The best tax policy is that which maximize the public revenue with the least sacrifice. For that government impose high tax on such commodity where consumer enjoys much surplus.

3. To make cost benefit analysis: This concept is useful in the field of cost benefit analysis which is very useful tool in the field of research and developing work. Consumer surplus is measured in terms of benefit and cost of a particular good. Similarly to choose a project it is necessary that benefit or surplus must be greater than cost.

4. Comparison of economic condition: We can compare the economic condition of nation by the help of concept of consumer surplus. In developed nation commodity are available at cheaper rate so consumer can enjoy higher surplus but in underdeveloped nations commodities are available at higher price where consumer enjoy low surplus. So, higher consumer surplus is identified as developed nation and vice-versa.

5. International trade: This concept is best for international trade. Goods which have large consumer surplus is imported than domestic production should be imported. The goods that have large consumer surplus in domestic production than import should not be imported.

Definition of money

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

Money is defined in different ways. It was firstly introduced just as a medium of exchange. The term money is derived from Latin word “Moneta” referred to goddess Juno. The coins were minted in the temple of Goddess Juno. That’s why the coins were known as money. Traditional definition of money is the medium of exchange and measurement of value. According to it, anything which is used as medium of exchange and measurement of value is called money. It is the functional definition of money. These functions are primary functions of money. However, money is used as not only medium of exchange but also as the medium of store of value, transfer of values, deferred payment, disbursement of credit, redistribution of income and wealth, reallocation of resources etc.

Role of cottage and small scale industries

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

1. Employment opportunities

Cottage and small industries provide employment to every sort to skilled people (skilled, semi-skilled and unskilled). It provides alternative job opportunities.

2. Utilization of local resources

Cottage and small scale industries are established in rural area by some local people. So, this type of industry uses the local resource available in that area.

3. Source of foreign currency

Cottage and small scale industry produce handicrafts, painting etc which attracts tourist. About 37% of total export is enveloped by the product of these industries. So, it is the source of foreign currency.

4. Government revenue

Since, 37% of total export is enveloped by cottage and small scale industries, government can even revenue through scales tax, income tax, export tax, vat etc. So, there is the ultimate increase in Government revenue.

5. Living standard

Cottage and small scale industries are simple and are operated with limited capital but also increases/upgrades living standard people can earn sufficient amount to sustain their life and fulfillment of their needs.

Addition as suggested by Abishek

Small Scale Industry:
In the small scale industry the male members of the family along with hired labour work together. In small industries, electric power and improved machines are mostly used in subcontinental the firm employing less than 10 persons are classified as small. In subcontinental Carpet industry, poultry farming, beekeeping, tailoring and furniture making is included in the cottage and small industry.

Importance: There is a shortage of capital and technical skill in subcontinental. It is not possible to establish the heavy industries. While it is very easy to increase the number of small scale industries. The examples of Japan, Hong Kong and Taiwan are before us.

Following are the main advantages of small scale industry in subcontinental :

1. Increase in Industrial Product :-
There is a shortage of manufactured goods in our area. We spend a lot of foreign exchange on the import of these goods every year. So we should increase the small scale and cottage industry to remove the shortage of these goods.

2. Increase in Employment :-
The rate of unemployment is increasing day by day. To control unemployment it is necessary that we should increase the small scale industries because these are labour-intensive. Our farmer can also easily work in small scale industry. It is not possible to provide Govt. jobs to all the unemployed people. It may also increase the self employment.

3. Increase in Foreign Exchange Earnings :-
The various kinds of goods like carpets and sports sold in the international market. We earn a lot of foreign exchange by exporting these goods.

4. Use of Industrial waste :-
The waste of large scale industries like cotton and steel can be used by the small scale industry. In this way we can save a lot of capital.

5. Provides Employment to Women :-
Our women are engaged in the cottage and small scale industry and increasing the production. Because in our society women can not work with other men in the factories. We should increase the number of cottage industries to make the female sector a real asset of the nation.

6. Increase in The Income :-
Increase in the production of goods on small scale increase the income of the people. The rise in income improves the standard of living. In rural areas there is great need of small scale industry.

7. Cheaper Production :-
The small scale industry is labor-intensive while labor is cheap in subcontinental, so the production of small scale industry is cheaper. Due to low prices people purchase more goods and market expands.

8. Proper Distribution of Wealth :-
The small scale industry increases the income of the people and reduces the gap between rich and poor. We can reduce the poverty by expanding the small scale industry.

9. establishment With Small Capital :-
We can establish these industries with small capital. In subcontinental most of the people are poor, so they can start the production with small capital.

10. Development of Backward Areas
We can develop backward areas by establishing the small scale industry in these areas. It will remove poverty from backward areas.

Introduction to Tourism Industry

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

Tourism Related Information, 2010

Tourist arrival in number	6,02,867
Foreign exchange earning	28,139 million

Number of tourist by purpose of visit

Purposes	Percentage
Trekking and Mountaineering	10.46%
Pilgrimage	11.65%
Business	3.55%
Official	4.37%
Meeting / Seminar	16.81%
Rafting	0.12%
Others	51.44%

Total Contribution in Gross Domestic Product (GDP) 24%

Direct Employment = 110000

Source: Economic Survey 2010/11