a video on Demand function .....

 

Economics Word search

ECONOMICS

          We know, all too well, that we must pay for what we buy, 

whether it be automobiles, clothing, movie tickets, 

or roller coaster rides.  

Buying as many products and services as we can with 

our limited incomes 

is an economical thing to do.

          Economics is an important part of everyone’s life. 

It is the way in which human and natural resources are 

used 

by a nation to produce goods and services.  

Economics can be things you buy (products) 

or things someone does for you 

to save time and effort (services). 

Whatever it is, something of value is 

given up or exchanged for something 

else of value that we want and 

think that we have to have. 

Giving up something you want or 

need in order to get something else is called opportunity cost. 

Products and services are, however, limited.  

That means they are scarce. 

The amount of these available to the public is called supply.

          Maybe you are thinking of buying a new car, 

so you postpone buying a newly released CD in order 

to save money for the car. 

 This is an important point.  

Human wants and needs are unlimited. 

Most of us don’t have nearly as much money 

as we would like. 

When it comes to two items you want, 

you may need to make a choice. 

Because of this, we have to decide what 

we really want and feel that 

we have to have in order to satisfy our most important needs.  

When we are hungry, we want food; sick, 

we want medical care; 

excitement, we could choose a number of things. 

The desire of customers for a particular item is called demand.

          Economics is involved in every purchase that we make. 

We receive money for working.  This money is called income.

 We can only spend our money once and then it’s gone. 

 Because of this, we must decide what is most 

important to us and

make that choice. When we do this, we are prioritizing 

(choosing what is most important) needs and wants 

and allocating 

(setting money aside to pay for certain things) 

resources to satisfy them.

Remember:  Economics is a process of making decisions to satisfy 

unlimited human wants and needs with limited resources.

Important Economic Terms:

ALLOCATING	CHOICE	COST
DEMAND	ECONOMICAL	ECONOMY
GOODS	INCOME	MOST
NATURAL	NEEDS	OPPORTUNITY
PRIORITIZING	PRODUCTS	RESOURCES
SCARCITY	SERVICE	SUPPLY
WANTS

Economics Word search

Find the economics terms in puzzle below.

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ALLOCATING	CHOICE	COST
DEMAND	ECONOMICAL	ECONOMY
GOODS	INCOME	MOST
NATURAL	NEEDS	OPPORTUNITY
PRIORITIZING	PRODUCTS	RESOURCES
SCARCITY	SERVICE	SUPPLY
WANTS

 

A note on ..............Demand for money

•Demand for money balance is liquidity preference.

•Whether to hold cash or put it in savings bank so as to earn interest.

•People desire to hold money balance from   two motives —

•1. The Transaction Motive

•2. The Speculative Motive

Transaction motive

•Holding money for transactions

•Transaction demand for money in an economy,  Mt  can be written as

 v.Mt  = T 

Where,  v is velocity of circulation of money

•             T is the total value of transaction in the economy.

Velocity

• the rate at which money circulates

•definition:  the number of times the average rupee changes hands in a given time period

•example:  In 2010,

•Rs.500 crores in transactions

•money supply = Rs.100 crores

•The average Rupee is used in five transactions in 2010

•So, velocity = 5

•speculative motive

•Demand for money for speculation is speculative motive.

•Speculative demand for money can be written as

•Mͩs =  rmax -  r/ rmin - r               r = market rate of interest

                                               

As r decreases from r max to r min, the value of Mͩs  increases from 0 to infinite.

Liquidity trap

•It’s a situation where the speculative money demand function is infinitely elastic.

                                      

Thus,   Demand for Money  =  Transaction demand for money +   Speculative demand for     money

A note on..........NATIONAL INCOME & RELATED AGGREGATES 

GNP & GDP

•GNP=GDP+NFIA        (NFIA is Net Factor Income from Abroad=factor income received from abroad -fact income paid abroad)

GDP=GNP-NFIA

•GNP &GDP are calculated at Market Price (MP)& Factor Cost (FC)

•The difference between MP&FC is Net Indirect Tax (NIT) i.e.,

•MP = FC + NIT

•FC = MP – NIT                             (NIT is added to MP & deducted in FC)

•NIT = Indirect Tax - Subsidies

•Tax on goods & services are Indirect Tax.           Subsidies are provided by the Govt.

                        

Therefore,

•GNPmp = GDPmp + NFIA

GDPmp = GNPmp – NFIA          OR        GNPmp = GNPfc + NIT         GDPmp = GDPfc + NIT

           

GDPfc = GNPfc – NFIA

•GNPfc = GDPfc + NFIA

                  OR

•GDPfc = GDPmp – NIT

•GNPfc = GNPmp - NIT

NNP & NDP

•NNP = GNP – D                   (D=depreciation)

•NDP = GDP – D

•NNPfc = NNPmp – NIT

•NNPfc is the National Income

                                             NNPmp = NNPfc + NIT

PERSONAL INCOME

•The part of National Income received by households is PI

•PI = NI – Undistributed profits – Net interest payment made by households – Corporate tax + Transfer payments.

•A part of profit not distributed among factors of production is UP.

•Tax on the profit of firms is Corporate tax.

TRANSFER PAYMENTS

•Unilateral payments without any quid-pro quo.

•(quid-pro-quo means “expecting anything in return”)

•For example – Pensions, scholarships, etc.

TPs are Current Transfer & Capital Transfer.

•Current Transfer are the transfer for current consumption. e.g., pensions, scholarships, etc.

Capital Transfer are the transfer for Capital formation. e.g., financial assistance for infrastructure

PERSONAL DISPOSABLE INCOME

•PDI = PI – Personal Taxes – Non-Tax payments.

NATIONAL DISPOSABLE INCOME

•NDI = NNPmp + Other Current transfers from the rest of the world

NDI gives an idea of the maximum amount of goods & services the domestic economy has at its disposal.

•Gifts & aids are example for Current transfers from the rest of the world.