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

Problems of agriculture in Nepal

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

1. Lack of irrigation

Irrigation is the basic infrastructure for agriculture development. But only 69.48% of total irrigable land has irrigation facility and only 50% of land year round facility. So, farmers entirely depend upon monsoon rain.

2. Lack of technology

Nepal herself is poor. Moreover, her people are also poor. About 205% of total populations live under poverty line. So, neither they can afford for new technology, nor they have proper knowledge about it. So, our agricultural sector is lacking behind.

Public Expenditures

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

Government revenue collected from different sources is allocated for different purposes. Generally public expenditure is classified into development expenditure and administrative expenditure. The government allocates resources through its ministries, departments and local authorities. These types of expenditures are made either for their own maintenance or for the promotion of social welfare of the people. In the government expenditure we include development expenditure, administrative expenditures, diplomatic expenditure, difference expenditure, payments of public debts and interest and miscellaneous expenditure.

Role or importance of public expenditure

To maintain law and order’
To maintain national security
To provide administrative services
To invest in social overheads like transportation, communication, irrigation, energy, education, health, security, law and justice
To ensure economic equity in the society.
For development and promotion of basic and strategic industries

Classification of public expenditure

1. Development expenditures:
Expenditures on the construction of infrastructures of transportation, communication, sanitation, irrigation, education, health, power, energy etc is called development expenditure

2. Expenditure on public utilities:
After the construction of infrastructures the government spends the money to provide facilities of education, sanitation, drinking water, communication, transportation etc. these expenditures are expenditure on public utilities.

3. Defense expenditure:
The expenditure on arms and armaments to protect the country and the people from foreign aggression is called defense expenditure

4. Expenditure on general administration:
For the good governance, to keep peace, security and justice in the country, the government makes the expenditures through different ministries, departments and constitutional bodies etc. These expenditures are called general administration expenditure

5. Conservation of resources:
To avoid depletion in the quantities and qualities of the resources and for their sustainability the government makes expenditures on their conservation. It includes expenditure on forestry, soil fertility management, irrigation, flora fauna management

6. Preservation and renovation of monuments:
For the preservation of culture, traditions, arts, skills of the people of the country the government makes the expenditure. The government spends the money also to renovate the historical, archaeological, religious monuments.

Economics XI

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

General

Human Resources

Agriculture

Poverty

General Industry

Tourism Industry

Introduction to Industry

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

Industry is a group of a firm such as sole trading, partnership, joint stock etc.

Types of industries	Fixed capital investment
Cottage industry	In small amount
Small scale industry	Fixed up to – Rs 10 million
Medium scale industry	Fixed between Rs 10 – 50 million
Large scale industry	Fixed more than Rs 50 million

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.

Human Development Indicator

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

1. Better Economic
Human development is development of overall situation of human being such as health, education, income, life expectancy etc. The variables such as human development index (HDI) per capita income (PCI), literacy rate, life expectancy at birth etc are regarded as indicators of Human Development. Some major indicators of Human Development have been discussed below.

2. Education

Educational Indicators include total literacy rate, male/female literacy rates, adult literacy rate, school enrollment rate and average years of schooling. It helps to increase the efficiency of human being.

3. Demographic

It indicates the number of year new born children would live subject to the prevailing risks of mortality. It depends upon the infant mortality rate and as of death.

4. Health

Basic needs include food, shelter, clothing, education and health service. Higher the fulfillment of basic needs, higher will be the level of human development and vice-versa.

Wage

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

Wage

The amount of money paid to employees per unit of time for mental or physical services provided by them is called wage. The unit of time may be a year, month, day, or hour. The wage may be paid as per the contract between employer and employee. It may be in any form like salary, wage bonus, commission, allowances, royalty, fee etc. Wage is the factor income of labor. The persons who obtain wage are called laborers. The laborer is paid wage because of following reasons

In doing works, there is physical or mental exertion. Against this exertion the workers must be compensated.
To do work the workers must have physical ad mental strength. For strength, they have spent money on food, education, skills and so on.
The workers need refreshment and rest to regain the working strength for which they should be compensated.
The workers have sacrificed leisure to do work. To compensate against it too, they must be paid wage.

There are two concepts of wage which are:
Money wage:
The amount of money paid to employees per unit of time for mental or physical services provided by them is called money wage. The unit of time may be a year, month, day, or hour. The wage may be paid as per the contract between employer and employee. It may be in any form like salary, wage bonus, commission, allowances, royalty, fee etc. it depends upon nature of work, time required, the qualities necessary to perform the work and so on.
Real wage:
The physical quantity goods that can be purchased with the expenditure of money wage is called real wage. It is given by the ration of money wage and price level.

Real wage is directly related to money wage but inversely related to price level. If W is increased being P constant, real wage increases and vice versa. If P rises remaining W constant real wage decreases and vice versa

It can be explained with the help of table and figure as following

Money wage (W)	Price level (P)	Real wage (1/P)
Rs 20000	Rs 100	200 units
Rs 20000	Rs 200	100 units
Rs 20000	Rs 300	66.67 units

In the above table, the real wage is decreased from 200 units to 100 and 66.67 units when money wage is constant at Rs 20000 and price level is increased from Rs 100 to Rs 200 and Rs 300 respectively. It shows the inverse relationship between real wage and price level. If we represent the real wage with respect to price level, we obtain a monotonically downward sloped convex curve as shown below:

In the above figure, the convex curve represents relationship between real wage and price level. It shows if price level raises real wage decreases and so on.

Nature of Economics

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

1. NATURE OF ECONOMICS
DEFINITION OF ECONOMICS
The term economics is derived from the word “oeconomicus” by Xenophon in 431 B.C. It is derived from two words economy and science. Economy means proper utilization of resources. It means economics is the science of economy or science of proper utilization of resources. It is comprised of theories, laws, principle related to utilization of resources so as to solve the economic problems, satisfy the human wants or need and so on. However, the economics is defined in different ways by different economists.
There are mainly three definitions of economics:-

a. classical or wealth definition (Adam Smith)-1776 A.D

b. neo-classical or welfare definition (Alfred Marshall )-1890 A.D

c. modern or scarcity and choice definition (Lionel Robbins)-1932 A.D

a. classical or wealth definition (Adam Smith)-1776 A.D The famous classical economist Adam smith for the firs time defined economics as “science of wealth”. The definition was given in the book “an enquiry to the nature and the causes of wealth of nations” published in 1776 A.D. the book is popularly known as “wealth of nations”. According to smith, labor is the main source of income or wealth. More wealth is accumulated only if more labor is used. Economics explains the human behavior and activities they do for wealth. This definition was based upon the assumptions of full employment, perfect competition, no governmental interventions, money just as a medium of exchange and so on.
This definition has following main proposition:-

i. economics is science of wealth

ii. labor is the only source of income

iii. there is perfect competition in product as well as labor market

iv. the government should not interfere the activities of people and business organizations

v. this definition is influenced by physiocracy and mercantilism.

Criticism:-
Wealth definition has over emphasized wealth. Economics is science of human activities rather than only wealth. Adam smith considers only material things or wealth as subject matter of economics but human beings require some immaterial things like self esteem or dignity, social prestige, national identity and so on too. The immaterial things are called essential things for human satisfaction. Wealth definition is based upon the theory of subsistence wage which is known as iron law of wage. The law was against the workers and in favor of employers. Adam smith doesn’t explain about scarcity of resource and choice of best alternative for the use of resources. The problem of scarcity and choice is burning issue in the modern economics but he fails to explain about the problems of scarcity and choice. The wealth definition is based upon assumptions of full employment and perfect competition but none of these two is in existence. This definition is based upon the assumption of no intervention of government in economic activities of people and business organization but we find in every country more or less governmental intervention.

b. neo-classical or welfare definition (Alfred Marshall )-1890 A.D
In 1890, Alfred Marshall, a famous neo-classical economist and a great contributor to micro economics defined economics as the science of material welfare. Here, the material welfare means the quantities of physical goods consumed by people. if the people are consuming large quantities of goods, they are said to have high level of welfare into two types

1.material welfare

2.immaterial welfare

According to him, only the material welfare is the subject matter of economics. He assumes every person is rational and s/he uses the resources in his/her possession very properly so as to maximize their own welfare. Economics is therefore the science that studies the rational behavior revealed by the people. Major propositions of Marshall’s welfare definition are:-

Economics is science of material welfare
Economics is social science i.e. science of mankind
Economics is the study of rational behavior of people revealed for maximization of material welfare.

Criticisms:-
This definition of economics a science of material welfare was assumed correct until the arrival of Lionel Robbins. He criticized the definition under the following aspects:-

Classificatory activities of Marshall into material non material welfare, economics and non economic goods is only classificatory not analytical because single human cannot be material as well as non material according to the nature and purpose of work.
Non material activities like feeling of social service, human desire also satisfy human needs. This idea has not been prioritized
Non welfare consumption like harmful drugs, tobacco, and alcohol don’t promote social welfare but still are in the study of economics
Economics should study about total human beings but wealth definition doesn’t study about isolated people like saints, nuns, monks etc.

c. modern or scarcity and choice definition (Lionel Robbins)-1932 A.D
According to Lionel Robbins, economics is the science of scarcity of the resources and the choice of best alternative for their utilization. The resources are limited in supply. Each resource is usable for different purposes. The wants or need of people are unlimited. The wants differ in importance. They differ from place to place, from time to time and from person to person. Some wants are more important whereas some are not. All wants cannot be fulfilled because of insufficiency of resources. Therefore, we have to go on utilizing the resources in such a way, so that, our more wants can be fulfilled leaving no one in most important wants unfulfilled. For it, we must select best ways for the utilization of the resources. We should have the complete information of resources available, needs of the country and their importance and ways for the utilization of resources. This definition is given in 1930 A.D after WWI. During third decade of the twentieth century, the European countries were badly in need of large quantities of resources for rehabilitation, construction of infrastructures, renovation etc. they were destructed in war. This definition is both normative and positive in nature. The major propositions are:-

there is unlimited human needs or wants
there is scarce means of resources
there are alternative use of resources
there is need of choice

Criticisms:

The definition is criticized in the following ways:-

economic problems arises not only due to scarcity but due to under, miss or over utilization of resources
economic problems arises due to inequality too
there is political consideration
needs and resources may vary

Superiority of Robbins definition over Marshall’s definition:-

the definition is scientific
the definition is universally accepted
the definition has wide scope
the definition has science of choice

Microeconomics:-
The term microeconomics is derived from the word micro economy and science. The term micro is also derived from the Greek word micros which means small or tiny. Microeconomics is defined as the science of small or tiny part of the economy. It provides us the detail information of microeconomics units. The units are single consumer or consumer of a firm or an industry. A single firm or firms belonging to an industry is called worm’s eye view of an economy. In microeconomics we study about the relationships between microeconomic variables like utility, cost of purchasing, demand, supply, price, cost of production, and revenue from sale, profit or loss and so on, it is the study of behavior of consumers and firms.

Scope of microeconomics:-
The scope of microeconomics means its subject matter. it means area of application too. The scopes are:-

study of consumers behavior

           -cardinal utility theory

          – ordinal theory

          -revealed preference theory

          -cardinal behavior theory

Study of production and cost function
Mathematically.

               Q=output (quantity)

               C=cost of production

               K=capital

Q=f (K and other inputs)

C=f (Q)

      Therefore, C ∞ input

Study of price and output determination Profit=revenue-cost

Markets = monopoly, duopoly, oligopoly, monopolistic competition and perfect competition

Study of microeconomic distribution
Factors of production-land, labor, capital and organization

Factor wages-rent, wage, interest, profit

Macroeconomics
Macroeconomics is derived from the word macro, economy and science. The term “macro” is also derived from Greek word “macros” which means large or big. Therefore, macroeconomics can be defined as the science of large segment of the economy or economy as a whole. It provides bird’s eye view of the economy. It gives general features of the economy. It is study of features of economic problems, causes and remedies of the problems in different sectors. The sectors are divided into household sectors, government sector, foreign trade sector, business sector. In macroeconomics we study about the relationship between macro economic variables, the variables are:

a) Aggregate consumption

b) Aggregate income

c) Aggregate saving

d) Aggregate investment

e) Aggregate demand

f) Aggregate supply

g) Price level

In macroeconomics we study about the causes and remedies of trade and payment, price instability, Inequality etc

Scope or subject matter of macroeconomics:
Scope means the subject matter. It means the area of application…

1. Study of wage level and employment level

The macroeconomics deals with wage level and employment level. The level of employment depends upon demand for labor and supply of labor. Both of these factors depend upon wage level. There are different theories of employment like classical theory, Keynesian theory, Kaltorian theory and other modern theory

2. The study of price level and output level

Macroeconomics is concerned with determination of equilibrium price level and output level. The price level means average of the prices of goods and services bought and sold in the country in a year. The level of output depends upon aggregate demand and price level. There are different theories of determination of price level and output level. Among them, Keynesian theory of effective demand is very popular. The theories are the subject matter of macroeconomics.

3. The study of trade cycle
Macroeconomics is concerned with trade cycle too. It explains how the economics ups and downsoccur, what are their causes, how the country can overcome fluctuation. There are different theories of trade cycle. Some of them are Schumpeter theory, Hessian theory, Calder’s theory etc.

4) Study of macroeconomic distribution
The macroeconomics is the study of distribution of income, wealth or resources in the country among the people. It is the study of different theories, laws and principles of distribution of income in the form of wage, interest, profit and rent. It gives us knowledge of effects of high inequality in the distribution of income and wealth. It gives us remedies of unequal distribution and the economic problems due to the inequality.

Normative or positive economics
Economics is both positive and normative science. It is the study of facts as well as ideal theories and principles too. It can be explained as following:
a) Positive economics

Economics is positive science. It is the study of facts or things in reality or existence. In economics the large number of economic problems or questions like what are produced, how goods are priced and distributed, how much profit is earned by firms, what different type of resources are available, hoe the resources are utilized, who are performing different economic activities, why the economic problems are occurring, why is the country suffering from unemployment, price instability, economic instability, import dependency and so on are put and answered. There are different theories laws and principles based upon facts we study in economics. That’s why economics is called positive science

b) Normative economics

Economics is normative science. It is the study of things ought to be. In economics, we study different ideal theories and principles. They are concerned with different economic problems. They give us ideas for overcoming of different economic problems. They are helpful to formulate proper policies and plans. They are helpful to solve the problems of unemployment, import dependency, improper allocation of resources, price and economic instability, unequal distribution of income and wealth and so on. Economics helps us to decide how much goods should be produced, hoe much they should be priced, hoe the government should control money supply, interest rate, public debt, government expenditure etc , how the consumer should allocate the money to get maximum satisfaction from the expenditure, how the firms should combine the inputs to earn maximum profit and so on. This all have ethical importance. That’s why economics is call normative science.

Economics is a science or an art

Economics is both art and science. It is called a science because it is the scientific study of relationships between economic variables, behavior of consumers and firms, nature of market and economy, effect of change in one or more economic variables on the others and so on. The different theories, laws and principles are studied in economics. All of them are generalized and simplified on the basis of facts so as to make them easily understandable. Therefore, economics is said to be science.

Economics is an art. The different theories, laws are explained with the help of graphs, figures, tables, charts, equations etc simplifying and generalizing them. Simplification is to make them easily understandable and generalization is to make them applicable to all economies. In order to explain theories, laws and relationships between economic variables we make some assumptions. The assumptions define the conditions for the application of theories, laws and the relationships. That’s why economics is an art.

Importance of microeconomics:

Important to the consumers

Microeconomics provides the ways for proper allocation of money on different goods and services so that they can get maximum utility. There are different theories of consumers behavior, the theories explain how the consumers should spend the limited money they have to maximize their satisfaction

Important to the firms or businessmen

The firms or businessmen use the microeconomic theories of consumer behavior, production, cost, market, revenue and so on to make proper economic decisions. The microeconomics helps them to know the purchasing power of ability to pay, proper combination of inputs to maximize cost or maximize profit, effects of change in tax rates, subsidies and so on

Important to the government

Government can determine taxes, subsidies, wage level, allowances etc on the basis of effects of change in these factors on the demand for goods and services. Some goods are levied while some are subsidized. The salaries and allowances are adjusted on the basis of relationship between these variables and demand. Interest rate, exchange rate and money supply too are changed with the help of microeconomic theories.

Important for the study of other economic science.

Microeconomics helps us to study of other economic sciences like macro economics, public finance, monetary economics, labor economics, and international trade economics and so on. The theories and laws of these economic sciences are based upon micro economics theories and laws.

Importance of macroeconomics

To know the relationship between macro economics variables:

The macroeconomics helps us in the study of relationship between large numbers of macro economics variables. The variables are Aggregate consumption, Aggregate income, aggregate saving, Aggregate investment, Aggregate demand, Aggregate supply, Price level.

To know the functioning of economy

Macroeconomics helps us to know how the economy functions, how it is regulated, For it macro economics provides us the knowledge of product market, labor market, capital market, land market, international trade market etc. it in forms us the country can achieve equilibrium only if all of the markets are in equilibrium.

To correct unfavorable balance of trade and payment

Macroeconomics provides us different theories of international trade. It provides us different remedies of import dependency and greater outflow of money from the country. The government or country may adjust custom duty, exchange rate, transaction of gold etc to promote export and to reduce import.

To achieve high economic growth and employment level

With the help of theories and models of economic growth and employment we can induce investment increase in income and employment opportunities

Thus, these are the importance of micro and macro economics.

Change in Optimum Population

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

The optimum population, however, is not fixed, for over a period of time. Conditions are liable to change. If it were possible to increase the supply of other factors with increase in population, the optimum might be raised. Optimum population is relative to resources and technology. So if there is increase in capital stock or natural resources or level of technology. There will be an upward shift in the average and marginal product curves. The per capita output will increase. This means that the level of optimum population too will increase. This has been represented in figure below:

As shown in figure, with given resources and technology, the per capita output curve is AP. Here optimum population is and maximum output per capita is NF. When capital and natural resource increase or there is improvement in technology, the per capita output curve shifts upward in the form AP, Now the optimum population is N, and maximum output per capita is N,F,. Here both level of optimum population and maximum output per capita is higher than before. Likewise, further increase in resources and technology will shift the per capita output curve upward in the form of AP2. Now the level of optimum population and maximum per capita output are N2 and N2 F2 respectively which are higher than before.

Dalton has given a formula to measure the extent to which the actual population of a country deviates from the optimum population. The extent of deviation is called maladjustment

M = Maladjustment
A= Actual population
O = Optimum population

Public Enterprise

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

Public Enterprise is an enterprise under government control. More than half of the total share of a public enterprise is owned by the government and effectively managed by the government.

Objective of public enterprises

To improve economic activities.
To provide goods and services to the public at fair prices.
To generate the employment opportunities.
For utilizing foreign aids.
To develop the economic and social infrastructure.
To correct the unfavorable balance of payment.
To earn foreign exchange.
To obtain economic, political and social objectives of the nation by mobilizing available capital and labor resources.

State the present situation of public enterprises in Nepal.

Public enterprises are operating under six broad sectors in Nepal. They are industrial, commercial, service, social, public utility and finance.

There are 36 public enterprises, 7 in industrial sector, 6 in commercial sector, 7 in commercial sector, 5 in social sector, 3 in public utility and 8 in financial sector.

S .N.	Sectors	Total	Capital investment	Gross profit (million)
1.	Industrial	7	23884	-784.3
2.	Commercial	6	54698	3033.1
3.	Service	7	11733.5	1358.0
4.	Social	5	1590.5	-292.5
5.	Public Utility	3	121539.4	5032.4
6.	Finance	8	79930.4	1056.6
	Total	36	222,652.0	10003.3

Source: Ministry of Finance, 2010

The above table shows that only 4 sectors (commercial, service, public utility and finance) have earned profit and rest two (industrial and social) has faced loss during the fiscal year 2008/09, rest of the sector incurred losses. Thus, overall financial status of the public enterprises is very unsatisfactory.