Chapter 1

BASIC PRINCIPALS OF ECONOMICS

Growth Strategy: Undeveloped economies----to achieve goal of long run self sustained growth----proper economy strategy should be developed Proper strategy----achieves development in short period Proper strategy---fights against monsters-like- low productivity, unemployment, low standard of living, other obstacles to growth Aim of development strategy should be----1. Deciding scheme of priority of investment for rapid economic progress 2. fix rate of saving, investment and capital formation 3. consider availability of resources, technology, facilities and lay down the fronts on which initial attack to be made

Compiled by Prof. Prasad Parulekar

4. combine objective of growth with objective of stability 5. consider social effects of economic development 6. decide conservation and proper allocation of resources Decide whether strategy should be for steady gradual growth or for big push growth (A) The Gradual approach/Steady Growth Approach: concept should be acquired by underdeveloped countries during initial stages of development Strategy---concentrate on agriculture sector first--extend to social overhead capital---develop small scale industries Agricultural income---improves national income---can be used for developing other sectors Less emphasis on deliberate industrialization Relies more upon market mechanism than deliberate planning of investment

Compiled by Prof. Prasad Parulekar

 As agriculture grows---sectors complementary to it grows like---mechanization of agriculture, fertilizer, chemicals, etc. Complementary industrial development induces development of other industries Slow approach, can not face all obstacles in development Can never make growth process self sustained and cumulative Small efforts fail to break vicious circles of poverty (B) Big Push Approach: Massive and large efforts to break vicious circle of poverty Operate rapidly and intensively throughout the economy, to provide sufficient momentum to progress Strong and powerful efforts needed to pull economy of underdeveloped countries 2 broad categories of this approach are---(a)
3 Compiled by Prof. Prasad Parulekar

1. it treats economic development to be result of relationship between growth in per capita income and population 2. growth---rises per capita income----induces growth of population 3. small rise in per capita income---will be eaten by growing population---no development 4. large increase in per capita income----supersede population growth 5. large investments---induce rapid and large increase in per capita income----overweigh population growth (b) 1. it relates economic development to market size and purchasing power of people 2. large investment---increase in income---increase in purchasing power---expands market 3. large investments---to be made simultaneously on wide range

Compiled by Prof. Prasad Parulekar

4. large investment----not possible due to scarcity of capital 5. capital should be properly managed; should not be wasted in such investment---unable to lift up economy; hence big push approach should be adopted Balanced and Unbalanced Growth: Both results in rapid economic development Viewpoints regarding patterns of investment in different sectors, differ considerably Balanced growth---insists simultaneous development of different sectors Unbalanced growth---investment concentrates on certain important sectors only (A) Balanced Growth: Balanced of various sectors simultaneously Due to vicious circles---underdeveloped countries---stationary----market size is small Apply capital to vast range of industries
5 Compiled by Prof. Prasad Parulekar

 Investment in single line production---may fail; in variety of sectors---may succeed Widening of market----reduce market risk---provides incentive to producers Returns are increased due to external economies resulting from widespread investment Stimulates international specialization Emphasizes on fact that agriculture and nonagriculture sectors are complementary (B) Unbalance Growth: Investment to some important or strategically significant sectors Investment to be made to--- DPA and SOC DPA---directly productive activity (activity having direct impact on increasing output) SOC---social overhead capital (provide services like, law and order, transportation, communication, public health, water supply, irrigation, drainage facility, electricity, etc)
6 Compiled by Prof. Prasad Parulekar

 Industries covering large number of linkage should be selected Disequilibrium, tension and unbalanced growth----leads to faster economic growth Decision about selecting from these 2 strategies depends upon availability of resources. Balanced growth---if adequate resources are available Unbalanced growth----scarcity/limited resources

Compiled by Prof. Prasad Parulekar

Answer following questions very briefly (in single word / one sentence/2-3 sentences) 1. Economics is study of------------------2. Economic problem is problem of choosing --------------3. Causes behind economic problem are: unlimited------- & scarcity of----------------4. A satisfied need does not act as -----------5. Hierarchy of human needs can be written as: 1--------2------3------4------5-------6. Self-actualization need is something about--------7. Markets can be classified as: 1---------2--------3--------4------8. Large number of buyers and sellers, homogeneous product, freedom of entry and exit, these are the characteristics of------------type of market 9. Close substitute for a particular product is not available in ------type of market 10. 11. 12. Examples of commodities in the market under Price at which demand = supply, exists uniformly Monopolist has to take care of reactions from: 1------28 Compiled by Prof. Prasad Parulekar

monopolistic conditions are-------------throughout the market; in which type of market it happens? ------3--------4----------

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

Marginal cost means---------According to size, markets can be classified as: 1------What is price discrimination? Give one example Give example of time discrimination What is the relation in price and cost? Fixed cost is meant for------------Cost index is used for-----------According to law of demand, relation between price Any 4 determinants for demand other than price1----2Elasticity of demand can be defined as------------and Identify elasticity of demand in following cases-------

2-----3---------4-----

and demand is------------3------4------expressed as ratio of--------------(i)e = 0 (ii) e < 1 (iii) e > 1 (iv) e = 1 (v) e = 24. Any 2 determinants of elasticity? 1----2-----25. What is the meaning of cross elasticity of demand? Example? 26. According to law of supply, its relation with price is---27. How future trends in prices affects on supply? 28. What is difference in extension/contraction and increase/decrease in supply? 29. What are types of economies of production?
9 Compiled by Prof. Prasad Parulekar

30. What is the difference in managerial economies and managerial diseconomies? 31. What is the concept of non-economic growth? 32. Can you differentiate growth and development? 33. Maximum per capita energy consumption, is the characteristic of which stage of economic growth?

10

Compiled by Prof. Prasad Parulekar