TyroCity: Economics 11 Notes

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 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.

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

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.

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.

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

Importance of Public Finance

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

1. Steady state economic growth:
Government finance is important to achieve sustainable high economic growth rate. The government uses the fiscal tools in order to bring increase in both aggregate demand and aggregate supply. The tools are taxes, public debt, and public expenditure and so on.

2. Price stability:
The government uses the public finance in order to overcome form inflation and deflation. During inflation, it reduces the indirect taxes and genera expenditures but increases direct taxes and capital expenditure. It collects internal public debt and mobilizes for investment. In case of deflation, the policy is just reversed.

3. Economic stability:
The government uses the fiscal tools to stabilize the economy. During prosperity, the government imposes more tax and raises the internal public debt. The amount is used to repay foreign debt and invention. The internal expenditures are reduced. During recession, the case is just reversed.

4. Equitable distribution:
The government uses the revenues and expenditures of itself in order to reduce inequality. If there is high disparity it imposes more taxes on income, profit and properties of rich people and on the goods they consume. The money collected is used for the benefit of poor people through subsidies, allowance, and other types of direct and indirect benefits to them.

5. Proper allocation of resources:
The government finance is important for proper utilization of natural, man made and human resources. For it, on the production and sales of less desirable goods, the government imposes more taxes and provides subsidies or imposes taxes lightly on more desirable goods.

6. Balanced development:
The government uses the revenues and expenditures in order to erase the gap between urban and rural and agricultural and industrial sectors. For it, the government allocates the budget for infrastructural development in rural areas and direct economic benefits to the rural people.

7. Promotion of export:
The government promotes the export imposing less tax or exempting from the taxes or providing subsidies to the export oriented goods. It may supply the inputs at the subsidized prices. It imposes more taxes on imports and so on.

8. Infrastructural development:
The government collects revenues and spends for the construction of infrastructures. It has to keep peace, justice and security too. It has to bring socio-economic reformation too. For all these things it uses the revenues and expenditures as fiscal tools.

Current Situation of Population in Nepal

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

1. Size of population

The size of the population of Nepal according to the latest population census 2068 (2011) is 2,64,94,504. Among them, 1,28,49,041 and 1,36,45,463 numbers of people are male and female respectively. The annual population growth rate is 1.35 per annum.

2. Geographical distribution

Geographically, Nepal is divided into Himalayan, Hilly and Terai region. The population census 2011 (2068) has shown the geographical distribution of the population of Nepal as follows.

Region	Population	Percentage
Himalayan	17,81,792	6.73%
Hilly	1,13,94,007	43%
Terai	1,33,18,705	50.27%
Total	2,64,94,504	100%

3. Density of Population

Population density (average number of population per square kilometer) at the national level is 180 compared to 157 in 2001. The highest population density is found in Kathmandu district (4,416 people per square km) and lowest (3 people per square km) in Manang district.

4. Regional distribution

According to the population census 2011 regional distribution of the total population in Nepal is shown by the following table.

Development Region	Population	Percentage
Eastern Development Region	58,11,555	21.9%
Central Development Region	9,656,985	36.45%
Western Development Region	4,926,765	18.6
Mid-Western Development Region	3,546,682	13.4%
Far-Western Development Region	2,552,517	9.6%

5. Rural-Urban

Rural-Urban population distribution of Nepal, according to the result of the latest census 2068 (2011) is shown by the following table.

Area	Population	Percentage
Rural	21,970,684	82.9%
Urban	4,523,820	17.1%
Total	26,494,504	100

Public Revenues

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

The revenues from different sources received by the government are called public revenues. Some are regularly collected whereas some are irregularly collected. Revenues are not repayable. Some of them are obtained from the sale of public utilities whereas some are obligatory payments to the government.
Types or sources of government (public) revenue
The public revenue can be classified into tax revenue and non tax revenue:

Tax revenue:

The tax is compulsory payment to the government without quid pro quo. The government does not repay back it to the payers nor does it do anything for the personal benefit to the payers. It is very effective fiscal tool essential for the achievement of different socio-economic objectives. There are mainly two types of tax.

1. Direct tax:
The tax that is not shiftable in nature and paid by the payers who really take its burden is called direct tax. The person or organization which faces the incident taxes the burden too. The taxes imposed in income, profit, land, houses, vehicles etc are called direct taxes.

2. Indirect taxes:
It is the tax shiftable in nature. The person or organization which faces the incident of tax is different from person or organization who really takes the burden of tax. The incident is faced by the producers and traders but the burden is taken by the final consumers. The tax is imposed on production, sales, export and imports etc. The taxes like excise duty, custom duty, entertainment tax, octroi charges etc are indirect taxes. The VAT is also called indirect tax

Non tax revenue

1. Fees:
The government receives the money from the sale of different services like health, education etc. Moreover it takes fees for registration, license etc. The examples of fees are education fee, health fee, registration fee (birth, death, marriage, organization etc) license fee (driving, share broker, export, import, pistols) etc.

2. Fines and penalties:
Against the violation of rules and regulations the government charges the fines but if there is violation of law and order government charges penalties. Fines and penalties are not regular source of government revenue.

3. Royalties:
The government receives the royalties its production right, copy right, public land and building, capital equipment and plants for use to others. It obtains dividends from public enterprises, rents from public properties etc. this is also regular source of public revenue.

4. Cess:
The government collects different types of cess like road cess, pool cess etc in order to recover he construction cost and to reach the fund for maintenance of the construction.

5. Grants and donation:
The government receives the grants and donations from the people, business organization, NGOs, within the country or outside the country. It obtains grants from foreign government too.

6. Escheats:
The nationalized properties of people after the death being unclaimed are called escheats. This is irregular source of government revenue.

Poverty line

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

The poverty line established the distinction between who is poor and who is not. According to Nepal Living Standard Survey (NLSS) 2010/11 an individual considered as poor if his/her per capita total income is below Rs 19261. According to this approach 25.16% people live below the poverty line where 15.46% urban poor and 27.43% rural poor.