1.

INTRODUCTION

Economics is a social science devoted to the study of how people and societies get what they
need and want. Or, in greater formal language, economics is the study of how societies
divide and use their assets to produce goods and services and of how these goods and
services are then dispensed and consumed.

Resources are the primary ingredients that are wished to produce the items and services
that human beings buy. These components can be physical matters such as land and
manufacturing unit equipment, and they can be intangible things such as the intellectual
and emotional capacities of people, whose work is vital for the production of items and
services. Whether a society is prosperous or poor, giant or small, assets are, from the
perspective of economics, scarce. This means that almost anybody in each and every
country would like extra items and services than can ever be produced. Given a limited
provide of resources and an unlimited want on the phase of individual buyers and nations,
preferences should be made about what items and offerings to produce, how to produce
them, and for whom.

Economists study these often-difficult choices and their significance. They come up with
theories about how such choices are made on both individual and collective levels, and they
try to make predictions and find solutions to a wide range of societal problems .

The theories of these and other thinkers are now commonly grouped together under the
heading classical economics. Most economists throughout the late nineteenth and early
twentieth centuries continued to accept the basic ideas of the classical economists. The
leading figures in the field during this time often focused less on wide-ranging theories than
on supporting preexisting theories with sophisticated mathematical principles. During this
time economics moved away from its origins in pure theory and observation and became
dependent on highly sophisticated mathematical analysis.

2. WHAT IS ECONOMICS?
Economics can be defined as the study of the production and distribution of goods and
services within a society. However this is a very broad definition that may additionally
seem little beneficial for appreciation what economics is virtually about, in particular for
beginners.

In order to know the given definition we first need to be capable to think like an economist,
at least to a certain degree. Thus, to start off it seems useful to take a look at some of the
most primary economic principles, before diving into the world of fancy definitions and
technical terms.

Since this is supposed to be a brief introduction we will focus on the three most critical
ideas here.

1) Scarcity

There are not enough resources for everyone’s wants. Most assets are constrained and
there is only a sure volume accessible for distribution. However people in fact have limitless
needs for these resources and as a result strive to get as a lot of them as possible (In
different words: more is usually better).

2) Trade-offs

Because of the scarcity cited above, people are compelled to make choices, on account that
they cannot get the whole thing they desire. This may additionally be obvious when it
comes to cash (i.e. “Should I spend these 2$ on ice cream or on an apple?”), but holds
proper for all choices we face in our life. For Example: On a sunny day you ought to either
spend the day at the beach, or have a nice barbecue with your friends. If you chose the
barbecue you obviously can’t go to the beach at the same time.

3) Opportunity Costs

This term describes the value of what has been given up in order to get some thing else.
Again this does not always have to be a economic value. In our instance above, the chance
fee of having a barbecue would be no longer being able to be at the seashore at that time. In
other words, probability prices are the feasible benefits you may want to have acquired via
taking an choice decision.
In a nutshell

People can’t get the entirety they choose due to the fact sources are scarce. Thus they have
to take selections and deliberately forgo positive things. Those things are then referred to
as probability costs.

Keeping these three easy ideas in mind, we can now seem to be at the world in a distinct
way and think more like economists. This will make it less difficult to apprehend monetary
conduct as it gets greater complex (and even extra interesting).

3.DEFINITIONS TO ECONOMICS

3.1. According to Adams Smith:

“The great object of the Political Economy of every country is to increase the riches and
power of that country.”

Adam Smith (1723-90) — the great Scottish economist. Following the mercantilist
tradition, Adam Smith and his followers regarded economics as a science of wealth which
studies the process of production, consumption and accumulation of wealth.

His emphasis on wealth as a subject-matter of economics is implicit in his great book— ‘An
Inquiry into the Nature and Causes of the Wealth of Nations or, more popularly known as
‘Wealth of Nations’—published in 1776.

Criticism

This definition is too narrow as it does not consider the major problems faced by a society
or an individual. Smith’s definition is based primarily on the assumption of an ‘economic
man’ who is concerned with wealth-hunting. That is why critics condemned economics as
‘the bread-and-butter science’.

3.2.According to marshall’s welfare definition

“Political Economy or Economics is a study of mankind in the ordinary business of life; it

examines that part of individual and social action which is most closely connected with the
attainment and with the use of the material requisites of well-being.”

Thus, “Economics is on the one side a study of wealth; and on the other and more
important side, a part of the study of man.” According to Marshall, wealth is not an end in
itself as was thought by classical authors; it is a means to an end—the end of human
welfare.
Criticism to marshall’s definition

Marshall’s notion of ‘material welfare’ came in for sharp criticism at the hands of Lionel
Robbins (later Lord) (1898- 1984) in 1932. Robbins argued that economics should
encompass ‘non- material welfare’ also. In Real life, it is difficult to segregate material
welfare from non-material welfare. If only the ‘materialist’ definition is accepted, the scope
and subject-matter of economics would be narrower, or a great part of economic life of
man would remain outside the domain of economics.

Marshall’s definition ignores the fundamental problem of scarcity of any economy. It was
Robbins who gave a scarcity definition of economics. Robbins defined economics in terms
of allocation of scarce resources to satisfy unlimited human wants.

3.3. Robbin’s Scarcity Definition

“Economics is the science which studies human behaviour as a relationship between ends
and scarce means which have alternative uses.”

Human wants are unlimited; wants multiply—luxuries become necessities. There is no end
of wants. If food were plentiful, if there were enough capital in business, if there were
abundant money and time—there would not have been any scope for studying economics.
Had there been no wants there would not have been any human activity. Prehistoric people
had wants. Modern people also have wants. Only wants change—and they are limitless.

Criticism to Robbin’s scarcity definition

Robbins deliberately downplayed the importance of economics as a social science. Being a

social science, economics must study social relations. His definition places too much
emphasis on ‘individual’ choice. Scarcity problem, in the ultimate analysis, is the social
problem—rather an individual problem. Social problems give rise to social choice. Robbins
could not explain social problems as well as social choice.

CONCLUSION

The science of political economic system is growing and its area can never be rigid. In
different words, the definition need to no longer be inflexible. Because of modern research,
many new areas of economics are being explored.

That is why the controversy concerning to the definition of economics remains and will stay
so in the future. It is very hard to spell out a logically concise definition. In this connection,
Mrs. Barbara Wotton’s remarks might also be cited – ‘Whenever there are six economists,
there are seven opinions!’
4. SUBJECT MATTER OF ECONOMICS
Economics is a social science concerned with the administration of scarce
resources. Resources are objects and services that are capable of satisfying human wants
either directly or indirectly by helping to produce other objects and services whose use
satisfies human wants. The administration of resources does not always create economic
problems. Some resources are so plentiful that they are more than sufficient to satisfy
completely all the human wants which depend on them. Air, for example, is such a
resource. These resources are called free resources; and there is no need for organizing
their use, because any waste or inefficiency in their utilization can be made good from their
excess supply and need not abridge the satisfaction of human wants.

By contrast, scarce resources are those that are insufficient to fill completely all
the wants they cater to; these wants therefore can only be satisfied partially.
This raises problems of administration which are the subject matter of
economics.1 To begin with, one problem of administration is to insure the full
utilization of scarce resources, because their incomplete utilization would result
in a loss of human satisfaction. Second, when scarce resources are fully utilized,
there is the further administrative problem of properly allocating these
resources among their different uses and to the satisfaction of different wants.
For when scarce resources are fully utilized, the fuller satisfaction of any one
want can only be achieved at the cost of the lesser satisfaction of some
alternative want or wants. Third, yet another problem of administration is the
proper distribution among consumers of these resources or of the goods and
services produced with their aid.
Most of these problems would present themselves even to an isolated and
completely self sufficient person. Such a person, to fill his needs, would have to
rely on his limited capacity to work and would face the problem of how best to
utilize his energy and divide his time between leisure and different types of
work. This is a problem of administering the scarce resources of his time and
energy; but it is his private problem, which he may be left to solve as best he
can, because its solution has no repercus

Thus efforts, wants and satisfaction leads to subject matter of economics.

4.1. Divisions of Economics:

 Traditional approach
 Modern approach
 4.1.1.Traditional approach

 Consumption
 Production
 Exchange
 Distribution
In production the members of society appropriate (create, shape) the products of nature
in accord with human needs distribution determines the proportion in which the
individual shares in the product; exchange delivers the particular products into which the
individual desires to convert the portion which distribution has assigned to him; and
finally, in consumption, the products become objects of gratification, of individual
appropriation. Production creates the objects which correspond to the given needs;
distribution divides them up according to social laws; exchange further parcels out the
already divided shares in accord with individual needs; and finally, in consumption, the
product steps outside this social movement and becomes a direct object and servant of
individual need, and satisfies it in being consumed. Thus production appears as the point of
departure, consumption as the conclusion, distribution and exchange as the middle, which
is however itself twofold, since distribution is determined by society and exchange by
individuals. The person objectifies himself in production, the thing subjectifies itself in the
person; [9] in distribution, society mediates between production and consumption in the
form of general, dominant determinants; in exchange the two are mediated by the chance
characteristics of the individual.

Distribution determines the relation in which products fall to individuals (the amount);
exchange determines the production[10] in which the individual demands the portion
allotted to him by distribution.
Thus production, distribution, exchange and consumption form a regular syllogism;
production is the generality, distribution and exchange the particularity, and consumption
the singularity in which the whole is joined together. This is admittedly a coherence, but a
shallow one. Production is determined by general natural laws, distribution by social
accident, and the latter may therefore promote production to a greater or lesser extent;
exchange stands between the two as formal social movement; and the concluding act,
consumption, which is conceived not only as a terminal point but also as an end-in-itself,
actually belongs outside economics except in so far as it reacts in turn upon the point of
departure and initiates the whole process anew.
4.1.2. Modern Approach
This approach can be divided in to two branches i.e.

 Micro Economics
 Macro Economics

Micro Economics:
Microeconomics is a Greek word which means small.

"Microeconomics is the study of specific individual units; particular firms, particular

households, individual prices, wages, individual industries particular commodities. The
microeconomic theory or price theory thus is the study of individual parts of the economy".

It is economic theory in a microscope. For instance, in microeconomic analysis we study the

demand of an individual consumer for a good and from there we go to derive the market
demand for a good (that is demand of a group of individuals for a good). Similarly, in
microeconomic theory we study the behavior of individual firms the fixation of prices
output. In the words of Samuelson:

“Microeconomics we examine among other things how individual prices are set, consider
what determines the price of land and capital and enquire into the strength and weaknesses
of market mechanics”.

“Microeconomic theory or price theory deals with the economic behavior of individual
decision making units such as consumers, resources owners, business firms as well as
individuals who are too small to have an impact on the national economy".

Explanation:

(i) Microeconomics and allocation of resources. The microeconomic theory takes the total
quantity of resources as given. It seeks to explain how they are allocated to the production
of goods. The allocation of resources to the production of goods depends upon the price of
various goods and the prices of factors of production. Microeconomics analyses how the
relative prices of goods and factors are determined. Thus the theory of product pricing and
the theory of factor pricing (rent wages, interest and profit) fall within the domain of micro
economics.

(ii) Micro economics and economic efficiency. The microeconomic theory seeks to explain
whether the problems of scarcity and allocation of resources so determined are efficient.
Economic efficiency involves (a) efficiency in consumption (b) efficiency in production and
distribution and (c) over all economic efficiency. The price theory shows under hat
conditions these efficiencies are achieved.
Importance:

Before Keynesian revolution, the body of economics mainly consisted of micro economics.
The classical economics as well as the neo-classical
economics belonged to the domain of micro economics.

The importance and uses of micro economics in brief are as under.

(i) Helpful in understanding the working of private enterprise economy. The micro
economics helps us to understand the working of free market economy. It tells us as to how
the prices of the products and the factors of production are determined.

(ii) Helps in knowing the conditions of efficiency. Micro economics help in explaining the
conditions of efficiency in consumption, production and in distribution of the rewards of
factors of production.

(iii) Working economy without central control. The micro economics reveals how a free
enterprise economy functions without any central control.

(iv) Study of welfare economy. Micro economic involves the study of welfare economics.

Limitations:

Microeconomics despite its many advantages is not free from limitations. They in brief are:

(i) Assumption of full employment in the economy which is unrealistic.

(ii) Assumption of liaises fair policy which is no longer in practice in any country of the
world.

(iii) It studies part of the economy and not the whole.

Summing up, microeconomics is the study of the decisions people and businesses and the
interaction of those decisions in the market. It analyses the ‘trees’ of the economy as
distinct from the ‘forest’.

Macroeconomics:

Definition:

The term macro is derived from the Greek word ‘uakpo’ which means large.
Macroeconomics, the other half of economics, is the study of the behavior of the economy
as a whole. In other words:
"Macroeconomics deals with total or big aggregates such as national income, output and
employment, total consumption, aggregate saving and aggregate investment and the
general level of prices". In the words of Boulding:

“Macroeconomics deals not with individual quantities as such but with aggregates of these
quantities, not with individual i.e., but with the national Income, not with individual prices
but with the price level, not with Individual outputs but with the national output. It studies
determination of national output and its growth overtime. It also studies the problems of
recession, unemployment inflation, the balance of international payments and the policies
adopted by the governments to deal with these problems".

Explanation:

The main issues which are addressed in macro economics are in brief as under:

(i) It helps understanding determination of income and employment. Late J.M. Keynes laid
great stress on macro-economic analysis. In his revolutionary book, “General Theory,
Employment interest and Money" brought drastic changes in economic thinking. He
explained the forces or factors which determine the level of aggregate employment and
output in the economy.

(ii) Determination of general level of prices. Macro economic analysis answers questions as
to how the general price level is determined and what is the importance of various factors
which influence general price level.

(iii) Economic growth. The macro-economic models help us to formulate economic policies
for achieving long run economic growth with stability. The new developed growth theories
explain the causes of poverty in under developed countries and suggest remedies to
overcome them.

(iv) Macro economics and business cycles. It is in terms of macroeconomics that causes of
fluctuations in the national income are analyzed. It has also been possible now to formulate
policies for controlling business cycles i.e. inflation and deflation.

(v) International trade. Another important subject of macro-economics is to analyze the

various aspects of international trade in goods, services and balance of payment problems,
the effect of exchange rate on balance of payment etc.

(vi) Income shares from the national income. Mr. M. Kalecki and Nicholas Kelder, by
making departure from Ricarde theory, have presented a macro theory of distribution of
income. According to these economists, the relative shares of wages and profits depend
upon the ratio of investment to national income.

(vii) Unemployment. Another macro economic issue is to explain the causes of

unemployment in the economy. Stagflation is another important issue of modern,
economics. The Keynesian and post Keynesian economists are putting lot of efforts in
explaining the causes of cyclical unemployment and high unemployment coupled with
inflation and suggesting remedies to counteract them.

(viii) Macro Economic Policies. Fiscal and monetary policies affect the performance of the
economy. These two major types’ policies are central in macro economic analysis of the
economy.

(ix) Global Economic System. In macro economic analysis, it is emphasized that a nation’s
economy is a part of a global economic system. A good or weak performance of a nation’s
economy can affect the performance of the world economy as a whole.

Limitations:

The main limitations of macro economics are as follows:

(i) The macro economies ignore the welfare of the individual. For instance, if national
saving is increased at the cost of individual welfare, it is not considered a wise policy.

(ii) The macro economics analysis regards aggregates as homogeneous but does not look
into its internal composition. For instance, if the wages of the clerks fall and the wages of
the teachers rise, the average wage may remain the same.

(iii) It is not necessary that all aggregate variables are important. For instance, national
income is the total of individual incomes. If national income in the country goes up, it is not
necessary that the income of all the individuals in the country will also rise. There is a
possibility that the rise in national income may be due to the increase in the incomes of a
few rich families of the country.

Interdependence of Micro and Macro Economics:

The classical approach to macro economics is that individuals and firms act in their own
best interest. The wages and prices adjust quickly to achieve equilibrium in the free market
economy.

The Keynesian approach to macro economics is that wages and prices do not adjust rapidly
and unemployment may remain high for a long time. The Keynesians are of the view that
government intervention in the economy can help in improving economic performance.

Conclusion:

The micro and macro economics are interdependent. They are complementary and not
conflicting. We cannot put them in water tight compartments. Both these approaches help
us in analyzing the working of the economy. If we study one approach and neglect the
other, we are considered to be only half educated.
We should integrate the two approaches for the successful analysis of the working of
economic system. The macro approach should be applied where aggregate entities are
involved and micro approach when individual cases are to be examined. If we ignore one
and lay emphasis on the other, it will lead to wrong or inadequate conclusions.

5. IMPACT OF GOVERNMENT POLICIES ON MICROECONOMICS

A government policy has microeconomic effects whenever its implementation alters the
inputs and incentives for individual economic decisions. These changes come in many
forms, including tax policy, fiscal policy, regulations, tariffs, subsidies, legal tender laws,
licensing and public-private partnerships (to name a few). These policies manipulate the
costs and benefits that individual actors face in nearly every facet of modern life.

Sometimes the impacts of government policy are intentional. The government might
provide a subsidy to farmers to make their businesses more profitable and encourage farm
production. Conversely, the government might put a tax on cigarettes and alcohol to
discourage behavior that it doesn't approve of. Other impacts are unintentional.

When the U.S. government propped up wages during the Great Depression, for example, it
unintentionally made it unprofitable for individual firms to hire extra employees.

The nature of these causes can be understood by identifying the forces behind
microeconomic decisions.

5.1. How Government Policy Changes Microeconomic Factors

Even the existence of a non-voluntary government has microeconomic impacts.

Governments are financed through taxes, which must be taken from private actors. When
this happens, individuals and businesses must either spend less income or work and
produce an additional amount to offset the impact of the taxes.

Governments can also alter markets when they decide to spend money. Any individuals or
businesses that receive government funds receive, in effect, a wealth transfer from every
other taxpayer. If a business receives a subsidy from the government, it produces at a
higher cost curve than is possible without the subsidy. All other actors that might have
received those funds (were it not for the taxation and subsidy) have correspondingly less
income or revenue.

Fiscal policy directly impacts prices. When the government spends $1 million purchasing
computers, it bids up the price of computers in the short run. This crowds out other
individuals who are subsequently priced out of the market. The same effect occurs when
the government issues bonds and crowds out other lenders. This crowding out becomes
even more disruptive when the government directly provides services and employs
workers.

Governments either change the quantity of a good available (supply) or the amount of
funds that can be directed toward those goods (demand). Governments can also make some
forms of trade illegal or make them illegal under certain contexts. All of these impact the
choices that microeconomic actors face and change their decision-making processes.

6. HOW MICROECONOMICS EFFECTS EVERYDAY LIFE

Microeconomics is the study of how individuals and businesses make choices on how to best
use limited resources.

Microeconomics and macroeconomics (the study of the larger aggregate economy)

together make up the two main branches of economics.

So how do the principles of microeconomics affect everyday life? Most people have a
limited amount of time and money. They cannot buy or do everything they want, so they
make calculated decisions on how to use limited resources to maximize personal
satisfaction. Similarly, a business also has limited time and money. Businesses also make
decisions that result in the best outcome for the business which may be to maximize profit.

Microeconomics uses certain principles to explain how individuals and businesses make
decisions. One of the basic principles of microeconomics is that individuals make decisions
to maximize their satisfaction. In microeconomics, this is called maximizing utility.

7. IMPACT OF MACROECONOMICS IN INCOME INEQUALITY AND

INCOME DISTRIBUTION

We examine the macroeconomic determinants of income inequality using dynamic panel

data analysis based on the generalized method of moments over 1990–2013 across 33 Asian
countries. In addition to the macroeconomic factors, we incorporate a series of political
economic and demographic factors to provide more realistic estimates. We found an
inverted U-shaped (parabolic) relationship between gross domestic product (GDP) and
inequality, supporting the well-known Kuznets curve. Apart from that, official
development assistance (ODA), education, and labor force participation reduce inequality
while higher inflation, political risk, terms of trade, and unemployment increase inequality
in Asian countries.

We further observed that an initial increase in GDP redistributes income from the bottom
20% of people to the middle class and richest groups. However, further increases in GDP
redistribute the income from the top 20% to middle-income and poor groups. Similarly,
inflation, unemployment, terms of trade, and ODA are also significant factors of income
distribution among Asian countries. We recommend ensuring higher and steady long-term
economic growth, and enhanced access to education and employment while maintaining
price stability and political stability to sustain more equal income distribution followed by
lower-income inequality in the region.

8. NATURE AND SCOPE OF ECONOMICS

8.1. Economics As A Science

Science is a systematic study of knowledge and fact which develops the correlation-ship
between cause and effect. Science is not only the collection of facts, according to Prof.
Poincare, in reality, all the facts must be systematically collected, classified and analyzed.

There are following characteristics of any science subject, such as;

 It is based on systematic study of knowledge or facts;

 It develops correlation-ship between cause and effect;

  All the laws are universally accepted

 All the laws are tested and based on experiments;

 It can make future predictions;

 It has a scale of measurement.

8.2. Economics is not a Science

Economics is not a science in the way that physics or chemistry is a science. Yet, this is not
something to be lamented.

Economics is not, and will never be, at the stage where models can precisely predict the day
on which a financial crisis will start before it happens, but this is not due to the lack of
legitimacy of the field; instead, it is due to the inherently unpredictable sphere of study in
which economics operates. People are not atoms—and this is exactly why economics is
immediately relevant.

 The laws of economics are not universal.

 The laws of economics are not so exact.
 No possibility of laboratory experiments.
 Conflicting views
 Difficulties in making predictions
8.3. Economics is a positive science

 Logically based:

The ideas of economics are primarily based on absolute logical clarifications and moreover,
it develops relationship between purpose and effect.

 Labour Specialisation:

Labour law is an important topic of economics. It is primarily based on the law of

specialisation of labour Economists need to concern with the causes and consequences of
labour-division.

 Not Neutral:

Economics is no longer a impartial between wonderful and normative sciences. According

to most economists, economics is basically advantageous science alternatively than
normative science.
8.4. Economics as a Normative Science

 Emotional View:
A rational human being has not only logical view but also has sentimental
attachments and emotional views regarding any activity. These emotional
attachments are all coming under normative statements. Hence, economics is a
normative science.

 Welfare Activity:
Economics is a science of human welfare, All the economic forwarded their theories
for the development of human standard of living Hence, all the economic statements
have their respective normative views.

 Economic Planning:
Economic planning is one of the main instruments of economic development.
Several economists have given their personal views for the successful
implementation of economic plan. Hence, economics is coming under normative
science.

All these lead us to the conclusion that ‘Economics’ is both positive and normative
science. It does not only tell us why certain things happen however, it also gives idea
whether it is right thing to happen.

8.5. Economics as an Art

‘Knowledge is science, action is art.’ According to Pigou, Marshall etc., economics is also
considered as an art. In other way, art is the practical application of knowledge for
achieving particular goals. Science gives us principles of any discipline however, art turns
all these principles into reality. Therefore, considering the activities in economics, it can
claimed as an art also, because it gives guidance to the solutions of all the economic
problems.

Economists suggest policies along with their implementation procedures to solve the
economic problem.

 Solution of the problem- prof. Pigou remarked,”Economics is not only light giving
but also fruit giving”.

 Modern trends-they spend a lot of time to find solution to the problems of rising
prices depression ,unemployment ,economic development,etc.
 Verification of economic laws- Practical application of knowledge. The reality can
be judged only if economics is studied as an art.

Therefore, from all the above discussions we can conclude that economics is neither a
science nor an art only. However, it is a golden combination of both. According to
Cossa, science and art are complementary to each other. Hence, economics is
considered as both a science as well as an art.
 9. Scope of Economics in the Development of a country

A country's economic development is usually indicated by an increase in citizens' quality

of life. 'Quality of life' is often measured using the Human Development Index, which is
an economic model that considers intrinsic personal factors not considered in economic
growth, such as literacy rates, life expectancy and poverty rates.

A country's general economic health can be measured by looking at that country's

economic growth and development, at what indicators comprise economic growth versus
economic development.

Let's first examine economic growth. A country's economic growth is usually indicated by
an increase in that country's gross domestic product, or GDP. Generally speaking, gross
domestic product is an economic model that reflects the value of a country's output. In
other words, a country's GDP is the total monetary value of the goods and services
produced by that country over a specific period of time.

 ECONOMIC DEVELOPMENT- Economic development is the process by which

emerging economies become advanced economies. In other words, the process by which
countries with low living standards become nations with high living standards.
 Economic development also refers to the process by which the overall health, well-
being, and academic level the general population improves.

9.1. Factors that hinders the development of a country

 Problem of world poverty
Defining poverty begins with a consideration of conditions that prevent regions, states and
peoples from having access to wealth.

The poorest people will also have less access to health, education and other services.
Problems of hunger, malnutrition and disease afflict the poorest in society. The poorest
are also typically marginalized from society and have little representation or voice in
public and political debates, making it even harder to escape poverty.

By contrast, the wealthier you are, the more likely you are to benefit from economic or
political policies. The amount the world spends on military, financial bailouts and other
areas that benefit the wealthy, compared to the amount spent to address the daily crisis of
poverty and related problems are often staggering.

In addition, developing nation governments are required to open their economies to

compete with each other and with more powerful and established industrialized nations. To
attract investment, poor countries enter a spiraling race to the bottom to see who can
provide lower standards, reduced wages and cheaper resources. This has increased poverty
and inequality for most people. It also forms a backbone to what we today call
globalization. As a result, it maintains the historic unequal rules of trade.

Therefore ,poverty plays a vital role for the economic development of a country. For a
developed geographical area it is necessary to reduce poverty world at large.

It hinders economic growth of a country.many measures have been taken now to reduce
poverty but still it is not working properly.

This is one of the main reason why under developed country remains under developed and
developing country remains under developing.

Scope of economics shall be widen to abolish roots of poverty from the geographical area

 Role of Agriculture Sector:

The agri. sector can also play an important role in the economic growth of a country. But
in case of developing countries the agri. sector is prey to a lot of troubles, i.e., there is
subsistence farming, the techniques of production are outdated; the per acre yield is very
low; the natural calamities badly affect the agri. sector; and the share of food stuff is
higher while that of cash crops is lower. In such situation, the Development Economies
tells us how the status of agri. sector can be changed. In this respect, the development
economists suggest for land reforms, introduction of crash program in agriculture,
provision of subsidies on inputs to the farmers, and the implementation of procurement
prices schemes for farm outputs.
 Role of Industrial Sector:

The industrial sector can also play an important role in the economic growth of a
country. But in case of developing countries the industrial sector is prey to a lot of
troubles, i.e., the UDCs have a limited industrial sector; the industrialists have to face
the problem of insufficiency and inadequacy of funds; the technological gap is
obstructing the industrial growth; and the industrialists are not provided with
consultancy services. Therefore it is the Development Economies which guides the
developing countries regarding new technologies, more financial funds for
industrialists, choice of technologies and establishment of new industries, the package of
industrial investment, the balanced growth pattern or unbalanced growth pattern, and
the pursuance of export promotion strategy of industrialization or import substitution
policy of industrialization.

 Fiscal and Monetary Policies And Economic Development:

As the capital considered to be the life blood of production, and it is also something very
much must for industrialization, the key to economic development. But because of low
income the savings in the UDCs remain low leading to low investment and low capital
formation, 1 this way, the UDCs remain incapacitated to attain economic development.
Thus, for the sake of economic development they can depend upon fiscal and monetary
policies. The fiscal measures like changes in tax rates, provision of subsidies to the
producers and boosting o govt. expenditures on socio-economic sectors will become
helpful in the attainment to economic development in the developing countries. Again,
the Monetary measures lik provision of loans to backward sectors and backward
regions at concessionary rate lowering of bank rate, purchase of govt. securities,
reduction in marginal requirements an decreasing the reserve ratios central banks in.
the poor countries can use the monetary policy for economic development.
 Role of State in Economic Development:

In order to attain economic development just the market forces can not be relied upon.
It means that private sector is not capable enough to start the big projects like thermal
and hydro power plants construction of roads, water supply and water sanitation etc.
Moreover, the social am institutional changes can not be brought just through invisible
hand. Therefore, for the safe of socio-economic changes which are necessary for
economic development of Third world countries the state will have to play its role. It is
the Development Economies which discusses the role of state in economic development.

 Foreign Trade Sector and Development:

From the history of advanced countries it becomes obvious that foreign trade sector
played an important role in their economic development. Therefore, if the developing
countries wish to attain economic development they should promote their foreign trade
sector. This was the one sided view regarding trade and growth. But the Development
Economists, like Gunner Myrdal, Hans Singer, R. Prebisch etc., have also given the
opposite view. They are of the opinion that at international level such forces operate
that world trade is least beneficial for developing countries, it just safeguards the
interests of developed countries. The Terms of Trade' have been found going against
UDCs when DCs get higher prices for their products and prices of primary exports
from UDCs go on to fall. Again the agri. exports from UDCs have to face a severe
competition with their artificial substitutes and trade restrictions in the markets of
DCs. Moreover, the BOP positions of UDCs go on worsening day by day, i.e., they have
to face heavy BOP deficits. To remove such deficits they have to borrow from rich
countries and international agencies. With this they are facing Debts and Repayment of
Debts like problems. Thus the economic rules operating at global level are also
 becoming responsible for increasing the gulf between have and have-nots. Thus the
developing countries are demanding for a "Just New World Economic Order".

 World Development Institutions and Foreign Aid:

The domestic resources at insufficient, the export sector is passive, the foreign private
investment is attached wit exploitation, and fiscal and monetary policies are attached
with a lot of limitations and lag: Then, for the sake of economic development the
developing countries can depend upon unofficial and official foreign loans. It means
that the poor countries can borrow from foreign countries (advanced countries and oil
rich countries) as well as from aid given agencies like World Bank, IFC, IDA and
UNDP etc. Such official and unofficial capital flow will become helpful for the
attainment of economic development of UDCs. Thus it is ill Development Economics
which helps us to know about foreign aid, it types, its positive role, its side effects,
repayments of loans and interest charges.

 Theories Of Under-Development And Development:

Development Economics also presents a lot of theories regarding the under-

development of the poor countries as well as the theoretical means and ways through
which the poor and backward nations of the world can attain economic development.
The first set of theories is given the name of structuralist theory of development which
states that the poverty of the poor nations is attributed to structural problems of the
UDCs. The other theory is given the name of 'International Dependencia model which
states that it is the deliberate behavior on the part of DCs which exploited UDCs in such
a way to keep them poor and backward. The third theory of economic development is
called Stage Theory, where it has been told that the process of economic growth and
development is furnished with certain stages (Rostow's stages of economic growth)
whereby it has been emphasized that poverty comes into being due to shortage of
capital, and growth can be attained by increasing the savings and investment (even
through foreign resources). The fourth major theory of economic growth is given the
name Neo-classical counter-revolution theory which says that rather blaming
international forces the poor countries should depend upon free markets and
privatization for their economic growth.
 Capital Budgeting

Capital budgeting is important because it creates accountability and measurability. Any

business that seeks to invest its resources in a project, without understanding the risks
and returns involved, would be held as irresponsible by its owners or shareholders.
Furthermore, if a business has no way of measuring the effectiveness of its investment
decisions, chances are that the business will have little chance of surviving in the
competitive marketplace.

 Role of Capital Formation:

Development of a nation without the availability of adequate capital either in the form
of physical capital or in the form of human capital is not possible. The higher rate of
capital formation ,faster the rate of growth.

 Capital refers to the stock of all the produced means of production that an economy
possesses at a point of time. Capital includes only those means ofproduction which are
produced by man. For example – Plant and machinery, tools and instruments. The
 capital formation means addition to the existing stock of capital. Capital formation
may be defined as the process of adding to the stock of capital per year.
Capital Formation ensures a Sustained Rise in Output Higher capital formation
ensures a continuous rise in economic growth.

 Higher economic growth means rise in the output of the country.

 Capital Formation generates Employment.

 Generation of employment opportunities is a prerequisite for growth and development.

Increase in capital formation generates more employment opportunities.

 Capital Formation facilitates Technical Progress.

 Capital formation provides the required capital for development of infrastructure.

Capital Formation and Self-reliance.

10. IS MIXED ECONOMY IN INDIA IS SUCCESSFUL

In a mixed economy, private and public sectors go side by side. The government directs
economic activity in some socially important areas of the economy, the rest being left to the
price mechanism to operate.

Before Independence, Indian economy was a ‘laissez faire’ economy. But post-
independence, she adopted the mixed economy system.

Mixed economy is neither pure form of &apitalism nor pure form ofSocialism.It is the
mixture of both the system.So,mixed economy managesboth public and private
sector simultaneously.)owever,in most of the casesmixed economy is refered as mar(et
economies with strong regulatoryoversight$ governmental provision of public goods.'here
is no singlede/nition for mixed economy0there are generally two ma or de/nition,onebeing
political and other apolitical.'he political de/nition of mixed economyrefers to the degree of
state interventionism in a mar(et economy,portrayingthe state as encroaching onto the
mar(et under the assumption that themar(et is the2natural3mechanism for allocating
resources. 'he politicalde/nition is concerned with public policy and state in4uence in a
mar(etsystem,where as the apolitical de/nition relates to patterns of ownership
andmanagement of economic enterprises in a society. 'he apolitical de/nition ofmixed
economy refers to a mix of public and private ownership ofenterprises in the economy and
is unconcerned with political forms and public policy.

 Co-existence of the public and Private Sectors:

The important characteristics of mixed economy are that in this economy both private

sector and public sector function together. The heavy industries such as defence equipment,

atomic energy, heavy engineering industries etc., come under the control of public sector,

on the other hand, the consumer goods, small and cottage industries, agriculture, etc., are

assigned to the private sector. The government helps the private sector by providing
several facilities, of their development.

 Economic Welfare:

It is the most important criterion of the success of a mixed economy. Public Sector seeks to

avoid regional inequalities, provides large employment opportunities and often its price

policy is guided by considerations of economic welfare rather than by profit motive. Private

activities are influenced through monetary and fiscal policies to make them contribute to
economic welfare of the society at large level.

 Economic Planning:

In Mixed economy, the Government adopts the instrument of economic planning. This is

necessary for the public sector enterprises which have to work according to some plan and
to achieve certain pre-determined objectives.

In the same way, the Private Sector cannot be left to develop in its own way. To ensure a

co-ordinated and fast economic development the programmes of both the sector are drawn
in such a way that growth in one complements the growth in the other.
  Free and Controlled Economic Development:

The Mixed Economic System considered to be more appropriate to remove the demerits of

the capitalist and communist economic systems. Encouragement is given to free economic
activities and at the same time steps are also taken to control economic activities.