Report Title

REPORT SUBTITLE

Name | Course Title |

DateEconomics
ASSIGNMENT
Rahul Saroha | Chemical 2nd year | Roll no.16001005028

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 Contents
 Supply and Law of supply
 Role of Demand and Supply in Price Determination
 Effect of the changes in demand and supply on prices
 Nature and characteristics of Indian economy
 Privatization
 Globalization of Indian economy
 Elementary concept of WTO
 TRIPS agreement
 Monitory policy & Fiscal Policy

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 Supply & Law of Supply

Supply is a fundamental economic concept that describes the total amount of a

specific good or service that is available to consumers. It is the amount of
something that firms , consumers, laborers, providers of financial assets, or
other economic agents are willing to provide to the marketplace.

Law of Supply

The law of supply is a fundamental principle of economic theory, which states

that, keeping other factors constant, an increase in price results in an increase
in quantity supplied .In other words, there is a direct relationship between
price and quantity: quantities respond in the same direction as price changes.
This means that producers are willing to offer more products for sale on the
market at higher prices by increasing production as a way of increasing profits.

In short, Law of Supply is a positive relationship between quantity supplied

and price and is the reason for the upward slope of the supply curve.

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Role of Demand and Supply in Price Determination

 In the supply and demand model of price determination, there is

never a surplus or shortage of goods at the equilibrium level. The
market always settles at the point where supply equals demand.
 If demand increases (decreases) and supply is unchanged, then it
leads to a higher (lower) equilibrium price and quantity.
 If supply increases (decreases) and demand is unchanged, then it
leads to a lower (higher) equilibrium price and higher (lower)
quantity.
 If a price for a particular product goes up and the customer is aware
of all relevant information, demand will be reduced for that product.
 Demand-oriented pricing focuses on the nature of the demand curve
for the product or service being priced.

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Effects of changes in demand and supply on price

Changes in Demand and supply in terms of pricing

1. If demand and supply change in opposite directions, then the change in the
equilibrium price can be determined, but the change in the equilibrium. Output
cannot.

a. A decrease in demand and an increase in supply will cause a fall in equilibrium

price, but the effect on equilibrium quantity cannot be determined.

1. For any quantity, consumers now place a lower value on the good, and producers
are willing to accept a lower price; therefore, price will fall. The effect on output
will depend on the relative size of the two changes.

b. An increase in demand and a decrease in supply will cause an increase in

equilibrium price, but the effect on equilibrium quantity cannot be detennined.

1. For any quantity, consumers now place a higher value on the good, and producers
must have a higher price in order to supply the good; therefore, price will increase.
The effect on output will depend on the relative size of the two changes.

2. If demand and supply change in the same direction, the change in the
equilibrium output can be determined, but the change in the equilibrium price
cannot.

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 a. If both demand and supply increase, there will be an increase in the equilibrium
output, but the effect on price cannot be determined.

1. If both demand and supply increase, consumers wish to buy more and firms wish
to supply more so output will increase. However, since consumers place a higher
value on each unit, but producers are willing to supply each unit at a lower price,
the effect on price will depend on the relative size of the two changes.

b. If both demand and supply decrease, there will be a decrease in the equilibrium
output, but the effect on price cannot be determined.

1. If both demand and supply decrease, consumers wish to buy less and firms wish
to supply less, so output will fall. However, since consumers place a lower value on
each unit, but producers are willing to supply each unit only at higher prices, the
effect on price will depend on the relative size of the two changes.

Nature and characteristics of Indian Economy

The economy of India is a mixed economy in nature.

 India's diverse economy encompasses traditional village farming,

modern agriculture, handicrafts, a wide range of modern industries and
a multitude of services.
 Services are the major source of economic growth, accounting for more
than half of India's output with less than one third of its labour force.
 The current GDP factor cost is (at 2004-05 prices) Rs. 5748564 cr (2013-14)
 Per capita Income (at current prices) Rs. 74920 (2013-14)
 Gross domestic saving rate (at current market price as % of GDP) for 2-11-12
is 30.8%
 Tertiary sector contributes 56% of GDP (2012-13).
 Total food grain production is 265 million tone (2013-14).
 India’s share in world export is 1.8% of total trade.
 India’s share in total world import is 2.5%.

Currently India considered as one of the most developing economy of the

world because of its nature: part of agriculture in total GDP is decreasing, part
of service sector is increasing or the contribution of tertiary sector is increasing
in the GDP on year-to-year basis.

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Characteristics of Indian economy

 Low per capita income:

Under developed economy is characterized by low per capital income. India per
capital income is very low as compared to the advanced countries. For example,
the capital income of India was 460 dollar, in 2000. Whereas their capita
income of U.S.A in 2000 was 83 times than India. This trend of difference of per
capita income between under developed and advanced countries is gradually
increasing in present times. India not only the per capita income is low but also
the income is unequally distributed. This mal-distribution of income and
wealth makes the problem of poverty in ore critical and acute and stands an
obstacle in the process of economic progress

 Price instability:

Price instability is also a basis feature of Indian economy. In almost all, the
underdeveloped countries like India there is continuous price instability.
Shortage of essential commodities and gap between consumption aid
productions increase the price persistently. Rising trend of price creates a
problem to maintain standard of living of the common people.

 Underutilization of Resources:

India is a poor land. Therefore, our people remain economically backwards for
the lack of utilization of resources of the country.

 Poor Technology:

The lever of technology is a common factor in under developed economy. India

economy also suffers from this typical feature of technological backwardness.
The techniques applied in agriculture industries milling and other economic
fields are primitive in nature.

 Low Rate of Capital Formation:

In backward economics like India, the rate of capital formation is also low.
capital formation mainly depends on the ability and willingness of the people
save since the per capita income is low and there is mal-distribution of income
and wealth the ability of the people to save is very low in under developed
countries for which capital formation is very low .

 Pre-dominance of Agriculture:

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Occupational distribution of population in India clearly reflects the
backwardness of the economy. One of the basis characteristics of an under
developed economy is that agriculture contributes a very large portion in the
national income and a very high proportion of working population is engaged
in agriculture

 Heavy Population Pressure:

The Indian economy is facing the problem population explosion. It is evident

from the total population of India, which was 102.67 cores in 2001 census. It is
the second highest populated country China being the first. India’s population
has reached 110 cores. All the under developed countries are characterized by
high birth rate which stimulates the growth of population; the fast rate of
growth of population necessitates a higher rate of economic growth to
maintain the same standard of living. The failure to sustain the living standard
makes the poor and under developed countries poor and under developed.

Privatization

The transfer of ownership, property or business from the government to the

private sector is termed privatization. The government ceases to be the
owner of the entity or business. The process in which a publicly traded
company is taken over by a few people is also called privatization.

Merits of privatization
 Privatization is most of the time associated with improved efficiency due to
the profit incentive. Private companies will ensure they improve their
operational efficiency in order to reduce their costs and improve on profits.
 Privatization reduces the government’s political interference. The
government sometimes seems incapable of making hard decisions
especially when they influence their political footing such as layoffs and pay
cuts, which are bound to attract negative publicity.
 Privatization urges improvements in the company through competition.
When a state owned entity is privatized, it loses its government protection
and is forced to adapt to the market by providing better services or
products in order to survive and thrive.

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 Demerits of privatization

 Privatization of certain state entities such as water and electricity

authorities may just create single monopolies. These may eventually seek to
increase prices at the detriment of the consumer with no controls.
 The government loses dividends after privatization as seen with most
successful companies that are developed through privatization. These
dividends are instead channeled to wealthy individuals.

Globalization of Indian economy

Globalization refers to the integration of markets in the global economy,

leading to the increased interconnectedness of national economies.
Markets where globalization is particularly common include financial
markets, such as capital markets, money and credit markets, and insurance
markets, commodity markets, including markets for oil, coffee, tin, and
gold, and product markets, such as markets for motor vehicles and
consumer electronics.

Merits of globalization
Globalization brings a number of potential benefits to international
producers and national economies, including:
 Providing an incentive for countries to specialize and benefit from the
application of the principle of comparative advantage.
 Access to larger markets means that firms may experience higher demand
for their products, as well as benefit from economies of scale, which leads
to a reduction in average production costs.

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 Globalization has led to increased flows of inward investment between
countries, which has created benefits for recipient countries. These benefits
include the sharing of knowledge and technology between countries.
 In the long term, increased trade is likely to lead to the creation of more
employment in all countries that are involved.

Demerits of globalization

 The over-standardization of products through global branding is a

common criticism of globalization. For example, the majority of the
world’s computers use Microsoft’s Windows operating system. Clearly,
standardizing of computer operating systems and platforms creates
considerable benefits, but critics argue that this leads to a lack of
product diversity, as well as presenting barriers to entry to small, local,
producers.
 Large multinational companies can also suffer from diseconomies of
scale, such as difficulties associated with coordinating the activities of
subsidiaries based in several countries.
 Jobs may be lost because of the structural changes arising from
globalization. Structural changes may lead to structural unemployment
and may widen the gap between rich and poor within a country.
 Globalization generates winners and losers, and for this reason, it is
likely to increase inequality, as richer nations benefit more than poorer
ones. The awareness of rising inequality, along with job losses, has been
argued to contribute to the rise in anti-globalization movements.

Elementary concept of WTO

The World Trade Organization (WTO) establishes rules of trade among its
member nations. To this end, the WTO also handles trade disputes,
monitors trade policies, provides technical assistance for developing
countries and cooperates with other international trade organizations.
The WTO was created on January 1, 1995, and is headquartered in Geneva,
Switzerland. The WTO replaced the General Agreement on Tariffs and
Trade (GATT), which was created in 1948. GATT primarily regulated the
trade of goods; the WTO regulates the trade of services and intellectual
property as well. GATT still exists as the WTO's umbrella treaty for trade in
goods.

How it works?
More than 140 countries belong to the WTO, and membership is voluntary.
Some countries hold observer status with the WTO, which enables the

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country to follow discussions and matters of particular interest. Some WTO
committees are for members only, however, and do not allow observers.
WTO decisions are made by consensus rather than by delegation to a board
of directors or leader. The WTO's highest authority is the Ministerial
Conference, whose members meet at least once every two years. The WTO
General Council, with the Dispute Settlement Body and the Trade Policy
Review Body, handles the WTO's day-to-day duties. These day-to-day
entities, which are collectively referred to as the General Council, act on
behalf of the Ministerial Conference and are composed of several sub
councils, including the Council for Trade in Goods, the Council for Trade in
Services and the Council for Trade-Related Aspects of Intellectual Property
Rights. Each sub council has several committees.

Why it matters?
The WTO is one of the most powerful and controversial legislative bodies in
the world. Ideally, the purpose of the WTO is to facilitate free trade while
helping governments meet social and environmental goals.
Whether free trade and the WTO accomplish these goals is the subject of
considerable debate. Some question whether free trade benefits wealthy
nations and multinational corporations rather than communities and the
environment. Further, approximately two thirds of WTO members are
developing countries, and some of these countries are concerned that poor
domestic infrastructure, political instability, and certain tariff
arrangements disproportionately inhibit their abilities to engage in
profitable trade. Critics also point out that a country's choice not to join the
WTO may effectively place an embargo on the goods and services of that
country.

TRIPS Agreement

The Agreement on Trade-Related Aspects of Intellectual Property Rights

(TRIPS) is an international legal agreement between all the member
nations of the World Trade Organization (WTO). It sets down minimum
standards for the regulation by national governments of many forms of
intellectual property (IP) as applied to nationals of other WTO member
nations. TRIPS was negotiated at the end of the Uruguay Round of the
General Agreement on Tariffs and Trade (GATT) in 1994 and is administered
by the WTO.

The TRIPS agreement introduced intellectual property law into the

international trading system for the first time and remains the most
comprehensive international agreement on intellectual property to date. In

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2001, developing countries, concerned that developed countries were
insisting on an overly narrow reading of TRIPS, initiated a round of talks
that resulted in the Doha Declaration. The Doha declaration is a WTO
statement that clarifies the scope of TRIPS, stating for example that TRIPS
can and should be interpreted in light of the goal "to promote access to

medicines for all."

Monitory policy and Fiscal policy

 Monitory policy

Central banks have typically used monetary policy either to stimulate an

economy or to check its growth. The theory is that, by incentivizing
individuals and businesses to borrow and spend, monetary policy can spur
economic activity. Conversely, by restricting spending and incentivizing
savings, monetary policy can act as a brake on inflation and other issues
associated with an overheated economy.

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The Federal Reserve, also known as the "Fed," has frequently used three
different policy tools to influence the economy: opening market operations,
changing reserve requirements for banks and setting the discount rate.
Open market operations are carried out on a daily basis where the Fed buys
and sells U.S. government bonds to either inject money into the economy or
pull money out of circulation. By setting the reserve ratio, or the percentage
of deposits that banks are required to keep in reserve, the Fed directly
influences the amount of money created when banks make loans. The Fed
can also target changes in the discount rate (the interest rate it charges on
loans it makes to financial institutions), which is intended to impact short-
term interest rates across the entire economy.

 Fiscal policy
The aim of most government fiscal policies is to target the total level
of spending, the total composition of spending, or both in an
economy. The two most widely used means of affecting fiscal policy
are changes in government spending policies or in government tax
policies.
If a government believes there is not enough business activity in an
economy, it can increase the amount of money it spends, often
referred to as "stimulus" spending. If there are not enough tax
receipts to pay for the spending increases, governments borrow
money by issuing debt securities such as government bonds and, in
the process, accumulate debt; this is referred to as deficit spending.
(For details, see what the role of deficit spending is in fiscal policy?)
By increasing taxes, governments pull money out of the economy
and slow business activity. However, typically, fiscal policy is used
when the government seeks to stimulate the economy. It might
lower taxes or offer tax rebates, in an effort to encourage economic
growth. Influencing economic outcomes via fiscal policy is one of the
core tenets of Keynesian economics.
When a government spends money or changes tax policy, it must
choose where to spend or what to tax. In doing so, government fiscal
policy can target specific communities, industries, investments, or
commodities to either favor or discourage production – and
sometimes, its actions based on considerations that are not
economic. For this reason, the numerous fiscal policy tools are often
hotly debated among economists and political observers.

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