4th Edition

Economics

The word ‘Economics’ was derived from two Greek words, oikos (a house) and
nemein (to manage) which would mean ‘managing an household’ using the
limited funds available, in the most satisfactory manner possible.

Agriculture economics: application of principle of general economics to

agriculture is called as agriculture economics.

Micro economics: such captivities & services of consumptions, production,

exchange and distribution concerned with individual unit of single industry,
single farm.

Macroeconomics: deals with the whole economic set up & related additions or
average, e.g. total production, total income, total employment, total
expenditure, total savings, price level etc.

Important points

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Anything that can satisfy a human want is called “good”.

A person, who organizes, manages, taking a new idea (which always involves
risks into it) and supervision ensuring success of business- Enterprise.
Utility may be defined as the capacity of a good to satisfy human want. It is
subjective and relative. Utility has no ethical and moral significance. It is
measured in terms of units called “units”.
Transportation adds place utility.
Storage adds time utility.
Processing adds form utility.
Marketing function of buying and selling adds possession utility.
Inputs which are used to produce various goods and services – factors of
production.
Anything above earth which is given by nature and is fixed- land.
Capital is a part of wealth used for further generating wealth.
“Services” refers to the work that a person may do.
Based on consumption:
1. Consumer goods: yield satisfaction directly. They are also called “goods
of the first order”.
2. Producer goods: These help to produce other goods known as the
"goods of the Second order".
The maximum quantity of output that can be produced from any given
quantities of various inputs per period of time- Production function (input
output relationship).
Law of diminishing returns is also known as law of increasing costs or law
of variable proportions.
Law of diminishing returns (LDR) is the basic fundamental law of
agriculture (To explain input-output relationship).
Law of diminishing returns applies more generally to-Agril Industry.
According to LDR , optimum profit will be at point when MC = MR
If M P>MC then further investment in production is profitable.
Farm management is the Decision making process.
The resources which will remain unchanged irrespective of level of production
Fixed resources (found in short run) E.g.: land, farm buildings etc.
The resources which are changed with the level of production - Variable
resources (found in short run and long run) e.g. seeds, pesticides etc.
Livestock insurance is included in Variable Cost.

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The total expenditure incurred for producing a unit of output using particular
unit of input is Cost of production (per quintal).
The total expenditure incurred on all inputs used for producing of output per
unit of land- Cost of cultivation (per hectare).
Isoquant means equal quantity or same amount of output.
Price which necessarily covers Variable cost and fixed cost is Long run price.
Sub normal price is a short period price.
The point where Total revenue line and Total cost line intersect is known as
Equilibrium price.
The term market margin refers to profit of the middlemen.
Scarcity rent arises due to high pressure on land.
The line which represents various combinations of two inputs that can be
purchased with given outlay of funds-lsocost line (budget line, price line).
Rental value of land is included in Cost B.
Farm is considered as socio-economic and decision making unit.
The ratio of output to input is called- Technical efficiency.
The line joining the endpoints of isoquant- Ridge fine.
The line by which all the least cost combination points are joint to each other
Expansion path (isocline).
Inflation is calculated by the- wholesale price index.
During British period, government advances loans to the cultivators for
production of crops, land improvement and distress relief are known as
Taccavi loans.
Small amount of money loaned to a client by a bank -Microcredit.
Nationalization of 14 major commercial banks took place on-19th July 1969.
Six more major commercial banks were nationalized during-15th April 1980.
Regional rural banks (RRB) were established in 1975.
NABARD established as an apex agency for rural finance in 12th July 1982.
The term credit is originated from the Latin word 'credo' or credere or
creditum which means a loan or to entrust or I trust you.
Agricultural finance corporation was promoted by- Indian Banks
Association (IBA).
Cooperative movement was started in India in-1904.
Father of cooperative movement in India-F. Nicholson.
India's first cooperative credit society was established in-Karnataka.

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The difference between the demand for credit and supply is-credit
worthiness.
NABARD head office is located at-Mumbai.
The headquarters of SBI is located at-Mumbai.
First RRB on pilot basis was setup on-2nd Oct 1975.
RBI was established on 1st April 1935 and nationalized in Jan 1st 1949.
Objective of nationalization of banks were setup by-Indira Gandhi.
District credit plan (DCP) is a blueprint of bankers containing technically
viable and economically feasible scheme.
Lead bank scheme was setup under chairman ship of -F.K. Nariman
The number of banks nationalized so far are-
A banker to government of India is-RBI (first governor of RBI is O.A. Smith)
Present farming system of India has becomes Market oriented.
First regulated market in India was established in - karanjia cotton market
(1886)
In regulated market (ensure fair price) which one is not regulated-Price.
Village market is classified o n the basis of-Area.
Trading is in secondary wholesale market takes place between-wholesaler
and retailer.
Regular upswing and downswing occurring in prices during a year are called
seasonal variations.
In the regulated market, the sale of the agricultural produce is undertaken
by-closed tender method.
Hedging is trading technique of transferring price risk.
Hedging practice is more common in foreign exchange market.
Farm management is an intra farm science, farm planning helps in
increasing farm income.
Indian economy is Mixed economy and Indian currency is Convertible
paper money.
Fluctuation in agricultural prices is mainly due to shortage and surplus.
A wholesaler assuming function of retailing in case of-forward marketing.
Harvesting is not a function of marketing.
Secular market is permanent in nature (manufactured goods such as TV,
machinery).
For perishable goods marketed surplus = marketable surplus.
Distress sale of marketing refers to selling price< cost of production.

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Marketing channel - the route through which agricultural products move

from producers to consumers.
A market guided by rules and regulations is-Regulated market
In market, life blood is known as- Market information.
Marketing integration refers to expansion of firms by consolidating
additional marketing functions under single management.
Marginal product is the ratio of Output/Input.
The first function performed in marketing of agricultural commodities is-
Packing.
The market is derived from Latin word marcatus which means trade or a
place where business is conducted.
The difference between the maximum price that consumers are willing to pay
for a good and the market price that they actually pay for good is-
Consumers surplus.
The quantity of produce which the producer farmer actually sells in the
market, irrespective of his requirements-Marketed surplus.
Marketable surplus is the residual left with the producer farmer after
meeting his requirements for family consumption, farm needs, feeds for cattle
etc.
Marketable surplus= Total production (P)-Total requirements (c).
The division of market into different homogenous group of consumer’s is-
Market segmentation.
Complete Budget refers to estimates of costs of returns from farm as a
whole.
The difference between the price paid by the consumer and price received by
the farmer is called- Price spread.
Balance Sheet provides net worth of business/farm.
Direct marketing is also known as - farmers markets.
AGMARK was established in-1937.
AGMARK is an indicator of- Purity.
Agricultural produce (grading and marketing) act was passed in the year-
1937.
Who fixes grade standard s for Agril. Commodities in India-Agril. Marketing
Advisor, GOI.
The time lag between investment and returns from agricultural projects is
termed as - Gestation period.

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Crop loan system was 1st started in which state - Andhra Pradesh.
Capital in monetary form is called -Finance.
Capital owned from own savings is called- Equity capital.
Capital owned from borrowed funds is called-Debt capital.
The ability of farm business to meet its debts or obligations to pay is called
solvency.
Minimum support price (MSP) for Agril. Commodities recommended by-
CACP (setup in 1965, recommended by L.K Jha).
The area of operation of society is restricted to one village -PACS.
MSP is price for maintaining Public distribution System by government.
Demand for Agril. Produce is relatively more inelastic.
Demand for necessary commodities is – Inelastic.
Demand for luxurious commodities is - More elastic.
Elasticity means sensitiveness (or) responsiveness of demand to the change
in price.
Directorate of marketing inspection (DMI) is located at Faridabad.
Elasticity of demand means degree of relation between quantities
demanded/changes because of change in price.
Elasticity of production refers to proportionate change in output as
compared to proportionate change in input.
Indifference curve is always convex to origin (It is points of various
combination of two commodities of same utility)
Principle of equi-marginal returns is applied when the resources are limited.
Elasticity of demand= % of change in demand/ % of change in price.
When a small change in price may lead to a great change in demand. The
demand is elastic. Even a big change in price is followed by only a small
change in demand it is said to b e in Elastic demand E g: Salt.
Cross elasticity: means a change in the demand for a commodity owing to a
change in the price of another commodity.
Perfectly elastic demand: Demand curve is horizontal to ' X ' axis Ed = 1
Perfectly inelastic demand: Demand curve is vertical straight line Ed = 0

DEFINITIONS

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 Adam smith (1723 - 1790), in his book “An Inquiry into Nature and
Causes of Wealth of Nations” (1776) defined economics as the science of
wealth.
 According to Marshall, economics is a study of mankind in the ordinary
business of life, i.e., economic aspect of human life.

Types of Economy

The economic system can be broadly categorized into

a) Capitalism

b) Socialism.

Capitalism: Capitalism is a system of economic organization characterized by

the private ownership and use of capital with profit motive. The most important
feature of capitalism is the existence of private property.

Socialism: Socialism is an economic system in which the means of production

(capital equipment, buildings and land) are owned by the state. The main aim of
socialism is to run the economy for social benefit rather than private profit.

Mixed Economy: It is neither pure capitalism nor pure socialism but a mixture
of the two. In this system, we find the characteristics of both capitalism and
socialism. Both private enterprises and public enterprises operate mixed
economy.

ELASTICITY OF DEMAND

Elasticity of demand refers to the sensitiveness or responsiveness of demand to

changes in price. Price elasticity of demand is usually referred to as elasticity of
demand.

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Price Elasticity of Demand: It is the ratio of proportionate change in quantity

demanded of a commodity to a given proportionate change in its price. Price
elasticity of demand (EP) is, thus, given by

Percentage Change in Quantity Demanded

Ep =
Percentage Change in Price

Factors Influencing the Elasticity of Demand: The elastic or inelastic nature

of the demand for a commodity is determined by the following factors.

1) Degree of necessity

2) Proportion of consumer’s income spent on the commodity

3) Existence of substitutes

4) Several uses of the commodity

5) Time

Measurement of Elasticity of Demand: Price elasticity of demand can be

measured by three methods. They are:

1) Total Expenditure or Outlay Method

2) Measuring Elasticity at a Point

3) Arc Method

FACTORS OF PRODUCTION

1. Land
2. Labour
3. Capital
4. Organization
5. Enterprise

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Capital: Capital in a man-made material. Man produces capital equipments or

goods to help him in the production of other goods and services. Capital is,
therefore, defined as “the produced means of further production”.

a) Capital and Money: Money can be used to buy consumer goods (rice) as well
as capital goods (tractor). Money used to buy capital goods is also called capital,
while money used to buy consumer goods is not capital.

b) Capital and Wealth: Wealth included both consumer goods and capital
goods. Hence, all capital is wealth, but all wealth is not capital.

c) Capital and Land: Land is a free gift of nature but capital is man-made.
Capital is perishable, i.e., it can be destroyed. But land is indestructible and
permanent. Capital is mobile when compared with land. The quantity of capital
can be changed depending upon its price. But the land area is fixed and limited
in supply.

Characteristics of Capital

a) Capital is man-made (artificial)

b) It increases the productivity of resources

c) Supply of capital is elastic. It can be produced in large quantity when its

requirement increases.

d) Capital is perishable as it can be destroyed.

e) Capital is highly mobile.

Types of Capital

a) Fixed capital and working capital: Fixed capital can be used many times in
the production process. The level of fixed capital does not vary with the level of
production in a very short period, (E.g.) farm buildings, tractors, farm tools, etc.

Working capital or variable capital or circulating capital can be used only once
and they are not available for further use. The level of working capital increases

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(decreases) with the increase (decrease) in the level of production, (E.g.) raw
cotton or lint used to spin yarn, fertilizer used to produce paddy, etc.

b) Sunk capital and floating capital: Sunk capital is meant only for a specific
purpose, (E.g.) cane crusher, paddy thrasher etc. They cannot be used for any
other purpose. Floating capital can be employed for any use, (E.g.) money.

c) Social capital and private capital: Private capital is owned by individuals

and the income or benefit derived from these assets are available only to the
individuals who own them (E.g.) tractors, private factories etc. Social capital is
owned by the society as a whole and the benefits derived from these assets are
shared among the members of the society, E.g. bridge, dam, government owned
factories, etc.

MARKET

“Economists understand by the term market not any particular market place in
which things are bought and sold but the whole of any region in which buyers
and sellers are in such free intercourse with one another that the price of the
same goods tends to equality easily and quickly.”

Structure of market

Perfect Markets: A perfect market is one in which the following conditions hold
good:

a. There are large number of buyers and sellers.

b. All the buyers and sellers in the market have perfect knowledge of demand,
supply and prices.

c. Prices at any one time are uniform over a geographical area, plus or minus
the cost of getting supplies from surplus to deficit areas.

d. The prices are uniform at any one place.

e. The pries of different forms of a product are uniform, plus or minus the cost
of converting the product from one form to another.

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Imperfect Markets: The markets in which the conditions of perfect competition

are lacking are characterized as imperfect markets. They are the different types
of imperfect markets.

1. Monopoly Market: Monopoly is a market situation in which there is only

one seller of a commodity. He exercises sole control over the quantity or
price of the commodity. In this market, the price of a commodity is
generally higher than in other markets. Indian farmers operate in
monopoly market when purchasing electricity for irrigation. When there is
only on buyer of a product the market is termed as a monopsony market.
2. Monopsony market: market containing single buyer of product.
3. Duopoly Market: A duopoly market is one which has only two sellers of a
commodity. They may mutually agree to charge a common price which is
higher than the hypothetical price in a common market. The market
situation in which there are only two buyers of a commodity is known as
the duopsony market.
4. Oligopoly Market: A market in which there are more than two but still a
few sellers of a commodity is termed as an oligopoly market. A market
having a few (more than two) buyers is known as oligopoly market.
5. Oligopsony market: market containing few buyers of commodity.
6. Monopolistic Competition: When a large number of sellers deal in
heterogeneous and differentiated form of a commodity, the situation is
called monopolistic competition.

Classification of Markets

1. Visible Market

 Area basis:
a) Local Market
b) Regional Market or state
c) National market
d) International Market.

 Place basis:
a) Village market
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b) Primary market
c) Secondary market.
d) Retail market
e) Market near sea
f) Terminal market

 Time basis:
a) Short period M.
b) Long P.M.
c) Very.long r.M.

 Commodity basis:
a) General M.
b) Special M.
c) Sale by sample
d) Sale by grade or
e) Wholesale market
f) Retail Market

 Competition basis:
a) Perfect c.m.
b) Imperfect c.m.

 Regulation basis:
a) Regulate market
b) Unregulated market

2. Invisible Market

 Trader middleman:
a) Wholesaler
b) Retailer

 Agent middleman:

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a) Artia
b) Commission agent
c) Speculated middleman
d) Processor
e) Hammal
f) Weighman
g) Rural trader
h) Other workers.

3. Market Structures
(a) Local markets
(b) State or regional markets
(c) Sea board markets
(d) Wholesale markets
(e) Retail markets

Farming System

A farming system is a complicated interwoven mesh of soils, plants, animals

Implements workers, inputs and environmental influence with the strands held
and manipulated by a person called farmer, who gives his preference and
aspirations, attempts to produce outputs from the inputs and technology
available with him.

Types of Farming
1. According to proportion of land, labour and capital investment:
(a) Extensive farming
(b) Intensive farming

2. According to value of products or income:

(a) Specialized farming
(b) Mixed farming
(c) Diversified farming

3. According to the supply of irrigation:

(a) Irrigated farming

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(b) Un-irrigated farming

4. According to the nature of produce:

(a) Crop farming
(b) Livestock farming

 Extensive Farming: When more land is brought under cultivation in

order to increase output, it is termed as extensive cultivation or extensive
farming. In extensive farming it is the only land, which is increased to get
more yield, other factors remaining unchanged.
 Intensive Farming: Under such farming, in contrast to extensive farming,
more labour and capital is used in the same plot of land to get more
yields.
 Specialized Farming (> 50 per cent income by single enterprise.) The
farm from which 50 per cent or more income is derived from a single
enterprise viz. crops,. Livestock, dairy, poultry, etc., such farm is called
specialized farm and farming is called specialized farming.
 Mixed Farming [Crop Production + livestock raising (10 per cent
income) Mixed farming is one where crop production is combined with the
rearing of the livestock. If a farm produces at least 10 per cent (at most 49
per cent) of produce from livestock, the said farm would be called as mixed
farm. Here, in case of mixed farming, the meaning of livestock is cow and
buffalo only.
 Diversified Farming (< 50 per cent income by single enterprise)A
diversified is one that has several production enterprises or sources of
income. But no source of income should produce more than 49 per cent of
income.
 Dry Farming: Dry farming is done in areas having average annual rainfall
of < 50 cm.

System of farming

System of farming refers combination of products on a given farm and the

methods or practices that or used in the Production of products". Such farming
systems include:

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1. Cooperative Farming (Joint agriculture operation by farmer on

voluntary basis): In this type of farming all the members have the right of
owner ship in the business. The members voluntarily pool their resources for
running the business and there is no pressure other than cooperative
members. All the members are free and can leave the society at any time
without losing the ownership right of the land and resources booked by them.
The income is distributed according to the share of land, labour and capital of
the members.

2. Capitalistic Farming

In capitalistic farming the investment of land and capital is done by big

business person or capitalist. Wages are paid to the laborers employed.
Intensive farming and improved methods of cultivation are adopted. Farms are
generally mechanized. Workers are better paid. The profit or loss of the
business is borne by the capitalist or business person.

3. Corporate Farming

It has the characteristics just like capitalistic farming, but the right of
ownership is on the basis of shares taken by the member. Profit is distributed
according to share of members. Workers are generally better paid.

4. State Farming

Government carries out state farming. Farm managers are employed for
conducting day-to-day agricultural operations. The farm may be mechanized or
un-mechanized depending upon the size of the farm. The Government provides
finances as well as other facilities and also fixes the policy to be adopted. The
profit or loss is entirely borne by the Government.

5. Collective Farming

It is also called Khol-khoz. Collective members surrender their land, livestock

and implements to society. Members elect a managing committee, which is

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responsible for allocation of work, distribution of income and marketing of

surpluses.

6. Peasant Faming

Farmers follow Agricultural Practices in their own way & managers &
organizers of their farm business. Entire farm family members make decisions.

Gross Domestic Product (GDP): It is the money value of the final products of
all resources located within the country irrespective of whether the owners of
various resources live there or abroad.

Gross National Product (GNP): it refers to the aggregate money value of allfinal
goods and services produced in a year (in a country). GNP is the personal
consumption expenditures (C) plus Government purchases of goods and
services (G) plus gross private domestic investment (Ig) plus exports of goods
and services (X) fewer imports of goods and services. In symbols, it is written
as:

GNP = C + Ig + G + (X-M)

INFLATION

Inflation is defined as an increase in the average level of prices. When the

supply of output is less, the rise in prices is described as inflationary.

Causes of Inflation

a) Increase in demand and decrease in supply of goods cause inflation. Increase

in demand is caused by increase in aggregate spending on consumption and
investment goods. Decrease in output is due to deficiency of capital equipment,
scarcity of factors of production and natural calamities like drought, flood, etc.

b) Inflation occurs during the war when the government creates additional
money and circulates the same into the economy to meet war expenditures.

c) Also, when government resorts to deficit financing, inflation takes place.

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Deflation: It is the opposite of inflation. It means a fall in the general price level
associated with a contraction of the supply of money and credit.

Important journal

Journal/bulletin Periodicity
Agriculture marketing Quarterly
Agricultural situation in India Monthly
Indian agriculture in brief Annual
Bulletin on food statistics Bi-annual

Scheme
lead bank scheme
Regional rural bank
Crop loan system
NABARD
committee
Nariman committee
Narsimhan committee
D.R. Gadgil committee
Shivaraman committee

Scientist Contribution
Adam smith Father of Economics, book “wealth of nations”
Alfred marshal Concept of law of diminishing marginal utility, law of
equimarginal utility, consumer surplus
J.M. Keynes Father of modern economics,
Malthus Population theory
Fisher Time preference theory of interest
A. Walker Theory of profit
Adam smith Theory of absolute advantage
A.P. Learner Theory of inflation

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Factors of production Reward

Land Rent
Labour Wage
Capital Interest
Enterprise Profit

Basic units

Basic unit of PRI Gram sabha

Fundamental unit of civilization Home
Primary group of society Family
Primary unit of society Village
Basic operational unit of rural development Block

Finance according to period

Short-Term Credit:

 It is given to farmers for periods ranging from 6 to 18 months

 It is primarily meant to meet cultivation expenses viz., purchase of seed,
fertilizer, pesticides and payment of wages to laborers.

Medium-Term Credit:

 The period of 2 to 5 years,

 It is for the purchase of pump-sets, farm machineries and implements,
bullocks, dairy animals and to carry out minor improvement in the farm.

Long-Term Credit:

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 Periods 5-25 years

 For immovable property for undertaking development works viz., sinking
wells, purchase of tractor and ranking permanent improvements in the
farm. It has to be repaid in half-yearly or annual installments.

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