Indian Economy Complete Study Notes for UPSC Prelims

Basics of Economy and Economics

Economics

Economics is a social science that deals with how the people make choices and with the principals behind how the goods produce, distribute and prices are determined. In other words, it deals with the theory and principals behind the demand, production, supply and prices. Under economics following concepts are studied:-

Demand:- Demand refers to the need or requirement of a commodity as well as the purchasing power or the ability to being able to afford it.

Demand = Need * Purchasing Power

Supply:- Supply refers to the level of availability of the given product or service.

Supply = Production * Distribution

Price:- Price refers to the amount of money paid to consume the commodity. It depends upon the various factors such as the cost of raw materials, demand or supply of the goods and services being talked about.
- Cost refers to the amount that goes in producing any given goods or services. It may include the amount paid for raw materials, rent, labour and other factors. When the profit margin is added it become the price.
- Value refers to the satisfaction derive on the consumption of any commodity goods or services. Higher the value attached with the commodity as well as its profits.
Law of Demand:- According to this law of demand when the prices of any commodity increases, its demand decreases. Alternatively the decrease in the price also leads to increase of its demand.
Law of Supply:- As per the law of supply when the price of commodity increase the supply of commodity also increases because more and more produces enter the race to earn more profits.

Goods and it's types

The goods in the economy refer to the products or the commodities which are economically useful and monetarily valuable. e.g. steel, food grains, machinery, etc. Goods can be divided into many categories which are:

Primary Goods:- The goods which are produced during the primary sector activity such as the mining, agriculture, etc. e.g. food grains, milk, iron ore, etc.
Intermediate Goods:- The goods which are used or consume during the production of other goods or the goods used in the intermediate stage of production is known as intermediate goods. e.g. yarn, coal, steel and others.
Final Goods:- The goods which are ready or usage and will not enter into successive or further phases of production is known as final goods. e.g. a car, shirt, a packet of biscuit, etc.
Infrastructure Goods:- The goods which are used in the creation of infrastructure such as building, roads are known as infrastructure goods. e.g. bricks, cement, steel, pipes, etc.
Consumer Goods:- The goods which are produced to be finally consumed by the people and households is known as consumer goods. It can be further divided into two categories:-
1. Consumer Durables: Those goods having a long lifespan. such as TV, AC, refrigerators, car, etc.
2. Consumer Non Durables: The goods having shorter span of life and are consumed frequently e.g. food items, personal care items such as soap, shampoos etc.
Capital Goods:- The goods which add to the productive capacity of the economy or contribute to the economic production e.g. tractors, earth moving machines, office computers, etc. The machinery or the building are known as fixed capital whereas the raw material is known as the working capital
Complementary Goods:- The goods which are consumed together and the presence of one compliments the utility of another are known as complementary goods. e.g. bread and butter, car and petroleum. If the price of one good increases the demand of its complementary good will decrease.
Substitute Goods:- The goods which can be used in place of some other goods and derive the similar level of satisfaction or utility are known as substitute goods. e.g. tea in place of coffee.
Inferior Goods:- The goods on consumption of which low satisfaction or utility is derive is known as inferior good. The demand of these good decrease with the increase in the income of the consumer as the user shift to a superior good on high incomes. e.g. a bicycle used as a medium of transport, bread, etc
Griffin Goods:- The concept was given by Scottish economist Robert Griffin. These are the inferior goods having low substitute available therefore even if the prices of these goods increase the demand will not fall and rather increase with time. One more reason for this trend is the addiction to such goods. e.g. bread, tobacco, etc.
Veblen Goods:- It was proposed by economist T Veblen to identify and classify those goods which are consumed to show off once wealth or prestige such as jewellery, luxury item. Like griffin goods they also don't follow law of demand.
Sin goods:- The goods which create a negative consequence on health and environment is known as a sin good e.g. tabaco, cigarette, alcohol, etc.

Type of Economics

Economics can be divided into two sub-domains

Microeconomics:- It deals with the study of economic activities related to an individual, a family or an enterprise e.g. the production or profits of TATA Steel.
Macroeconomics:- Under this the study is related to the production, consumption, savings or other parameters with regard to the whole country or a broad region. e.g. steel production in India, unemployment in India.

Economy and it's types

The economy refers to the management of resources in the most efficient manner to maximize the potential. The economy involves the planning, assessment and efficient allocation of resources. Since different countries have different geography, different population sizes, different resource base, therefore there are different type of economy. They are as follows:-

Open and Closed Economy
State/ Socialist/ Command/ Planned Economy
Market/ Capitalist/ Laissez Faire Economy
Mixed Economy
Formal/ Organized v/s Informal/ Unorganized Economy
Gig Economy
Linear and Circular Economy
Green and Blue Economy
Orange Economy
Care Economy
Monetize Economy
Digital Economy

1. Open and Closed Economy

An economy or country which undertake the trade and investment with the rest of the world freely with minimum resistance is known as open economy. Such economies have frequent exchange of labour, capital, technology with rest of the world.

Basics of Economy and Economics

Economics

Demand:- Demand refers to the need or requirement of a commodity as well as the purchasing power or the ability to being able to afford it.

Demand = Need * Purchasing Power

Supply:- Supply refers to the level of availability of the given product or service.

Supply = Production * Distribution

Price:- Price refers to the amount of money paid to consume the commodity. It depends upon the various factors such as the cost of raw materials, demand or supply of the goods and services being talked about.

Cost refers to the amount that goes in producing any given goods or services. It may include the amount paid for raw materials, rent, labour and other factors. When the profit margin is added it become the price.
Value refers to the satisfaction derive on the consumption of any commodity goods or services. Higher the value attached with the commodity as well as its profits.

Law of Demand:- According to this law of demand when the prices of any commodity increases, its demand decreases. Alternatively the decrease in the price also leads to increase of its demand.

Law of Supply:- As per the law of supply when the price of commodity increase the supply of commodity also increases because more and more produces enter the race to earn more profits.

Goods and it's types

Primary Goods:- The goods which are produced during the primary sector activity such as the mining, agriculture, etc. e.g. food grains, milk, iron ore, etc.

Intermediate Goods:- The goods which are used or consume during the production of other goods or the goods used in the intermediate stage of production is known as intermediate goods. e.g. yarn, coal, steel and others.

Final Goods:- The goods which are ready or usage and will not enter into successive or further phases of production is known as final goods. e.g. a car, shirt, a packet of biscuit, etc.

Infrastructure Goods:- The goods which are used in the creation of infrastructure such as building, roads are known as infrastructure goods. e.g. bricks, cement, steel, pipes, etc.

Consumer Goods:- The goods which are produced to be finally consumed by the people and households is known as consumer goods. It can be further divided into two categories:-

Consumer Durables: Those goods having a long lifespan. such as TV, AC, refrigerators, car, etc.
Consumer Non Durables: The goods having shorter span of life and are consumed frequently e.g. food items, personal care items such as soap, shampoos etc.

Capital Goods:- The goods which add to the productive capacity of the economy or contribute to the economic production e.g. tractors, earth moving machines, office computers, etc. The machinery or the building are known as fixed capital whereas the raw material is known as the working capital

Complementary Goods:- The goods which are consumed together and the presence of one compliments the utility of another are known as complementary goods. e.g. bread and butter, car and petroleum. If the price of one good increases the demand of its complementary good will decrease.

Substitute Goods:- The goods which can be used in place of some other goods and derive the similar level of satisfaction or utility are known as substitute goods. e.g. tea in place of coffee.

Inferior Goods:- The goods on consumption of which low satisfaction or utility is derive is known as inferior good. The demand of these good decrease with the increase in the income of the consumer as the user shift to a superior good on high incomes. e.g. a bicycle used as a medium of transport, bread, etc

Griffin Goods:- The concept was given by Scottish economist Robert Griffin. These are the inferior goods having low substitute available therefore even if the prices of these goods increase the demand will not fall and rather increase with time. One more reason for this trend is the addiction to such goods. e.g. bread, tobacco, etc.

Veblen Goods:- It was proposed by economist T Veblen to identify and classify those goods which are consumed to show off once wealth or prestige such as jewellery, luxury item. Like griffin goods they also don't follow law of demand.

Sin goods:- The goods which create a negative consequence on health and environment is known as a sin good e.g. tabaco, cigarette, alcohol, etc.

Type of Economics

Economics can be divided into two sub-domains

Microeconomics:- It deals with the study of economic activities related to an individual, a family or an enterprise e.g. the production or profits of TATA Steel.

Macroeconomics:- Under this the study is related to the production, consumption, savings or other parameters with regard to the whole country or a broad region. e.g. steel production in India, unemployment in India.

Economy and it's types

1. Open and Closed Economy