TyroCity: Economics 11 Notes

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.

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.

Difference Between Private And Public Finance

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

Private finance (individual)	Public finance ( government)
An individual adjusts his or her expenditure according to his or her income.	The public authority adjusts its income to its expenditure.
A private individual tries to have a surplus of income over expenditure i.e. surplus budget.	A public authority will spend all that it gets
An individual can borrow money from other individual only and externally	A public authority esp a state can raised loans from both internally
Finances of individuals are limited	Finances of government are flexible
Private individuals cannot use force to get their income; they cannot compel others to get income	The government can use coercive method to realize revenues
Not a single individual can print notes	A state can print currency notes in order to meet its expenditure in difficult times

Problems of Medium and Large scale Industries

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

1. Lack of capital
For the establishment of medium and large scale industries huge amount of capital is required which is very difficult to be formed in the context of Nepal. So, lack of capital is the problem of medium and large scale industries.

2. Lack of infrastructure

Infrastructures such as transportation, communication and electricity are the most essential elements for a industry to be operated. In our country all there mentioned infrastructure are not available in adequate number or are not sufficient.

3. Lack of skilled–manpower

Generally, medium and large scale industries need skilled manpower for handling the delicate task but there is a situation of Brain Drain in our country. So, there is scarcity of skilled manpower.

4. Lack of competitiveness

Most of the Nepalese industrial products are of low quality. Such low quality products pose a formulate difficulty to complete in both domestic and international market. Car telling is the major problem of Nepalese market.

5. Limited Market

The domestic market for Nepalese industrial products is very limited due to low purchasing power of the people. There is lack of transport and communication facilities to sell the commodity throughout the country.

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

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.

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.

Prospects of Tourism Industry

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

1. Natural beauty

Nepal is a country full of natural beauty. Fast flowing river, evergreen hills, snow capped mountains etc makes Nepal look attractive and majestic. Yearly thousands of tourists visit Nepal to have glance over her magnificent beauty.

2. Religious places

Nepal is the destiny per Hindus. The greatest and the biggest temple of Hindu, Pashupatinath temple is situated in Kathmandu Nepal. The largest statue of Shiva in the world, 143ft is situated in Bhaktapur (Sanga), Nepal other many famous temples shrines etc are in Nepal such as Swyambhunath, Changunarayan, Budhanikantha etc.

3. Art and architecture

Nepal is renowned for its natural and cultural heritage and is generally reputed for the pagoda style of temple which is rare in the world. Many tourist visit Nepal to know the art and architecture of Nepal.

4. Climate and cultural diversity

Nepal is rich in both climate and cultural sector. Different climate can be found in each topography of Nepal. Extreme cold in Himalayan, mixed climate in Hilly and hot climate in Terai. Due to variety in climate, bio-diversity exists in Nepal.

Moreover, Nepal is rich in cultural aspect. There are more than 60 ethnic groups found in Nepal with 103 language. So, many tourists come to visit Nepal to learn or for research purposes.

5. Less expensive

Nepal is an underdeveloped country with few infrastructures. So, Nepal is less expensive country than others. Tourists can visit Nepal in reasonable price.

National income

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

Basic concepts

1. Factors of production:

The factors that are used in production are called factors of production. The factors are: land, labor, capital an organization. For the contribution made by factors of production, they are paid the amounts the factors of production obtains are called factor incomes. The factor incomes are rent, wage, interest and profit. The factor incomes are also called factor costs. They are parts of national income. It we sum up the factor incomes of the country we obtain national income.

a. Factors of production : land, labor, capital , organization

b. Factor incomes: rent, wage , interest, profit

2. Transfer of payments
The payments or receipts without contribution in production are called transfer of payments. Some of the examples are pension, subsidies, indirect taxes, windfall gains, grants, allowances paid to old aged, handicapped; under privileged people etc. it is not part of national income

3. Final products
The products directly consumed by final consumers are called final products. The final products are parts of national income. Their monetary values are distributed in forms of factor incomes. The goods and services used as raw materials, fuels or energies for the production of other goods and services are called intermediary goods or products. They are not added to measure the national income.

Basic concept of national income accounting

1. Gross domestic product at market price ( GDP at MP )

GDP at MP is the sum of monetary values of all final products of a country in a year. The monetary value of each product is obtained multiplying the quantity and price of the product.

2. Net domestic product at market price (NDP at MP)

NDP at MP is the net monetary value of final products produced in a year in a country. It we subtract depreciation from GDP at MP we obtain NDP at MP.

3. Net national product at market price(NNP at MP)

If we add net factor income from abroad to NDP at MP we obtain NNP at MP. Here the factor income means rent wage, Interest and profit. For it we factor income earned from rest of the world but subtract the factor income earned by rest of the world from our country.

Mathematically,
NNP at MP = NDP at MP + net factor income from abroad

4. Net national product at factor cost (NNP at FC):

If we subtract net indirect tax from NNP at MP we obtain NNP at FC.

Mathematically,
NNP at FC = NNP at MP – net indirect tax
NNP at FC = NNP at MP – (indirect tax-subsidies)
NNP at FC is the national income…

5. Private income

Private income is the income of people and private business organization of the country. If we subtract government’s income from national income we obtain private income.

Mathematically,
Private income = NI-GOVT’S INCOME

Here,

The government’s income means rent, profit and interest earned by government. However, there is transfer of payments from government to private sector and from private sector to government. They are adjusted subtracting the transfer of payment from private sector to government and adding the transfer of payment from government to the private sector including individuals. Besides it, the corporate taxes are also subtracted from national income to obtain private income.

Mathematically,
Private income = NI- factor income of govt-corporate taxes-transfer of payments to govt+transfer of payment from government

6. Personal income

The income of individual in total is called personal income. It includes all factor incomes earned by people of the country. Moreover, it includes the transfer of payments from government and business organizations too. But, the transfers of payment from people to government are subtracted to find it.

Mathematically,
Personal income = private income-undistributed profit

7. disposable income:

The personal income left after the payment of direct taxes is called disposable income. The direct taxes are income tax, house tax, land tax etc.

Mathematically,
Disposable income= personal income-direct tax

If the people pay other social security contribution or charges they too should be subtracted to obtain disposable income

Mathematically,
Disposal income= personal income-direct tax-social security contribution

8. per capita income:

It is the ratio of national income and population size. it is known as national income per head of the country

Methods of measuring national income:

1. Income method:

In this method, we measure national income on the basis of factor incomes of people, business organization and the government of the country. The factor incomes mean rent, wage, interest and profit. These are the payments made to or received by land, labor, capital and organization respectively and is used in the country in a year. Moreover, we add net factor incomes earned from abroad. There are people self-employed too. Their income is in mixed form. That’s; why, it is added separately. Profit, interest and rent earned by government in a year is added as property and entrepreneurial income of government. The savings of non-departmental organizations too is added separately as factor income. The sum of factor incomes in the country gives NDP at FC. To NDP at FC we add net factor income from abroad and we get NNP at FC or NI as following.

2. Expenditure method

In this method, national income is calculated summing up the expenditures of household sector, business sector, government sector and foreign trade sector. The expenditures of these sectors are called consumption expenditure, investment expenditure, government expenditure and net export. However, the expenditure may be on goods produced in previous years. That’s why; we adjust it subtracting opening inventory and adding closing inventory. If we sum op the expenditures we obtain GDP at MP .then from GDP at MP we subtract depreciation and net indirect tax as following to get NI

Consumption expenditure of household sector	XXXX
Government expenditure on final goods	XXXX
Investment expenditure ( private +public)	XXXX
Foreign trade sector (export-import)	XXXX
Change in inventory (closing-opening)	XXXX
Gross domestic product at market price	XXXX
Less: depreciation	XXXX
Net factor income from abroad	XXXX
Less: net indirect tax	XXXX
National income	XXXX

3. Product method:

In this method, we measure NI on the basis of monetary values of final products or value added in each stage of production and distribution. The economy (country) is divided into 3 different sectors namely: primary, secondary, tertiary.
Primary: agriculture, forestry, livestock rearing etc.
secondary: health, sanitation, transportation, education etc
tertiary: tourism, sports, music etc.

Types of method

A. Final product method

In this method, NI is measured on the basis of monetary values of final product. Firstly, we find monetary values of final product of primary, secondary and tertiary sectors. Sum of the final products gives GDP at MP. To GDP at MP we add net factor income from abroad and from it we subtract depreciation and net indirect tax to find NI.

Final product of primary sector	XXXX
Final product of secondary sector	XXXX
Final product of tertiary sector	XXXX
GDP at MP	XXXX
Depreciation	XXXX
Net indirect tax	XXXX
Net factor income from abroad	XXXX
NI	XXXX

B. value added method:

In this method, NI is measured adding the values added in each stage of production and distribution. Firstly we add values added in primary, secondary and tertiary sectors. Sum gives GDP at FC. From that we subtract depreciation and to it we add net factor income from abroad to find NI.

Value added in primary sector	XXXX
Value added in secondary sector	XXXX
Value added in primary sector	XXXX
GDP at FC	XXXX
Depreciation	XXXX
Net factor income from abroad	XXXX
NI	XXXX

Thus, these are the methods of measuring national income

Difficulties while measuring national income

1. Non-monetary transactions

There are many non monetary income and output in developing countries like owner occupied house, self consumed agriculture products etc. due to non monetary nature they aren’t included in national income

2. Problems of double counting

Only final goods and services should be included in national income. But it is arduous to distinguish between final goods and intermediate goods. Intermediate goods also can be used for final consumption. There are possibilities of double counting

3. Underground economy

Under ground economy consists of illegal transactions like drugs, gambling, smuggling etc. they are not included in national income thus income become less than actual amount

4. Petty production

There are large numbers of petty producers and it is difficult to include their production in national inco
me because they don’t maintain any account.

5. Public services

Public services like general administration, police, and army services are difficult to evaluate and they become hard to include in national income accounting

6. Illiteracy and ignorance

If majority of people are illiterate and ignorant, they can’t keep the records of production activities accurately. Hence, it is difficult to get correct information.

7. Capital gains or losses

When price of any assets alters then owner can make gains or losses. Such gains or losses are not included in national income.

8. Wages and salaries paid in kind

Payments made in kind mayn’t be included in national income. But facilities given in kind are calculates as supplements of wages and salaries on the income side

9. Conceptual problem

The major obstacles is whether to include the income generated within country or even generated abroad in national income and which method should be used in measuring national income

10. Transfer payments

Individual get pension, unemployment, allowance, windfall gains, subsidies on many measures , but they create difficulty in the measurement of national income.

Thus, these are the difficulties in measuring national income.

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.

Importance of Tourism Industry

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

1. Sources of foreign exchange earnings

Tourism industry is the main influential type of industry in the world. Nepal has also taken tourism industry as its major sector of income in the fiscal year 2009/11.

2. Employment Opportunities

Tourism industry is also one of the influential sectors. It generates employment opportunities. It provides employment to unskilled, semi-skilled and skilled manpower. Guide, load man etc are the personal or labour required in Tourism industry.

3. Sources of public as well as private income

Tourism industry is the source of income for both public also well as private sector government charges tax, sales tax, service tax etc. which is known as government revenue is the income of public. And handicraft, arts etc are the things that attract tourist and most of them buy them and the seller makers some profit which is called private income.

4. Cultural Exchange

Tourism industry facilities cultural exchange tourist carry over various cultural concepts of other countries where they visit. Local people can learn their language, art, skill, culture etc and vice versa.

5. Publicity of nation

Nepal is a small country, difficult to be located in the world map. Tourism helps to publicize the country in different parts in the world. It helps to publicize. Nepalese art, skills tradition, cultural beauty and hospitality to the world.

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.