TyroCity: Economics 11 Notes

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.

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.

Importance of agriculture in Nepal

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

1. Source of food
Agriculture is determined as main source of food in Nepal. All food and cash crops are grown from agriculture. Agriculture is the mean to survive. We get all required food from it. So, it is a main source of food.

2. Source of raw material
Agriculture is not only source of food but a dominant source of raw material. Jute, sugarcane, tobacco etc. are produced or obtained from agriculture.

3. Employment opportunities
Agriculture is the primary source of employment. According to a report of World Bank about 71.74% of total population depends upon agriculture. The number are 3,831,000 families depending on agriculture as per the 6th agricultural counting from Nepal Government. Thus, almost all farmers are completely engaged in agriculture, making agriculture dominant in agricultural employment.

4. Source of foreign trade
Most of the agro-product is export to foreign or international market. About 60% of agro-product is exported to foreign land. Tea, coffee, woolen clothes, leather jackets etc. are exported which is agricultural products.

5. Increase in Government revenue
Since, 60% of goods exported are obtained from agriculture. So, Government of Nepal includes export tax, tax, registration tax etc. which is the important 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.

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.

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.

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.

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.

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.

Problems of tourism industry

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

1. Lack of transportation and communication:

Nepal is economically poor country. Nepal has not been able to provide transportation and communication facilities in all sectors. So, tourists who visit Nepal cannot get a chance to observe all parts of Nepal.

2. Lack of trained tourism manpower:

Tourism industry needs trained and untrained manpower. Trained manpower is scarce in Nepal. Such as: Geographical experts, Trained and Export guides etc.

3. Lack of good quality hotels:

According to the fiscal year 2009/10, there were 103-star hotels with 9613 beds. The hotels are not well managed and unhygienic. So, tourists do not prefer to visit Nepal due to unhygienic, unmatched and unmanaged hotels.

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.

Types of Poverty

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

Poverty is a situation in which people cannot fulfill their basic needs.

Types of poverty

Absolute Poverty
Relative Poverty

1. Absolute Poverty:
Absolute poverty refers to a situation which individuals are unable to attendant necessities of life such as food, cloth, shelter, safe drinking water, health facilities, primary education etc.

In other word, it is a situation in which the level of income of the people is so low that they cannot afford must of their basic needs.

2. Relative poverty:
Relative poverty is the situation in which a person has enough income to sustain the life but the income and living standard is lower compared to rest of the community. It is also the condition of less income in a country compare to the worldwide income average income.