TyroCity: Economics 11 Notes

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.

Role of Medium and Large Scale Industries

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

1. Development of medium and large scale industries help to remove the problem of unemployment by creating wide range of unemployment by creating wide range of employment opportunities to unskilled, semi-skilled and skilled human resource.

2. Proper utilization of resources

Medium and large scale industries are necessary for the scientific utilization of available natural resources such as forest resources, mineral resources, human resources and water resources.

3. Sources of Government Revenue

These industries produce huge amount of goods, generally expensive one. They are exported to foreign land and Government earns tax, VAT, Sales tax, etc. which increases Government Revenue.

4. Development of basic infrastructure

Medium and large scale industries cannot be operated without proper infrastructure. So, along with the development of industries, infrastructure of development also increases simultaneously.

5. Development in agricultural sector

Modem tools and equipment are produced by medium and large scale industries. Implementation of modern tools in agricultural sector can be done. Finally, there will be development in the sector of agriculture.

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.

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.

Scarcity and choice

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

Chapter 3

Scarcity and choice

Basic economic issues:

The major causes of economic problems are basic economic issues.

1. Scarcity of resources
The common meaning of scarcity refers to unavailability in the market of a certain commodity. A commodity is scarce, in economic view, not due to its rarity in market but due to its means is limited. Scarcity explains this relationship between limited resources and unlimited wants and the problem therein. Scarcity raises national economic problems. There is poverty and human misery due to scarcity. Scarcity tells us about importance of commodity. The resources are not only scarce, but they also have alternative uses.
The resources mean all the national resources, artificial resource and human resource itself. However, the main economic problems are abused by scarcity of natural resource. The resources differ from place to place in their types, quantities and the qualities. They are usable for the production of varieties of goods and services to satisfy different human wants. But they are very in sufficient to satisfy all of human wants. Their supply is very limited and changeable with the flight of time. Their quantities and qualities may decrease if we don’t utilize them properly.

2. Choice of the best alternatives:-

Choice is involved in economic activities at both consumption and production levels. The problem of choice begins with an individual’s liking of how much time he would allot for work and how much for leisure. On the income earned, the choice is between how much to consume now and how much to save for the future. The chain of choice goes on deeper and deeper referring to the profitable use of resources at the hand of economic actors.

The choice of the best alternative is the selection of the best combination of goods producible with the use of all the resources available that gives maximum social benefits to the nation. The problem of choice is accused by limited resources and unlimited human wants. Since, each resource can be put for the production of varieties of goods; there is the possibility of large number of combination of goods producible in the country. However, they give more or less social benefit or utility to the nation. As per the requirements, importance or preference of human needs/ human requirements or importance of the goods the choice of the best alternative is met.

3. Allocation of resources:-
The allocation of resources means use of the resources dividing them for the production of the combination of goods that gives the maximum social benefit or utility to the nation. It is called appropriation of the resources to satisfy most important wants out of their unlimited types. The allocation of the resources is necessary because of insufficiency of limited resources for the fulfillment of unlimited human wants. Allocation is usually made to the basis of market demand or people’s preference on the goods. For it the concepts of demand and supply or the concepts of production possibility curve and preference curve of people are used.

The resources have alternative uses. One use can be chosen and all others have to be satisfied. Allocation is related to the choice of how much of resource to be allocated in what sector. The whole body of planning, programming and even budgeting is nothing, but the statement of allocation of resources. Resource allocation occupies central position in economics. Economics is the principle governing the allocation of scarce means among competing ends.

Production possibility curve (PPC):-

A production possibilities curve is the graphical illustration of all the combinations of goods and services that can be produced in a given economy at a given time, if all the available resources in the economy in the economy are fully and efficiently employed. All points on PPC are points of maximum production efficiency or minimum production inefficiency; resources are allotted in such a way that it is impossible to increase the output of one commodity without reducing the output of other.

The PPC has following assumptions and features:-

a. It is based upon two commodities or two goods model

b. There is no change in technology and production technique

c. All the resources are utilized

d. PPC is downward sloped concave curve.

e. PPC shifts upward if the new resources are explored or technology is advanced

To explain the concept of production possibility curve lat assume the country can produce one of the following combinations of goods utilizing all the resources available as shown in the table below.

Table:

combinations	butter	guns
A	15	0
B	14	4
C	12	7
D	9	9
E	5	11
F	0	12

In the above table there are six different possible combinations of butter and guns. If we represent them we obtain the PPC as shown in the graph.

In the above figure, if production of butter is decreased from 15 units to 14 units, then the production of guns increase from 0 units to 4 units which signifies 1 pound of butter production decrement causes to increase guns production to 4. If production of butter is decreased from 14 units to 12 units, then the production of guns increase from 4 units to 7 units, which signifies 2 pound of butter production decrement causes to increase guns production to 3 and so on.

Shifting of the curve:-The rightward shift in PPC indicates increase in production capacity of economy due to improvement in technology or new resources or both.

Limitations:-

PPC says nothing about which goods people want and which to provide the most satisfaction but only indicates about available options.
PPC are not related to preferences of consumer or producers so there is no economic efficiency.
It does not show if there is efficient use of resources.

Conclusion:-

Opportunity cost is shown by negative slope of PPC.
Full employment is shown by maximum production obtained with existing technology, given that all available resources are engaged in production
There is indication of unemployment, economic growth and investment.

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.

General Economics Data

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

According to NLFS, 2008, 73.9% of labour force is engaged in agricultural sector.
Agriculture sector is the primary sector of Nepalese economy.
About 34% contributions in the GDP by agriculture sector.
According to three year plans 2010/13, 69.48% of total irrigable land has irrigable facilities.
According to NLFS, 2010/13, 25.16% of Nepalese are below the poverty line.
The share of food crops is 49.5% cash crops are 28.1% and other crops 22.3%.

Features of agriculture

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

1. Sustenance farming

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

2. Monsoon based agriculture

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

3. Predominance of food crops

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

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

5. Low productivity

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

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

Remedial Measures of poverty reduction

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

1. Population Control

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

2. Industrialization

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

3. Education

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

4. Use of modern technology

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

5. Reduce in-equality

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

Direct Tax

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

Meaning of direct tax

The taxes imposed in income, profit and properties are called direct taxes. The person or organization which faces the incident taxes the burden of the tax. The tax is not shift able in nature and is paid by the payers who really take its burden. The payers know how much they are paying at what rate and on what basis. Therefore, this tax is inconvenient and hence unpopular type of tax. But it is a very effective tool applied for price stability, redistribution of income and wealth, economic stability, reallocation of resources etc.

Advantages of direct tax

1. Certainty:
There is certainty in collection of tax from direct tax. The government can easily estimate the amount of tax that it can collect in the coming fiscal year.

2. Based on ability to pay:
The direct taxes are imposed on the basis of “ability to pay” of the people and organization. The people and business organizations earning more profit, income pay more taxes than the counterparts.

3. Uniform:
The people and business organization belonging to a certain group are imposed equally. Rate of tax is uniform in all places and to everyone.

4. Economic:
Bearing little cost of collection, huge amount can be collected. Less time and manpower is required for tax collection.

5. Educative:
The payers of direct tax know how much they are paying, why should they pay and whether the government is utilizing the money or not.

6. Re distributive:
Direct tax is very useful to redistribute income and wealth if there is high inequality. For it, the rich people are imposed taxes in income, profit and properties heavily and the amount collected is used for the benefit of the poor people.

7. Anti-inflationary:
If there is inflation, the government absorbs the money with people increasing direct tax rate. It helps to control the increase in aggregate demand and rise in price level.

8. Reallocate:
The direct tax is helpful to reallocate the resources from non or less desirable sector to more desirable sector. For it, the government imposes more profit tax in the profit earned from the production of such non or less desirable product like tobacco, alcohol etc.

Disadvantages of direct tax

1. Inconvenient:
The payers of direct tax know how much they are paying on what basis or on what rate per unit of time they are paying. The direct taxes are paid in large amounts. Therefore, the payers feel inconvenience or burden.

2. Less flexible:
Only if the direct tax is decreased, it is welcomed and accepted by large number of people. When it is increased the government may encounter serious political pressure.

3. Unpopular:
The direct tax is unpopular tax. It is inconvenient and less flexible. It is not diversified like indirect tax. Due to direct tax, the government may encounter serious political pressure too.

4. Corruption:
In order to evade the payment of large amount of direct tax, the officials and political leaders are offered bribes.

5. Anti-productive:
The direct tax may be anti-productive. It is because its imposition makes people not to work hard. There may be decrease in production, investment and income generation.

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.