Lecture No.

- 01
Introduction of
Economics &
National Income
(Economics) By- Prathmesh SirSIR
PRATHMESH
1. National Income

2.

3.

4.
 What Is Economics?
➢ Economics is a social science concerned with the production,
distribution and consumption of goods and services.

➢ In simple terms economics is the study of how society uses its limited
resources.

Economy is the social activity where people come together to produce,

stock, distribute, trade and facilitate consumption of goods and
services. The entire activity is meant for the market, that is, for buying
and selling.
 Consumption

Goods Services
Factors Of Production
 Factors Of Production
1. Land as a Factor of Production
➢ By land, we mean all that is given to us free by nature

➢ This includes not just land, but anything that comes from the land

➢ Most of the natural resources like soil, water, forests, minerals,

petroleum, sunlight, wind etc come under the category of land –
the first factor of production.

➢ The income that the owners of the land earn in return for land
resources is called rent.
 Factors Of Production
Labour (Human Resources)
➢ Includes all efforts of human beings used for the production of
goods and services.

➢ Labour include physical and mental labour.

➢ The income earned by labour resources is called wages.

 Factors Of Production
Capital as a Factor of Production
➢ Capital includes all the man-made resources used for producing
goods and services like buildings, machines, equipment, vehicles,
stock of materials etc.

➢ Physical capital can be broadly divided into two categories – Fixed

Capital and Working Capital.

➢ The income earned by owners of capital resources is interest.

 Factors Of Production
Entrepreneurship as a Factor of Production
➢ Entrepreneurship as a factor of production is a combination of the
other three factors.

➢ Entrepreneurs use land, labour, and capital in order to produce a

good or service for consumers

➢ The income accruing to the entrepreneur is termed as profit.

Factors Of Production
Economic Non Economic
Activity Activity
Types Of Economics

Microeconomics Macroeconomics
Microeconomics
 Macroeconomics
▪ Macroeconomics is the branch of economics that studies the
behavior and performance of an economy as a whole. It focuses
on the aggregate changes in the economy such as unemployment,
growth rate, gross domestic product and inflation.
Macroeconomics
Types Of Economy

Types Of Economy

Capitalist Socialist Mixed

Economy Economy Economy
Capitalist Economy
 Capitalist Economy
➢ Wealth of Nations 1776 (Adam Smith)
➢ Private ownership (Capitalist )
➢ Prices are determined by the market forces of demand and supply
(Invisible Hand)
➢ Profit motive
➢ Distribution of income is VERY UNEQUAL
➢ No direct government intervention
➢ known as a market economy, Unplanned economy.
➢ Laissez - faire policy
 Socialist Economy
➢ Karl Marx had introduced this idea in his
“communist manifesto".

➢ Also called “Command Economy “

➢ In such an economy the factors of production

are all state-owned.

➢ All the factories, machinery, plants , capital,

etc. is owned by a community in control of
the State.
 Socialist Economy
➢ Public ownership

➢ The central planning authority determines prices

➢ Social welfare is Main Aim, not Profit

➢ Government Has complete Ownership

➢ No Competition
Mixed Economy
 Mixed Economy
➢ Both private and public ownership

➢ The central planning authority, as well as demand and supply,

determine prices.

➢ Government has Full role in the public sector and limited role in the
private sector

➢ Considerable inequalities exist

Mixed Economy
Sectors Of Economy
 Primary Sector
➢ Primary activities are directly dependent on
the environment as these refer to utilization
of earth’s resources such as land, water,
vegetation, building materials and minerals.

➢ includes hunting and gathering, pastoral

activities, fishing, forestry, agriculture, and
mining and quarrying.

➢ People engaged in primary activities are

called red - collar workers due to the outdoor
nature of their work.
 Secondary Sector
➢ It includes the industries where finished products
are made from natural materials produced in the
primary sector.
➢ Its also called industrial sector or Manufacturing
Sector.
➢ The major examples that fall under this category
are Production and manufacturing.
➢ People engaged in secondary activities are called
blue - collar workers.
➢ Eight Core Industries are Electricity, steel,
refinery products, crude oil, coal, cement, natural
gas and fertilizers.
 Tertiary Sector / Service Sector
➢ This sector’s activities help in the development of
the primary and secondary sectors. By itself,
economic activities in tertiary sector do not
produce a goods but they are an aid or a support
for the production.
➢ The example of this sector is all service sectors
which IT services, consulting, insurance, banking
etc.
➢ Trade, Transportation, Communication.
➢ White caller workers.
 Quaternary Activities
➢ These are specialized tertiary activities in the ‘Knowledge
Sector’ which demands a separate classification.

➢ Personnel working in office buildings, elementary schools and

university classrooms, hospitals and doctors’ offices, theatres,
accounting and brokerage firms all belong to this category of services.

Quinary Activities
➢ top-level decisions are made.

➢ Gold Caller profession.

 Organized Sector
➢ Employment terms are fixed and regular,
employees get assured work and social
security.

➢ Which is registered with the government

and a number of acts apply to the
enterprises

➢ Work only a fixed number of hours.

Unorganized Sector
 What is National Income?
National Income of any country means the complete value of the
Final goods and services produced by any country during its
financial year.
Background of National Income In India

➢ Dadabhai Naoroji prepared the first estimates of

National income in 1876. He is also known as father
of national INCOME .

➢ “Drain of wealth theory “

➢ Estimated Per Capital Income to be Rupee 20

 Background of National Income In India

The first scientific method was made by Professor V.K.R.V Rao in

1931-32, but was not very satisfactory.
Background of National Income In India

➢ In 1949, soon after the establishment of

independent India, the National Income
Committee (NIC) was formed to compile
statistics and estimate national income.

➢ The committee was headed by P.C.

Maharanobis and included D.R. Gadgil and
V.K.N.V. Rao.

➢ It was the First Official Attempt

Calculation of National Income

National Income

GDP NDP GNP NNP

Who Calculates National Income?
 Gross domestic Product (GDP)
➢ Gross Domestic Product (GDP) is the total money value of final goods
and services produced in the economic territories of a country in one
year.

➢ GDP refers to the value of goods produced within the geographical territory of a
country irrespective of whether they are produced by citizens or foreigners
 Territories of a Country
• Territory lying within the geographical boundaries including airspace
and territorial waters of a country.

• embassies and consulates

• foreign embassies In India are not Part

• military establishments of a country located abroad

• Fishing vessel, ships, and Aircraft operated by the residents

( Revenue of Air India )
 Type of GDP

GDP

Real Nominal
GDP GDP
Base year Price Current Price
 Nominal GDP

The value of all goods and services used in calculating

GDP at the current price is called the nominal GDP.
 Real GDP

The Value of all goods and services used in calculating GDP at

the base year price is called the Real GDP.
 Base Year

✓ The base year is a benchmark concerning which the public

record figures like total national output (GDP), gross
homegrown saving, and gross capital development are
determined.

✓ 2011-12 from 2004-05

✓ considering changing of base year from 2011-12 to 2017-18.

Base Year
 Gross National Product (GNP)
➢ The total Money value of all commodities and services
generated by a country's citizens and enterprises, regardless of
where they are produced, is referred to as the gross national
product (GNP).

➢ investments made by enterprises and citizens of the country, both

inside and outside the country

➢ also takes into account the value of the products produced by the
industries of domestic origin.

➢ Includes income from Abroad

Gross National Product (GNP)
Gross National Product (GNP)

GNP = GDP + Net Factor Income from Abroad

 Net Domestic Product (NDP)
➢ The net domestic product is defined as the net value of all the goods
and services produced within a country’s geographic borders after
adjusting the Depreciation .

Formula

NDP = GDP - Depreciation

 Net nationl Product (NNP)
➢ Net national product (NNP) is gross national product (GNP), the total
value of finished goods and services produced by a country's citizens
overseas and domestically, minus depreciation..

Formula

NNP = GNP – Depreciation

NNP=GDP+IFA-Dep.
➢ Net national product (NNP) is gross national product (GNP), the total
value of finished goods and services produced by a country's citizens
overseas and domestically, minus depreciation.

➢ It is Our National Income

NNP = GNP – Depreciation

NNP at Factor Cost
Per capita Income
 Methods for Calculation of National Income

Value Added method Income method Expenditure method

Production method
 National Income = Interest + Profit + Rent + Wages + Mixed
Income
 Expenditure method
Income earned is Spent to consume Goods and services or Saved
and Invested

• C = Consumer goods and service expenditures by residents and

households
• G = Government expenditures on goods and services
• I = Business Organizations' Capital Goods and Stocks Expenses
• NX stands for net exports, which is defined as exports minus
imports.

National Income = C + G + I + NX
 Value Added Method Production Method
• In this method Gross Product is found out by Adding up net Values of
all the production that has taken place in all Sectors

• Intermediate Cost /Consumption and inventory are not included

• Production for self consumption is included

JAI HIND !