Economics

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Types of consumer

MEANING OF CONSUMER Consumers : consumers are those persons who consumes goods and services directly or indirectly to Maximize his wants. In other words , consumers consumes products and services produced by the producers just to have to maximum level of satisfaction from the product out of his level of income. 12 types of consumers in the market Seasonal consumers : Seasonal consumers are those consumers who buys goods and services on the seasonal basis. For example umbrellas during rainy day. Organizational consumers: These are those consumers who purchases goods and services for the organization or government ,they have been working for. Impulse buyers :These are those consumers who does not any plan of buying the products initially but they just go for it as unplanned decision.For examples toffee near check out counter. Need based consumers : These are those type of consumers who purchases the goods only when they feel for the need of particular product.For example bulb when it

Economies of scale-causes

ECONOMIES OF SCALE Economies of scale are the advantages that can happen as a result of increasing business' size. There are two types of economies of scale : Internal economies of scale . These are borne from within the domestic company. It happens when company can cut off its cost to make its firm different in aspect of pricing . These arises by lowering their costs, raising production level,have patent right. External economies of scale are borne from the external factors . It thus means no one company can control costs on its own. These arises when there is availability of high skilled labour, subsidies,taxes,joint ventures . Causes Specialization of labour Reorganization of internal resources Integrated technology boost production Lower costs Lowers capital costs Spreading internal cost Advertising buys Spreading internal function costs

China-A developed nation

China -A developed nation •China,is said to be the country who has its economy for the pas ten years. •There is large scale capital investment financed by domestic savings and foreign investment. •There is rapid productive growth in China. Reforms of China led to higher efficiency in economy which boost up the output. •It also increased resources for additional investment. •Chinese savings were generated by the profits of SOEs which were used by Central government for domestic investment. •Decentralization of economic production LEDs to growth in chinese savings. •Gross domestic savings exceeds the domestic investment in China which made the China global lender. •Reallocation of resources are shifted to more productive uses in those sectors which are controlled by Central govt. •Foreign direct investment in China bring with it new technology that boost up the efficiency. •China has diversified into resource and development. It invests in labour and capital in innovation to sustain it

Causes of business cycle

CAUSES OF BUSINESS CYCLE The role of following factors external and internal which cause business cycles : Internal factors Internal factors refer to those causes working from within economic system itself which give rise to self generating and recurring business cycles. These are a) Monetary factors : According to Hawtrey's the role of the monetary factors in generating upswings and downswings in economic activity. -Determining level of economic activity in response to changes in discount rate. -Changes in flow of total monetary demand. -Role of external drain and recall of bank reserves. The three factors when combined under different conditions can together cause upswing and down turn in economic activity. The direct policy implications is that anti deflationary policy must aim to stabilise,not price level of commodities, but prices of factors of production. b) over saving : Over saving implies unde

Measures to solve the problems

MEASURES TO SOLVE PROBLEMS OF TRADE CYCLE The measures which can be employed to solve the problems arising out of business cycles are classified into two types : a) Preventive measures :These are those measures which are designed to prevent the individual concern from suffering losses during Recession and contraction phases of the cycle . b) Relief measures :These are those measures which are designed to quicken the recovery following a period of contraction. Preventive measures These include all measures which would be adopted during the period of expansion. 1) Conservation of assets during expansion by avoiding undue increases in plant and equipment and in dividends. 2)Managing the plant use in such a manner as avoids decrease in unit production and increase in unit overhead costs and maintain satisfactory labour conditions and steady employ throughout the year. 3)Avoiding excessive inventories and purchase commitments beyond the available financial resources and excessive sales pr

Stages of a Trade Cycle

STAGES OF TRADE CYCLE a) Depression : Depression (Slump) is considered as most critical and fearful stage of Trade cycle.Depression shows itself first in a substantial decline in output and employment ,prices and wages continue to decline.The fall in prices is more than the fall in wages .This further leads to redistribution of National Income.Incomes of shareholders go down fast which reduces the deposit with bank which in return follow the policy of credit contraction. This causes depression to persist for a longer period. b) Recovery : Recovery shows upturn of output and employment of the economy . It is the result of fresh demand arising from the consumer goods industries.Proces remain more or less stable,wages and other incomes show a noticeable rise. Profits start rising,income rises,consumer spending also rises which further encourages increased production. Soon,The other business activity also picks up . It is slow and halting process. c) Prosperity : Rise in output and inc

Role of capitalism

ROLE OF CAPITALISM IN DEVELOPING ECONOMY Capitalism is that part of the economics where there is no role of government agencies. The sole supe power of capitalism is in the hands of private owners. This means that if private is working on the behalf of government, instead of social welfare, their main objective is to have profits. Features Lack of intervention of government. Role of private firms. Role of price mechanisms. Advantages Encourages innovation Efficient firm incentives Consumers can choose services of their choice. Prevents government from interrupting. Creates climate of innovation and economic expansion. Helps in increasing GDP. Disadvantages Firms can gain monopoly power. Externalities damages the environment. Prone to boom and bust in the economic cycles. Inequality creates social division. Capitalist market crashes causes economic downturn , uneven business cycles. There is difficulty in mobilising unprofitable sector into profitable sectors. By taking advantage of poo

Trade Cycles

TRADE CYCLES Meaning of trade Cycles Trade Cycle refers to regular fluctuations in the economic activity in the economy as a whole.A feature of business cycle is boom being followed by depression ,recovery and again boom conditions in economy. Business Cycles are regular fluctuations in income,output and employment.A business cycle invariably starts in industrial sector and then spreads itself over the other sectors quickly. Trade cycles or business cycles are important feature of capitalist economy. The expansion,recession,contraction and revivals occur and reoccur in an unchanged sequence. It is composed of periods of good trade characterized by falling prices and low unemployment rate alternating with period of bad trade characterized by rising prices and high unemployment rate. . Characteristics of Trade Cycles a)A trade Cycle is an economy-wide phenomenon.Once a phase of trade Cycle started ,it will soon spreads to other fields . b)A trade Cycle shows a wave like variation in econ

Role of Globalization

ROLE OF GLOBALIZATION IN AN ECONOMY Globalization has been creating various changes in the functions of state in developing economy. With the increasing disinvestment of public sector,privatisation has been emerged. Public sector was made to compete with private sector as a competitor ,free trader. •Public sector and enterprises are getting privatized and state presence in global economy is decreasing. •The emergence of market competition,free trade ,MNCs limited the scope of role of state in sphere of global economy. •Increasing international inter- dependence has been forcing stare to accept limitations on its sovereignty. •Each state finds it essential to accept the rules of international economic system ,WTO, World Bank,IMF. •Role of MNC has also growing in national and international politics as they play role in shaping decisions of state where the key intere

BOP Disequilibrium

BOP DISEQUILIBRIUM - TYPES Disequilibrium in BOP may be of following kinds: a) Cyclical Disequilibrium: Disequilibrium caused by trade cycles are called as Cyclical Disequilibrium.Growth of trade undergo a change as a result of trade cycles,due to which BOP is influenced. It can be corrected by import-export adjustment. b) Secular Disequilibrium :When an economy undergoes intensive changes,it causes Secular or long term Disequilibrium in BOP. c) Structural Disequilibrium: When Structural changes take place in some sectors of the economy,then they effect import -export trade of the country which result into Structural Disequilibrium. d) Fundamental Disequilibrium :When a country suffers from chronic Disequilibrium in its BOP ,then according to IMF ,it will be called as Fundamental Disequilibrium. e) Temporary Disequilibrium : Short term factors account for temporary Disequilibrium in BOP. EFFECTS a)It lowers international economic creditability of the country. b)Economy of a particular

5 essential elements of demand

5 ESSENTIAL ELEMENTS OF DEMAND The five essential elements of demand are a)Desire for a commodity : It means for buying any commodity , first of all there should be desire or (want) for that particular commodity we want buy. {For instance, let's say that a adult was craving for chocolate during his market visit and thus having desire for it.} b)Ability to purchase : Secondly , we should have ability toh buy that commodity . Obviously if we are desiring a commodity and want to buy that , we should also have the ability to buy it. {He should have money within his pocket to buy chocolate.} c) Willingness to buy: Now after , the person have also the ability to buy , he should be willing to buy it. His willingness should not be compromised at this moment .{Again,If he is not having money within his pocket ,he should arrange it ,or rather just buy chocolate from his savings .} d)Given price : The price of that commodity should be mentioned or given already . e)Given time : The time o

Economies of scale

Economies of scale Economies of scale are the advantages that can happen as a result of increasing business' size. There are two types of economies of scale : Internal economies of scale . These are borne from within the domestic company. It happens when company can cut off its cost to make its firm different in aspect of pricing . These arises by lowering their costs, raising production level,have patent right. External economies of scale are borne from the external factors . It thus means no one company can control costs on its own. These arises when there is availability of high skilled labour, subsidies,taxes,joint ventures . Causes of Economies of scale •Specialization of labour •Reorganization of internal resources •Integrated technology boost production •Lower costs •Lowers capital costs •Spreading internal cost •Advertising buys •Spreading internal function costs

Equilibrium & Disequilibrium BOP

EQUILIBRIUM AND DISEQUILIBRIUM OF BOP BOP equilibrium : As it is known, BOP equilibrium is struck when current account balance ,capital account balance,errors and omissions are all equal to zero and there is no movement of official reserves of the central bank. In the state of BOP equilibrium inward flow of foreign exchange is exactly equal to outward flow of foreign exchange. BOP Disequilibrium : Disequilibrium in BOP is caused when the sum total of current account balance and capital account balance is not equal to zero,instead it is either positive or negative.If it is positive,it indicates surplus BOP.If it is negative,it indicates deficit BOP.It is caused due to the differences in the values of imports and exports. Unfavourable or favourable BOP • Balanced BOP -When total receipts of a country or exports are equal to its total payments or imports, it is said that the country has Balance BOP. • Favourable BOP -When in order to balance the receipts and payments of a country recei

Buying Oil in dollars helps U.S

Buying Oil in dollars helps U.S Petrodollars is the specific name given to the system to exchange of oil for U.S dollars between countries that buy oil and those who are manufacturer of it.It was started by the U.S in the agreement with the Saudi Arabia. •It helps in increasing the stability of oil prices denominated in U.S currency. •Petrodollars recycling creates demand for the assets of U.S. •It promotes non inflationary growth. •It increases the borrowing costs for govt. Companies. •It is referred to as the primary source of revenue for many OPEC members. •It is also the source for oil exporters in Middle East, Norway,Russia. •The purchasing ability of petrodollars relies on the currency of U.S. •It creates surplus,which lead to increase the value of currency of U.S. •Petrodollars are directly linked with the U.S currency and govt. Revenue. •It helped the U.S in the financial market and gaining economic power. •Due to this , it is being called as the most dominant country of the wo

Insurance penetration

INSURANCE PENETRATION Insurance penetration is measured as the percentage of insurance premium to GDP. (Insurance premium and GDP figures should be in same currency, it can be Rupees $ .... will not make any difference) Insurance penetration for life increased to 3.2% in 2020-21. Insurance penetration for non-life increased to 1% in 2020-21 Insurance density is measured as the ratio of premium (in US dollar) to total population. Insurance density for life is around $59 in 2020-21 Insurance density for non-life is around $19 in 2020-21 The data is from annual report of IRDAI.

The New Development Bank

THE NEW DEVELOPMENT BANK The NDB is a multilateral development bank established with the objective of financing infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, complementing the efforts of multilateral and regional financial institutions toward global growth and development. The New Development Bank (NDB) was established in 2015 by BRICS nations – Brazil, Russia, India, China and South Africa. NDB commenced the admission of new member countries in the second half of 2021. The NDB has already admitted Bangladesh, United Arab Emirates (UAE) and Uruguay as its new members. And Egypt is going to be the fourth new member. The Bank's Agreement specify that all members of the United Nations could be members of the Bank , however the share of the BRICS nations (Brazil, Russia, India, China and South Africa) can never be less than 55% of voting power. Egypt is the fourth new member admitted into New Development Bank (ND

Future trading banned

Future Trading- Banned Future contract -The price of the future contract will depend on the demand and supply situation of the agri- commodities in the physical market. -Sometimes the price of the future contract also influences the price of the commodities in the physical market. -Sometimes traders in the physical market uses the future contract price as the reference price for doing trade. So, both impact each other. -Govt. sometimes feel that, allowing the trade of these papers (future contracts) leads to speculation in prices and banning the future trade may cool down prices. -That is the reason Ministry of Finance directed SEBI to ban the future (contract) trading in 7 commodities viz. Chana, mustard, paddy, wheat, moong, Soybean and crude palm oil. -Future and forward contracts are similar, the only difference is futures are traded on exchanges while forward contracts are done between two people/entities (called over the counter).

Depreciation of Indian currency

DEPRECIATION OF INDIAN CURRENCY • Because of the Russia-Ukraine crisis, FPI investors were leaving India which was leading to depreciation in rupee. •Rupee was also under pressure due to increase in crude oil prices. This is because oil importers are purchasing more dollars from the forex market to get the same one barrel of crude oil. •Demand of dollars increasing and rupee depreciating which were leading to rupee depreciation. •Because of rupee depreciation, imports (in rupee terms) are becoming costlier which will lead to increase in inflation in the coming time in India . •Hence, RBI has done $5 billion Dollar - Rupee swap. In this swap, RBI will presently remove some amount of rupee liquidity from the financial system. •When the rupee liquidity (money supply) is reduced, inflation will come down and rupee will move towards appreciation. •In this swap, auction happens and those banks will be selected for the swap which will quote the least premium below a particular cut-off pre

Significance of Balance of payments

SIGNIFICANCE OF BOP a)BOP account highlights the economic state of a country. b)It helps the country to build handsome reserves of foreign exchange. c)It indicates high level of international demand for domestic goods and services. d)It points to high level of production activity in domestic economy. e)It suggest how to accelerate GDP growth.. f)It also suggests the course of action or measures that the planners and politicians must initiate to improve economic health of the country. g)Changes taking place in the economy at different periods of time can be best reflected in its balance of payments position. h) Statistics relating to balance of payments provide useful information for national planning. i)It is helpful for the International financial organization. FEATURES OF BOP a) Systematic record : It is a Systematic record of all economic transactions between one country and the rest of the world. b) Transactions:It includes all transactions,visible as well as invisible. c) period

Balance of payments

BALANCE OF PAYMENT Balance of payments refers to the statement of accounts recording all monetary (arising out of export and import of goods and services, international sale and purchase of assets) transaction of a country with the rest of world. In other words, Balance of payments of a country is a systematic record of all economic transaction between it's residents and residents of foreign countries. Components of BOP It is split broadly into two categories: a)Current account b)Capital account Current account records exports(X) ,imports(M) of goods and services as well as invisibles. - Export and import :The export and imports of goods are called as merchandise or visible trade as goods are of tangible nature. - Invisibles: The exports and imports of services are called as invisible trade as services are of intangible nature . *The services are further categorised into two: Factor services involved payments in terms of income like investment income,compensation of employees.

SWIFT

SWIFT Society for worldwide interbank Financial telecommunication is a cooperative society , headquarters in Belgium and the members are banks and financial institutions . It is a method of communication among banks for sending financial messages around the world. Messages sent through the SWIFT are almost real time. Only the sender bank and the receiver bank will know the details and no one can break this encryption. SWIFT code is also called as Bank identifier cods (BIC) which is a unique ID for the bank .

Chinese currency for Oil trade

Chinese currency for oil trade Russia has been trying to sell oil at significant discount using yuan as reference currency. The U.S is using economic advantage to freeze dollars. For oil trade between India and Russia, Chinese currency can become alternative option. Reasons behind this •Russia has been trying to sell oil at significant discount to India as demand for Russian oil has dropped since the U.S and Europe gas imposed sanctions. •As part of Western sanctions, certain Russian banks were removed from the SWIFT payments which affects the ability of Russia's ability to trade with rest of the world. •The Russian Central bank foreign reserves were also frozen which in turn has dented Bank of Russia's ability to use it's foreign reserves to defend its currency. •India is thinking of purchasing Russian oil by paying Russian ruble. But if sanction still goes on, and we keep on trading with Russia through Indian currency or Russian currency then Russia will be in proble

Currency in circulation

Currency in circulation Currency in circulations is the money notes or coins which are present in the economy. It includes currency with public and currency with the banks. Where currency with the public is part of money supply. Currency in circulation was around Rupees. 28.5 lac crore during the year 2020-2021 and GDP was Rupees. 197 lakh crore. The ratio of CIC and GDP was high during 2020-2021 because of covid lockdown. The ratio was 14.5%.

Important terms

Tariff rate quota Quota means quantitative barriers generally in terms of imports. TRQ is a quota for imports that enter India at a specified tariff /port duty. After the quota is reached, a higher tariff applies on additional imports. Safeguard mechanism Safeguard mechanism allows trade partners in an FTA to raise tariffs temporarily to deal with import surger or price falls. The additional duty raised/imposed is called safeguard duty. Soft landing Soft landing means RBI will try to reduce liquidity in the economy which it had earlier pumped to support growth in covid times but very cautiously otherwise economic recovery could get impacted in light of omricon. Inflation control Price stability demands liquidity control and growth demands more liquidity. Hence, RBI need to trade cautiously between price stabity and growth.

Minimum support price scheme

MINIMUM SUPPORT PRICE SCHEME The best way to support agriculture is to invest in agri -R&D,agricultural-extension systems and connect farmers to lucrative markets,domestic and external, by building efficient value chains. Giving farmers their right to choose technologies and best market is fundamental to the functioning of agri-system. Minimum support prices (MSP) need to be made as legal instrument. [It means that no one is allowed to buy crop below its MSP. But if it is accepted, it will turn out to be anti-farmer. ] Reasons •It ignores that prices are decided by demand and supply. •In case of surplus, which happens during harvest, prices fall to clear market. •If MSP is above market clearing price, no one from private sector will buy. •In this case, govt. Has to buy the farmers's produce otherwise farmers will turn to be worse off. The govt. Declare MSP for 23 crops where the procurement happens largely to rice and wheat. Why MSP crops and why not other agri prod

Benefits of FTA

Benefits of FTA The Comprehensive Economic Partnership Agreement was signed by Commerce and Industry minister Piyush Goyal and UAE's Minister of economy Abdullah bin Touq Al Marri after 88 days of negotiations. India, UAE sign Free Trade agreement which will prpvide benefits to India . •It is set to reduce tariffs for 80% of goods . •It gives zero duty access to 90% of India's export in a number of labour oriented sectors to UAE. •It is expected to boost annual bilateral trade to $100billion within 5 years of adoption, up from about $60billion currently. •It will provide opportunities for business in both the economies. •India had agreed to concessional import duties on gold imports Up to 200 tonnes per year. •This agreement provides permanent safeguard mechanism to protect business in both the countries to prevent any unnecessary surge in volumes of imports.

Expansion in the economy

Trickle down effect-Economic expansion The economic policy paradigm i. e increase overall size by reducing taxes and then redistributing wealth, has not been beneficial to the people. This compares whether there should reduction of taxes which will lead to expansion of economy and through the increased tax resources, Govt. should focus on health and education. Or There should tax from rich policy and focus on education and heath rather focusing on Economic expansion. According to former finance minister P Chidambaram , he described budget as "No work, No welfare, only wealth". Wealth creation should be in the economy.However, it must not be at the cost of workers and welfare. Now,the economy of India is suffering from the demand side problem .There is rising unemployment among youth. If people dont earn, demand will not increase and investment in business will not be attractive. There is highly need for the economy to make our growth process inclusive . •It must mak

Non -convertible debentures

Non-Convertible Debentures (NCDs) NCDs are financial instruments that are issued by companies to raise medium to long - term capital. NCDs are debt instruments with a fixed tenure and people who invest in these receive regular interest at a certain rate. Some debentures can be converted into shares after a certain point in time. This is done at discretion of owner. But this is impossible in case of NCDs, that's why it is known as Non - Convertible. NCDs are of two types: a) Secured NCDs : The issuer pledges specific assets as collateral against defaults on the NCDs. b) Unsecured NCDs :No specific assets are pledged as security/collateral for the loan. The major players which raise funds through NCDs housing finance companies, gold loan companies and NBFCs.

Fiscal Dominance & RBI

Fiscal dominance & RBI Fiscal dominance occurs when central bank use their monetary powers to support the prices of government securities and to keep interest rates at low levels to reduce the costs of servicing sovereign /government debt. Fiscal dominance implies that Fiscal consideration limiting the scope for an independent and prudent monetary policy. Recently,WPI is running in double digits since last 10 months and last month CPI has also crossed 6% but still RBI is not willing to increase the repo rate because it may lead to increase in interest rates and increase in cost of borrowing by the government. RBI also scrapped plan for issuance of central government securities to raise debt for govt. in light of higher interest rate in the market.

PPV&FR Act,2001

Protection of plant varieties and farmers' rights Act, 2001 (PPV&FR) •Under this act, the pepsi company has registered as a breeder of variety of potato. •Breeder right-A breeder can be person or group of farmers of any institution which has bred, evolved or developed any plant variety. And breeder of protected variety will have the right to produce, sell, market, distribute, export and import this kind of variety. •Farmers'right-A farmer shall be deemed to be entitled to save, use, sow, resow, exchange, share, sell his farm produce including seed of variety protected under this act in the same manner as he was entitled before coming into force of this act, provided that farmer shall not be entitled to sell braded seed of a variety protected under this. •There was around 12,000 farmers who were a part of the company's collabrative farming programme, wherein the company used to sell seeds to farmers and has an exclusive contract to buy back their produce. •In 2019,Pe

Disinvestment

Disinvestment Government reducing its ownership in a PSU. This reduction in ownership can be any percentage be it 5%,10%etc . Disinvestment means Government is selling some of its ownership in a PSU. Strategic Disinvestment This requires two things. a) Govt. Reducing it's ownership to 50% or less in a PSU. b) Transferring the management control to strategic private partner. This means that the decission making in the company will be transferred to strategic partner and govt. Will not be taking decision even if it owns 50% or less than that. It is basically a company which was already present in that sector/business or have some experience of business. Privatisation Govt. Selling a PSU to private people/firms ,that will be classified as Non-govt. Company and this means where govt ownership is less than 49%.So, in privatisation, the govt. Reduces its ownership to less than 50% and sells its stake to either private/retail investors or strategic partner.

War bonds and UKRAINE

War bonds and Ukraine A war bond is a debt security issued by government to finance military operations during times of war or any conflict. Because warbonds offered a rate of return below the market rate, investment was achieved by making emotional appeals to patriotic citizens to lend the government money. Although war bonds do not pay interest, they are sold at discount that mature to face value giving some positive returns. Ukraine raises $277 million from the sale of war bonds . The war bonds are one of a number of crowdfunding measures by Ukraine to raise money for both its armed forces and civilians as the country faces down vastly bigger military force.

ODOP

ODOP One district one product is pradhan Mantri formalisation of Micro Food Processing Enterprises (PMFME) scheme under ministry of Food Processing Industries. The department of Commerce is focusing on agriculture crops on a cluster approach for the development of specific agri-products in districts having a comparative advantage. The department of Commerce through DGFT is engaging with state and Central government agencies to promote the initiative of one District One Product. The objective is to convert each district of the country into an Export hub by identifying products with export potential in the districts, addressing bottlenecks for exporting these products, supporting local exporters/manufacturers to scale up manufacturing and find potential buyers outside India with the aim of promoting exports, promoting manufacturing and services industry in the District and generate employment in the District and advancing the goal .

Go Digital,Go Secure

Go Digital, Go Secure RBI has been conducting Financial Literacy Week (FLW) every year since 2016 to propagate financial education messages on various themes among members of Public across the country. The theme selected for this year FLW is Go Digital, Go secure which will be observed between Feb 14-18,2022. It is one of the strategic objectives of National Strategy for Financial Education, 2020-2025. Focus will be on creating awareness about a) Convenience of digital transactions. b) Security of Digital transactions c) Protection of consumers. Banks have been advised to disseminate the information and creates awareness among their consumers and general public. Further, RBI will undertake mass media campaign during the month of Feb,2022 to disseminate essential financial awareness messages to the general public.

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