ECONOMICS

ECONOMICS

According to Lionel Robbins “Economics is a science which studies

human behaviour as a relationship between ends and scarce means
which have alternative uses”.

According to Samuelson “It explains the behaviour of different

economic units, households, firms, government and the economy as a
whole, when they are faced with scarcity.”
ECONOMY

An economy is a complex system of interrelated production,

consumption, and exchange activities that ultimately
determines how resources are allocated among all the
participants.
DIFFERENCES BETWEEN ECONOMY AND ECONOMICS
Economics
Meaning science and art of
decision-making, regarding
the use of scarce resources,
under the conditions of
scarcity, to attain maximum
satisfaction.
What is it? Theory and Principle
Determines How do human beings
make decisions when
resources are scarce?
Economy
When a country or a
geographical region is
defined in the context of its
economic activities, it is
known as an economy or
economic system.
Practical Application of
Economics
How resources are allocated
among different members of
society?
DIFFERENCES BETWEEN ECONOMY AND ECONOMICS
Economics
Focuses on The way in which economic
agents behave and interact
and how economies work.
Domain Economic analysis plays an
important role in different
sectors, such as real estate,
finance, Information
Technology, etc.
Economy
The way in which a country’s
economic affairs are
organized and conducted.
In an economy, activities are
considered to be spurred due
to production which is
responsible for using natural
resources, labour and
capital.
TYPES OF ECONOMY

Capitalist Economy

Socialist Economy

Mixed Economy
Capitalist Economy

A capitalist economy is an economy where businesses and individuals

own the factors of production.

Here, factors of production refer to entrepreneurship, natural

resources, capital goods and labour.

In a capitalist economy, the production of goods and services depends

on supply and demand in the general market.
Characteristics

Private property

Competitive markets

Capital accumulation

Wage labour

The price system

Voluntary exchange
Pros of Capitalist Economy

Provides choice to customers.

Provides valuable goods and services.

Capitalism activities reward positive traits like hard work.

Narrows the gap between common man and wealthy persons.

Provides opportunities to realize dreams and desires.

Capitalist societies do not have large black markets.

Build on democracy and social good.

Cons of Capitalist Economy

Downfall of work ethics.

Free Market stimulated by self-interest.

Accumulation of wealth.

Encourages inequality in society.

Business lobbying with the government.

Monopolistic tendency.

Human resource exploitation.

Socialist Economy

An economy where each person in society has equal ownership of

the factors of production.

This type of public or state ownership happens through a

democratically elected government.

In a pure socialist economic system, everyone works for wealth, and

there is an equal distribution of wealth among everyone.
Features of Socialist Economy

Social Ownership of means of production.

Existence of the public sector.

Decisive role of economic planning.

Production guided by social benefits.

Abolition of exploitation of labour.

Pros of Socialist Economy

Better Salaries.

Stable Environment.

Eliminates Poverty.

Better Products.

Fulfil survival needs.

Opportunity for citizens to explore non-economically
productive products.
Cons of Socialist Economy

Distorted price signals.

Suppression of economic democracy.

Slow Technological Advancements.

Minimize Self-Management.

Reduced Incentives.
Mixed Economy

A mixed economy is an economic system that has elements of both

capitalism and socialism.

It lies on a continuum somewhere between pure socialism and pure

capitalism.

Mixed economic systems usually allow private ownership and control

of most of the means of production but under government
regulation.
Features of Mixed Economy

Co-existence of both public and private sector.

Market forces prevail but are closely monitored

by the government.

Monopolies may exist under close supervision of

the government.
Pros of Mixed Economy

Choice of Sovereignty

Less Income Inequality

Balance between initiatives and goals

Cons of Mixed Economy

Lack of government support

Undue influence from private enterprises

 Point of Capitalist Socialist Economy Mixed Economy
Differences Economy
Definition A capitalist A socialist economy is A mixed economy, on
economy is an an economy where each the other hand, is an
economic system person in society has economic system
where businesses equal ownership of the that has elements of
and individuals factors of production. both capitalism and
own the factors of socialism.
production.

Factors of Private ownership State ownership of Private and state

Production of factors of factors of production. ownership of factors
production. of production.
 Point of Capitalist Socialist Economy Mixed Economy
Differences Economy
Private vs Predominance Predominance of public Co-existence of
Public of private sectors. public and private
Factors sectors. sectors.
Motive Exploitation of Attempts to prevent Production in the
labour labour exploitation. state sector is guided
by social welfare.
Income Unequal Equal Somewhere in
Distribution between
Role of Limited role High Involvement Government
Government intervenes when
necessary
INDIA’S TYPE OF ECONOMY

• India has a mixed economy.

• Half of India's workers rely on agriculture.
• One-third of its workers are employed by the services industry,
which contributes two-thirds of India's economic output.
• The productivity of this sector is made possible by India's shift
toward a market economy.
• Since the 1990s, India has deregulated several industries.
• It has privatized many state-owned enterprises and opened doors to
foreign direct investment.
SECTORS OF ECONOMY

A sector is an area of the economy in which businesses share the

same or related business activity, product, or service. Sectors
represent a large grouping of companies with similar business
activities, such as the extraction of natural resources and agriculture.

Primary Sector
Secondary Sector
Tertiary Sector
Quaternary Sector
Primary Sector

Definition
• The primary sector involves companies that participate in the
extraction and harvesting of natural products from the Earth.

Major divisions
• Primary sector business activities include -mining and
quarrying, fishing, agriculture, forestry, hunting.
• The companies involved in the processing and packaging of
raw materials are also categorized within the primary sector.
Secondary Sector

Definition
• The secondary sector consists of processing, manufacturing,
and construction companies. The secondary sector produces
goods from the natural products within the primary sector.

Major divisions
• The secondary sector includes the following business
activities; automobile production, textile, chemical
engineering, aerospace space, shipbuilding, and energy
utilities.
Tertiary Sector

Definition
• The tertiary sector is comprised of companies that provide services,
such as retailers, entertainment firms, and financial organizations.
• The tertiary sector provides services to businesses and consumers
by selling the goods that are manufactured by companies in the
secondary sector.

Major divisions
• The types of services provided by the tertiary sector include; retail
sales, transportation and distribution, restaurants, tourism,
insurance and banking, healthcare services, and legal services.
Quaternary Sector

Definition
• The quaternary sector includes companies engaged in
intellectual activities and pursuits.
• The quaternary sector typically includes intellectual services
such as technological advancement and innovation.

Major divisions
• Firms within the quaternary sector might be engaged in the
following business activities; research and development,
information technology (IT), education, consulting services.
Sector-wise GDP distribution of India
Organised/Formal Sector

• Organised sector covers those enterprises or places of work where

the terms of employment are regular and therefore, people have
assured work.
• They are registered by the government and have to follow its rules
and regulations which are given in various laws such as the Factories
Act, Minimum Wages Act, Payment of Gratuity Act, Shops and
Establishments Act etc.
• Note: Some of these people may not be employed by anyone but
may work on their own but they too have to register themselves
with the government and follow the rules and regulations.
Unorganised/Informal Sector

• The unorganised sector is characterised by small and scattered

units which are largely outside the control of the government.
• There are rules and regulations but these are not followed.
• Jobs here are low-paid and often not regular.
• There is no provision for overtime, paid leave, holidays, leave due
to sickness etc.
• Employment is not secure.
• People can be asked to leave without any reason.
Unorganised/Informal Sector

In terms of employment share the unorganised sector employs

around 83% of the work force and remaining 17% in the organised
sector. There are 92.4% of informal workers in the economy. There
are also 9.8% informal workers in the organised sectors indicating the
level of outsourcing.
Private Sector

Definition
• In the private sector, ownership of assets and delivery
of services is in the hands of private individuals or
companies.

Examples
• Tata Iron and Steel Company Limited (TISCO) or
Reliance Industries Limited (RIL) are privately owned.
Public Sector

Definition
• In the public sector, the government owns most of the
assets and provides all the services.

Examples
• Railways or post office is an example of the public
sector.
Categorization of Domestic Economy

General Government Sector

Financial Sector

Real Sector
General government sector

• The government sector is not based on the form of ownership, but

is based on the objectives of the entity’s activity and its functions.
• The general functions of the government units are as follows:
• provide the community or individual households with certain
goods and public services by financing their transactions out of
taxes or other incomes;
• redistribute the community’s income or wealth by means of
transfers;
• produce nonmarket goods and services.
• The areas of government units’ activity are governance, defence or
army, education, health, national and social security, etc.
Real sector

• It is the economy’s money holding sector.

• The real sector of the economy consists of enterprises (nonfinancial
corporations), households and non-profit institutions serving
households.
Financial sector

• It is the economy’s money issuing sector.

• The financial sector consists of corporations principally engaged in
financial intermediation or in auxiliary financial activities that
contribute to financial intermediation like banks, stock exchanges
etc.
UPSC PYQs
Which of the following activities constitute real sector in the
economy? (2022)
a) Farmers harvesting their crops
b) Textile mills converting raw cotton into fabrics
c) A commercial bank lending money to a trading company
d) A corporate body issuing Rupee Denominated Bonds overseas
a) 1 and 2 only
b) 2, 3 and 4 only
c) 1, 3 and 4 only
d) 1, 2, 3 and 4
UPSC PYQs
Which of the following activities constitute real sector in the
economy? (2022)
a) Farmers harvesting their crops
b) Textile mills converting raw cotton into fabrics
c) A commercial bank lending money to a trading company
d) A corporate body issuing Rupee Denominated Bonds overseas
a) 1 and 2 only
b) 2, 3 and 4 only
c) 1, 3 and 4 only
d) 1, 2, 3 and 4
Thank you
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