FAST TRACK NOTES

1. As per all the classical economists - Smith, Say, Marshall, Pigou, Robbins and Samulson-
Mins. Economics is a science.
2. Microeconomics is also known as Price theory.
3. Most of the classical economist discussed micro part of the economics
4. Points to remember for definition of economics by Adam Smith and J. B. Say - (loo
(a) Economics is mainly study of wealth
(b) Main problem faced by any economy is creation of wealth
(c) Creating and equitably distributing it can help the economy solving the problems of
poverty and unemployment
(d) They concentrated on material wealth only and ignored creation of immaterial
wealth
(e) They also ignored social welfare.
5. Points related to definitions of Marshall and Pigou –
(a) According to them Economics is study of wealth + Mankind
(b) They focused on social welfare. And according to them economics should be
concerned with welfare activities.
c) Their definitions are of normative science.
(d) They also ignored immaterial wealth like services
(e) Robbins criticized their definitions on the ground that it is very difficult to state
which things would lead to welfare and which will not.
6. Points related to Robbins definition of economics:
(a) According to Robbins Economics is Choice making
(b) He is first economist who said - Ends are unlimited, Means are scarce and means
have alternative uses.
(c) Robbins does not differentiate between material and non-material and and
between welfare and nonwelfare.
(d) According to him, any activity which has price and can satisfy the wants of the
consumers, should be subject matter of economics.
(e) it is not the duty of the economics or economists to suggest that which activity is
good or bad.
(f) According to him, "Economics is neutral between ends."
 (g) Few economists have said that Robbins's definition is impersonal and colourless
because his definition is completely positive science and it does not consider
normative aspects, his definition is silent on macro-economic aspects and he did
not cover the theory of economic growth and development.

7. Points related to definition of economics by Paul Samuelson -

(a) Samuelson and Robbins are same on the ground of- Choosing the ends, Alternative
use and scarce resources.
(b) Samuelson goes one step further and says that resources can be created. (This is
the point of difference between definitions given by Samuelson and Robbins).
8. Prof Henry Smith - "the study of how a civilized society one obtains the share of what
other people have produced and of how the total product of society changes and is
determined."
9. In micro economics, we study the individual firm aspects and demand supply,
production costs or different types of markets and pricing whereas; in macroeconomics
we study aspects of economy.
10. Economics is Science as well Arts.
11. Economics is science because of the following reasons:
a. It is systematized body of knowledge which studies the relationship of cause and
effect (eg: When price increases, quantity demanded falls) atalmuncoe Isole
b. It is capable of measurement (eg. Elasticity measures the amount of change in
quantity demanded)
c. It has its own methodological apparatus (eg. Elasticity, econometric tools and other
statistical tools)
d. It has ability to forecast (eg. Budget, Monetary policy etc.)
12. Economics is NOT a perfect science.
13. Economics is not a perfect science because of the following reasons:
a. Economists do not have same opinion about a particular event
b. Economic behavior is highly unpredictable
c. Money itself is a dependent variable
d. It is NOT possible to make correct predictions about the behavior of economic
variables.
14. Economics is science in methodology and arts in application.
15. A positive or pure science analyses cause and effect relationship between variables BUT
IT DOES NOT PASS ANY VALUE JUDGEMENT.
16. Positive Economics simply states the facts and uses empirical evidence. It focuses on
"What is" en aspect.
17. NORMATIVE science passes value judgment on the activity.
18. Normative economics has ethical aspects; it provides opinion/suggestions.
19. Normative economics is concerned with welfare propositions.
20. Deductive method is also called abstract, analytical and priori method
21. Under deductive methods, assumptions are framed and economist's personal judgment,
gut feelings probability and experience play an important role.
22. Deductive method moves from general to particular.
23. Under Inductive method, conclusions are drawn on the basis of collection and analysis
of facts relevant to the enquiry.
24. Inductive method moves from the particular to general.
25. Inductive method is statistical in nature.
26. Inductive method leads to more precise, exact and measurable conclusions.
27. Inductive method underpins the importance of relativity of economic laws and it shows
that bas generalisations are valid only under certain conditions.
28. Inductive method has demerits like risk of hurried conclusions having drawn from an
insufficient number of facts, difficulties involved in the collection of facts and the fact
that observation and experimentation have very limited application in a science that
delas with human activities.
29. Production possibility curve assumes that - productive resources are fixed, resources
are fully and efficiently employed and technology is same.
30. Due to increasing opportunity cost of producing one output, shape of the PPC is concave
to the origin.
31. Increasing opportunity cost in PPC happens because - a given resource is more suitable
for the production of one good than another.
32. If opportunity cost is constant, then shape of the PPC will be a straight line.
33. A production combination on the PPC shows that the economy is running efficiently.
34. A point inside the PPC indicates the underemployment or unemployment of the
resources.
35. A point outside the PPC indicates the production possibility as NOT achievable or the
resources have been over-utilized.
36. We move from inside the PPC to a point on the PPC, then there is:
a. Reduction in unemployment/underemployment
 b. Reduction in wastage of resources
c. Production process has become more efficient etc.
37. Reduction/increase in Unemployment/underemployment DOES NOT cause shift in PPC.
38. Upward/outward/rightward shift of the PPC indicates that -
a. Economy has progressed,
b. Capital has been formed,
c. Resources have been increased,
d. Investment has increased,
e. GDP has increased, and
f. Technology has improved.
39. Inward/downward shift of the PPC indicates that
a. The state of recession or depression,
b. Economy has slowed down,
c. Capital deterioration,
d. Decline in investment,
e. Very high consumption in the economy
f. National income has declined
g. War like situation
h. Natural calamities or
i. There may be technological deterioration etc.
40. Characteristics of Capitalist economy
a. The right of private property
b. Freedom of enterprise
c. Freedom to choice by the consumers (consumers are sovereign)
d. Profit motive
e. Sever competition
f. Inequalities of income
41. In a capitalist economy the question regarding what to produce is ultimately decided by
consumers who show their preferences by spending on the goods which they want.
42. In capitalist economy, "how to produce" is decided by the relative prices of factors of
production.
43. In short, the central economic problems are answered by "Price mechanism" or "market
mechanism" in a capitalist economy.
44. Demand depends upon - desire, means to purchase and willingness to purchase.
45. Prime factor to induce demand is "Desire". sertions net boop end to noitouborg
46. Price then Quantity Demanded
47. Price of Complementary product then demand
48. Price of Complementary product then demand
49. Price of the substitute product then demand
50. Price of the substitute product then demand
51. Income of the consumer then demand
52. Change in taste and preferences leads to change in demand.
53. Other factors such as size of population, composition of population and distribution of
income also affect demand.
54. LAW of Demand says that if Price of a good increased its quantity demanded decreases,
keeping other things constant.
55. Law of demand establishes relationship between the price of a commodity and its
quantity demanded.
56. Ceteris Paribas = When other things are constant.
57. Demand curves slope downward because of mainly substitution effect and income
effect.
58. Substitution effect:- When price increase, consumers shift their consumption towards
the substitute, products and therefore the quantity demanded of the earlier good
decreases and vice versa.
59. Income Effect:- When price of the product declines the real income/purchasing power
of the consumer increases and vice versa.
60. Exceptions to the law of demand:
(a) conspicuous goods - diamond etc.
(b) Giffen goods
(c) Goods of conspicuous necessities such as television, refrigerator etc.
(d) future expectations about prices
(e) demand for necessaries
(f) speculative goods.
61. Veblen effect/prestige goods effect = If the commodity is expensive some consumers
think that it has got more utility.
62. Giffen goods are those goods which are considered inferior by the consumers and which
occupy a substantial place in consumer's budget.
63. Giffen goods show direct price-demand relationship.
64. Expansion / Contraction in quantity demanded = Movement along the demand curve =
change in quantity demanded = happens due to change in the price of that product
65. Expansion = quantity demanded increases due to decline in the price of the commodity
66. Contraction = quantity demanded declines due to increase in the price of the commodity
67. Shift in demand curve = change in demand = happens due to change in factors OTHER
THAN PRICE of the commodity.
68. Due to change in income of consumer, Change in price of the related commodity, due to
change in taste and preferences there will be shift in demand (change in demand).
69. Elasticity: the responsiveness of the quantity demanded of a good to changes in one of
the variables. When we say Price elasticity of demand then we measure responsiveness
of the quantity demanded of a good to changes in price. Similar is the case with Income
with consumer and change in price of the related commodity.
70. FORMULAE of PRICE ELASTICITY of DEMAND:
Ep = % change in quantity demanded / % change in price (note: please apply this
formula when % figures are given or when co-efficient of elasticity is to be found out)
71. Arc Elasticity Ep = {(P1+P2)/(Q1+Q2) X {(Q2-Q1)/(P2-P1)} [note- please apply this
formula when two price and two quantity figures are given ]
72. [NOTE: Suppose elasticity value comes with negative sign as say -2 and in the option
both the options
For example +2 and -2 are given then mark your answer as +2 because elasticity is not
considered as negative. BUT when co-efficient of elasticity is asked then mark with sign
i.e if answer is -2 then mark with negative sign]
73. Perfectly elastic demand curve: Horizontal to quantity axis (i.e. X-axis)
74. Perfectly Inelastic demand curve: Vertical to Price axis (i.e. Y-axis)
75. Elasticity = 0: Perfectly Inelastic demand curve
76. Elasticity = infinity: Perfectly elastic demand curve
77. Elasticity > 1: Relatively elastic demand curve
78. Elasticity < 1: Relatively inelastic demand curve
79. Elasticity = 1: Unit elastic demand curve
80. When as result of change in price of a good, the total expenditure on the good remains
the same, the price elasticity for the good is equal to unity. (Use arc elasticity to prove it)
81. When as result of increase in price of a good, the total expenditure on the good falls or
when as result of decrease in price, the total expenditure made on the good increases,
the price elasticity for the good is greater than unity. (Use arc elasticity to prove it)
82. When as result of increase in price of a good, the total expenditure made on the good
increases or when as a result of decrease in price, the total expenditure made on the
good falls, price elasticity of demand is less than unity. (use arc elasticity to prove it)
SUMMARY TABLE OF OUTLAY METHOD OF EXPENDITURE:

Price Total Elasticity

expenditure
Same =1
Same =1
>1
>1
<1
<1

83. More no of substitutes = Higher value of elasticity; Less no of substitutes = Lower

elasticity
84. Lower the position of a commodity in a consumer's budget = Lower elasticity of the
commodity
85. Luxury Goods = higher elasticity
86. Necessity product = very low or zero elasticity
87. More number of uses of a commodity - higher elasticity sofa
88. Generally, in the short time period elasticity is lower and in longer time period elasticity
is higher
89. Commodity which are consumed by the consumers due to habit, have lower or zero
elasticity
90. The demand for those goods which are tied to others is normally inelastic as against
those whose is of autonomous nature.
91. Very high or very low price range = relatively inelastic demand; Middle price range =
relatively higher elasticity.
92. If the proportion of income spent on goods remains the same as income increases, then
income elasticity for the goods is equal to one. (use % change in Q/% change in Income
to prove it)
93. If the proportion of income spent on a goods increase as income increases; then the
income elasticity for the goods is greater than one. (use % change in Q/% change in
Income to prove it)
94. If the proportion of income spent on goods decreases as income rises, then income
elasticity for the goods is less than one. (use % change in Q/% change in Income to
prove it)
SUMMARY TABLE OF INCOME ELASTICITY:-

Income Proportion of income spent Income elasticity

Same =1
>1
<1

95. Income elasticity of a normal goods of necessity = less than one

96. Income elasticity of a normal goods of necessity = Zero (eg. Medicine for patients)
97. Income elasticity of luxurious goods = greater than one
98. Income elasticity of inferior goods =absolute value is less than one with negative sign.
99. Income elasticity of goods which are of very low price and necessary = zero
100.If two goods are substitutes, their cross elasticity will be positive."
101.If two goods are perfect substitute then cross elasticity will be infinity..
102.If two goods are totally unrelated, cross elasticity between them will be zero.
103.If two goods are complementary to each other, then cross elasticity between them is
negative.
104.Producer's goods = those goods which are used for the production of other goods either
consumer goods or producer goods themselves eg. Machines, locomotives etc.
105.Consumer's goods = those goods which are used for final consumption.
106.Durable goods = those which can be consumed more than once over a period of time (eg
Television)
107.Non-durable goods which cannot be consumed more than once. (milk, fruits etc.)
108.Derived demand = when a product is demanded consequent on the purchase, of a
parent product. (eg: demand for cement)
109.Autonomous demand = If the demand for a product is independent of demand for other
goods.
110.Industry demand = total demand for the products of a particular industry (eg. Total
demand for steel in the country)
111.Company demand = the demand for the products of particular company.
112.Utility is the want satisfying power of a commodity. It varies from person to person.
113.Utility is different from usefulness.
114.In economics, the concept of utility is ethically neutral.
115.Utility is an anticipated satisfaction by the consumer.
116.Marginal Utility approach was advocated by Marshall
117.According to Marshall, Utility is considered to be a cardinal concept i.e. it is a
measurable and quantifiable concept.
118.The Utility approach assumes that marginal utility of money is constant.
119.Total Utility: sum of the utility derived from different units of a commodity.
a. Total utility is also called as 'Value in use'
120.Marginal Utility; additional utility derived from additional unit of a commodity.
Mathematically, act
a. MUN TUn - TUn-1
b. Marginal utility is also called as 'Value in exchange' 120. Relationship between total
utility and marginal utility:
a. When the TU rises the MU diminishes.
b. When the TU is maximum then MU is Zero
c. When TU is diminishing then the MU is negative.
121.Law of Diminishing Marginal Utility: The additional benefit which a person derives from
a given increase in stock of a thing diminishes with every increase in the stock that he
already has."
122.Law of DMU assumes that-
(a) Units being identical
(b) Units being standard units
(c) No time gap between consumption of two units
(d) DMU may not be applicable in case of gold cash etc.
(e) Shape of the utility curve may be affected by the presence of substitute or
complementary products.
123.Consumers' Surplus = What price consumer is willing to pay - price actually paid
OR, CS = MU-Actual Price paid
124.The consumer is in equilibrium when MU = P (it is assumed that perfect competition
prevails)
125.(a) Consumer surplus is highest in the case of necessities.
126.According to Prof Hick, Consumer Surplus is the money income gained by a man arising
from a fall in price of goods he purchases.
127.Limitations of Consumers' Surplus-
1. Difficult to measure precisely as it is difficult to measure MU
2. Not measurable in case of necessaries
3. It is affected by presence of substitutes
4. Not applicable in case of goods of prestige values
5. Consumer's surplus cannot be measured in terms of money because MU of money
changes
128.Indifference curve represents all those combinations of goods which give same level of
satisfaction.
129.Indifference curve approach is an ordinal concept. It was given by Hicks and Allen.
130. Assumptions of IC approach:-
a. The consumer is rational and possesses full information
b. The consumer is capable of ranking all conceivable combinations of goods
according to the satisfaction they yield.
c. If the consumer prefers combination A to B, and B to C, then he must prefer
combination A to C.
d. If combination A has more commodities than combination B, then A must be
preferred to B.
131.Marginal rate of substitution: It is the rate at which the consumer is ready to exchange a
good for another. Normally, MRS falls, as we exchange more of one additional unit of
good for another.
132.If goods are perfect substitute then MRS shall be constant.
133.Indifference curve is convex to origin because MRS falls.
134.'For two perfect substitutes, indifference curve is a straight line.
135.When two goods are perfect complementary goods, indifference curve will be L-shaped.
136.Indifference curves slope downward to the right.
137.Indifference curves never intersect each other.
138.A higher indifference curve represents a higher level of satisfaction than the lower
indifference curve.
139.Budget line: it shows all those combinations of two goods which the consumer can buy
spending his given money income on the two goods at their given prices.
140.A point inside the budget line represents Under-spending; whereas, a point outside the
budget line represents "not able to purchase the desired quantity of goods with the
given income".
141.Consumer shall be in equilibrium at the point where Budget line is tangent to the
indifference curve. There can be only one such point of equilibrium.
142.If price increases, Supply of the goods increases
143.If price of another product increases then quantity supplied of the first product may fall
144.Rise in cost of factor of production will lead to decrease in quantity supplied.
145.Improvement in state of technology may lead to increase in supply of goods.
146.Favorable government policy may lead to increase in supply of goods.
147.Shift in supply curve = Increase or Decrease in supply = happens due to change of
factors other than Price.
148.Movement on the supply curve = Increase or decrease in the quantity supplied =
happens due to change in price.
[Formula for Elasticity of supply are similar to those of elasticity of demand]
149.In economics production is
- Any economic activity for creation/addition of utility
- Any economic activity to produce goods and services
- Creation or addition of utility
150.Form Utility: changing the form of the natural resources
151.Place utility: Changing the place of the resources
152.Time utility: Making available materials at times when they are not normally available
153.Personal utility/service Utility: Making use of personal skills in the form of services
154.Knowledge utility- Creation of utility because of knowledge
155.Possession utility - Cr -Creation of utility because of changing the possession
156.Land: All free gifts of nature and includes air, water, wind, natural gestation etc.
157.Land is strictly limited in supply.
158.The supply of land is perfectly inelastic from the point view of the economy. Relatively
elastic-point of view of a firm
159.Properties of land cannot be destroyed
160.Land is immobile.
161.Land is specific factor of production.
162.Labour: Mental or physical exertion directed to produce goods or services.
163.Labour is highly perishable.
164.Labour is inseparable from the laborer himself.
165.Labour power differs from laborer to laborer.
166.All labour effort is not productive.
167.Capital is a stock concept whereas, income is flow concept.
168.Both land and labor are NOT produced factors of production but primary or original
factors of production.
169.Capital is NOT a original or primary factor of production but Produced factor of
production.
170.Stages of capital formation are- Savings, Mobilization of savings, Investment
171.Entrepreneur (another factor of production) performs the functions of (a) initiating a
business enterprise and resource co-ordination, (b) Risk bearing or ring (c) innovations
172.Law of variable proportion is applicable when some factors are variable and at least one
is fixed. (or some are fixed and some are variable)
173.To explain the law of variable proportion graphically at least one variable has to be
present whereas, other may be fixed in nature.
174.The law of variable proportion is applicable in the short run when all the factors are not
variable.
175.The graph of the law of variable proportion considers variable input on the x-axis and
TP, AP and MP on the y-axis.
176.Total Product (TP): total output resulting from the efforts of all the factors of production
combine together at any time.
177.Average product (AP): total product per unit of the VARIABLE FACTOR
178.Marginal Product (MP): Change in the total product per unit change in the quantity of
variable factor.
179.When average product rises as result of an increase in the quantity of variable input, MP
is more than the AP.
180.When AP is max, MP is equal to AP i.e. MP cuts AP at max of AP.
181.Corresponding to max of MP there is a point on the TP curve which is called Point of
inflexion.
182. Up to point of inflexion, TP increases with the increasing rate and after the point of
inflexion TP increases with the declining rate.
183. When AP falls, MP is less than AP.
184.Law of Variable proportion- When we combine variable factor with the fixed factor,
then TP first increases with increasing rate and then with decreasing rate, it reaches
maximum and eventually declines.
185.In law of variable proportion, internal proportion of factors of proportion is variable.
186.Assumptions of Law of Variable proportion:
- Technology remains constant
- All the variable units are identical in efficiency
- Some quantities are fixed.
- Proportion of fixed and variable factor changes as we employ more variable
input
- Only physical inputs and outputs are considered and the economic profitability
in monetary terms.
187.Stage 1 of the Law or Variable Proportion:
1. TP increase with the increasing rate first and then with decreasing rate
2. MP rises first, reaches its maximum and starts falling in this staged
3. MP is more than AP
4. AP is continuously rising in this stage
5. Stage 1 ends where AP is maximum i.e. where MP cuts AP
6. As fixed factor is much more than the variable factor, there is no optimal
combination of factors and fixed factors remain under-utilized.
This stage is also known as "Law of increasing return" or "Law of increasing return to
factor"
188.Stage 2 of the Law of Variable proportion:
1. Stage 2 starts after max of AP.
2. TP is rising with diminishing rate
3. In this stage, MP is less than AP
4. Both MP and AP are falling in this stage
5. At the end of the stage 2,TP is maximum and MP is zero.
 6. Stage 2 is called "STAGE OF OPERATION"
7. There is optimal combination of fixed and variable factor
8. This stage is also known as "law of Decreasing return/diminishing Return" or "law
of Diminishing /decreasing return to factor"
189.Stage 3 of Law of Variable Proportion: TP and AP are falling AND MP is negative.
190.Stage 3 is also known as "Law of negative return" or "Law of negative return to factor"
191.Return to scale is applicable in the long run.
192."Scale" means "plant size"
193.Returns to scale mean "how output will change in response to change in input"
194.Return to scale is applicable when all the factors of production are variable.
195.In analyzing return to scale, all the factors of production are increased in the same
proportion so that internal proportion of the factors of production remains same.
196.There are 3 returns to scale- Increasing returns to scale, Constant returns to scale,
decreasing return to scale.
197.Under increasing return to scale, all the factors of production are increased by a certain
percentage and output increase by more than proportionately. For example- if factors of
production are increased by 10% then the output shall increase by more than 10%
198.Under Constant return to scale, output increases by the same percentage as fa as factors
of production are increased. For example, if factors of production are increased by 10%
then the output shall also increase by 10%.
199.Under decreasing return to scale, output increases by less than proportionate increase
in the factor of production. For example- if factors of production increase by 10% then
output shall increase by less than 10%
200.Production function for economy as a whole corresponds to production function
exhibiting Constant Returns to Scale
201.An individual firm passes through a long phase of Constant Return to Scale.
202.Constant Returns to Scale is also known as "Linear Homogeneous Production Function"
203.Increasing return to scale occurs because factors of production are INDIVISIBLE.
204.Internal Economies of Scale:
- Technical economies of scale
- Managerial Economies of Scale
- Commercial economies of scale
- Financial economies of scale
 - Risk bearing economies of scale.
205.External Economies of Scale
- Cheaper raw material and capital requirement
- Technological external economies
- Development of skilled labour
- Growth of ancillary industry
- Better transportation and marketing facilities.
206.Accounting cost: all the payments done
207.Economic cost: Includes the normal return on money capital invested by the
entrepreneur himself in his business, the wages or salary not paid to the entrepreneur
but could have been earned if the services had been sold somewhere else.
208.Economic cost = Accounting cost + implicit cost OR opportunity cost OR implied cost
209.Accounting profit = Revenue - accounting cost
210.Economic profit = Revenue - Economic Cost
211.Economic profit = Accounting profit - Opportunity/implied/implicit cost
(i.e. Economic profit will be less than the accounting profit if opportunity cost is
involved.)
212.Cost function establishes the relationship between cost of a product and the various
determinants of cost.
213.Outlay cost= Actual expenditure
214.Opportunity cost = cost of forgone opportunity.
215.Direct cost = cost that are readily identified and are traceable to a particular product,
operation or plant.
216.Indirect cost = not readily identified nor visibly traceable to specific goods, services,
operations.
217.Fixed cost = Costs which do not vary with output up to a certain level of activity.
218.Variable cost = costs which are function of output in the production period.
219.Completely Fixed cost curve is horizontal to Quantity axis (x-axis)
220.Total cost and total variable cost curves are inverted S-shaped.
221.Completely variable cost is a straight line upward sloping and it has slope = 1 (passes
through origin)
222.TC = TFC + TVCs
223.ATC-AFC+AVCN
224.Average Fixed cost curve (AFC) falls continuously BUT NEVER touches X-axis as well as
Y axis.
225.AFC curve is Rectangular hyperbola.
226.MC, ATC and AVC have U-shape i.e. first, they decrease and then start increasing:
227.Minimum point of MC curve comes before the min of AVC or ATC comes.
228.Minimum point of AVC comes before the min of ATC comes.
229.MC curve cuts ATC and AVC at their minimum points.
230. When average cost falls as result of an increase in output, marginal cost is less than
average cost.
231.When average cost rises as result of an increase in output, marginal cost is more than
average cost
232.Long run average cost curve is also called "Envelope Curve" or "planning Curve."
233.Long run AC declines because of economies of scale and it rises because of diseconomies
of scale.
234.LAC is U-shape assumes that state of technology remains constant.
236.U-shape LAC indicates that there can be only one plant size which will have minimum
cost.
237.L-shape LAC indicates that there can be more than one plant sizes for which cost can be
minimum.
238.Very short period market - Market in which the commodities are perishable and supply
of commodities cannot be changed at all.
239.Short period market - this market is slightly longer than the very short period market.
In this market, the supply of the output can be increased by increasing the variable
factors to the given fixed capital requirement.
240.Long-period market - In this market, time available is adequate for altering the supplies
by altering even the fixed factors of production.
241.Very long-period market or secular period - When secular movements are recorded in
certain factors over a period of time. The factors such as even size of population, capital
supply, supply of raw material etc. can be changed
242.Spot market - Goods are physically bought and sold on the spot.
243.Future market transactions which involve contracts of the future date.
244.Regulated market = Transactions are statutorily regulated.
245.Unregulated market = Free market with no restriction on transaction.
246. Relationship among MR, AR and Elasticity: MR = AR x [(e-i-)/e]
(a) Therefore, when elasticity is zero or infinity, MR is not defined
(b) When elasticity is one, then MR is zero and therefore TR is at maximum
(c) When elasticity is less than one, MR is negative and therefore TR is declining.
(d) When elasticity is more than one, MR is positive and thus TR is increasing.
247.In the short run any firm must recover at least its average Variable cost i.e. minimum
price charged should be at least equal to AVC i.e. P(min) = AVC
248.PAVC is also known as short run shut down point. Below this level of price no firm
would like to produce and would shut down the operation.
249.If MR > MC, the firm will get additional revenue by selling one extra unit of output
MORE than what additional cost it will incur by producing that out and THEREFORE, the
firm will EXPAND the output.
250.IF MR < MC, the firm will get additional revenue by selling one extra unit of output LESS
than what additional cost it will incur by producing that out and THEREFORE, the firm
will CONTRACT the output.
251.IF MR = MC, the firm may be said to be in equilibrium as there is no incentive to the firm
in expanding the output or contracting it.
252.Shutdown Points in SHORT RUN: P = AVC; AR=AVC; TR= TVC
253.Shutdown points in LONG RUN: PAC; AR = AC; TR=TC
254.If as a result of an increase in demand, there is an increase in equilibrium price, as a
result of which the quantity sold and purchased also increased.
255.With the decrease in demand, there is decrease in the equilibrium price and quantity
demanded and supplied.
256.As result of an increase in supply the equilibrium price will go down and the quantity
demanded will go up.
257.Decrease in supply causes an increase in the equilibrium price and a fall in quantity
demanded.
258.If both the supply and demand curves shift rightward with equal extent, there will NOT
be any change in the equilibrium price but quantity will expand.
259.If Demand curve shifts rightward more than the supply curve then equilibrium price
and quantity both increase.
260.If supply curve shifts rightward more than the demand curve then equilibrium price
comes down but quantity expands.
261.Under perfect competitive market - (a) Large number of buyers and sellers (b) products
are homogeneous or identical (c) Free entry and exit (d) Perfect knowledge of the
market environment (d) Almost no transportation cost (e) sellers and buyers are not
 aware of each other (f) Equilibrium price is set up by the industry (g) perfect
competitive industry is price decider/giver and a price competitive firm is price taker
(h) No individual firm can influence the equilibrium price and will be selling any
quantity at the given equilibrium price only (i) a perfect competitive firm can change its
output only to reach its equilibrium (j) short run equilibrium or long run equilibrium
profit/loss depend purely on the individual firm's cost curves.
262.No Transportation cost is NOT the essential features of Perfect Competitive industry
263.Demand curve and supply curve of the perfect competitive industry downward and
upward sloping.
264.A perfect competitive firm is price taker and sells any amount of output at given price.
265.Demand curve of a perfect competitive firm is a STRAIGHT LINE HORIZONTAL TO X-
AXIS (quantity axis)
266.Price elasticity of perfect competitive firm is perfectly elastic.
267.For a perfect competitive firm: P = AR = MR
268.For a perfect competitive firm, demand curve is also price line, AR curve or MR curve
269.Supply curve of a perfect competitive firm is depicted by THAT PORTION OF MC WHICH
is ABOVE MINIMUM OF AVC (i.e. above shut down point)
270.Short run equilibrium of the Perfect competitive Industry = where demand and supply
curve cut each other.
271.Short run / long run equilibrium condition of the perfect competitive firm:- (1) MR = MC
(necessary condition, 1st Order condition) (2) MC curve should cut MR curve from
below (2nd order condition, Sufficient condition).
272.Status of a perfect competitive firm in the short and long run while in the equilibrium:
Condition Short Run Long Run
Supernormal Profit AR>AC Yes No
Normal Profit AR=AC Yes Yes
Loss AR<AC Yes No

273.A perfect competitive firm, IN THE LONG RUN, operates at minimum point of average
cost curve (optimum point)
274.a) The AR curve & firm demand curve are same in the case of perfect competition.
275.b) Excess capacity is not found in perfect competition.
276.Long run equilibrium of the industry is said when = (a) all the firms are earning just
normal profits (b) all the firms are in equilibrium (c) there is no further entry or exit
from the market (d) The output is produced at the minimum cost (c) consumers pay the
 minimum possible price which just covers the MC i.e. AR = P = MC (c) Plants are used at
full capacity (d) No wastage of resources (e) LAR =LMR = P = LMC-LAC=SMC=SAC.
277.A monopoly industry is characterized by:- (a) Single seller (b) Restriction to entry (c)
No close substitutes.
278.AR and MR, for monopoly firm, both are negatively sloped.
279.For a monopoly firm, MR curves lies half-half between the AR curve and Y-axis i.e. it cuts
the horizontal line between Y axis and AR into two equal parts.
280.There is absence of supply curve for a monopoly firm. For a monopoly firm, AR CANNOT
be zero, BUT MR can be zero or negative.
281.Equilibrium condition for a monopoly firm = (a) MR = MC (b) MC curve should cut MR
curve from below
282.In the Long-Run, a monopoly firm NEED NOT operate at the minimum point of LAC like
Perfect competitive firm. It can operate any point on the LAC where its profit is
maximum.
283. Status of a monopoly firm in the short and long run while in the equilibrium:
Condition Short Run Long Run
Supernormal Profit AR>AC Yes No
Normal Profit AR=AC Yes Yes
Loss AR<AC Yes No

284.Price discrimination, for a monopoly firm, is said to exist when the monopoly firm
charges different prices for same goods or services to different customers.
285.Conditions for Price discrimination- (a) At least some control over the supply of product
(b) the firm should be able to divide the market in different sub-markets (c) The price
elasticity of demand in the different sub-markets should be different (d) there should
not be inter-market selling buying.
286.Monopolist charges higher prices where price elasticity is low and lower prices where
price elasticity is high.
287.1st degree price discrimination- When different price is charged for different unit of
goods. There is no consumer surplus left in 1st degree price discrimination.
288.2nd degree price discrimination - When the monopolist charges different prices for
different lot sizes.
289.3rd degree of price discrimination- When the monopolist charges different prices in
different markets.
290.Features of a monopolistic market- (a) Large number of buyers (b) Differentiated
product (c) Free entry and exit (d) Non-price competition
291.Both AR and MR curve, for a monopolistic firm are downward sloping.
292.Demand curve of a monopolistic firm is more elastic than that of monopoly firm.
293. Condition for the equilibrium of a monopolistic firm- (a) MR = MC (b) MC curve should
cut MR curve from below.
294. Status of a perfect competitive firm in the short and long run while in the equilibrium:
Condition Short Run Long Run
Supernormal Profit AR>AC Yes No
Normal Profit AR=AC Yes Yes
Loss AR<AC Yes No

295.In the long run, for a monopolistic firm, there is excess capacity i.e. plant does not
operate at full capacity level like a perfect competitive firm.
296.Features of an oligopoly industry: (a) Interdependence (b) significant advertising and
selling cost (c) Group behavior.
297.There is no definite demand curve for an oligopoly
298.Kinked demand curve is one of the demand curve feature seen for a oligopolist.
299.The Kinked Demand curve is kinked at the level of the prevailing price.
300.Price rigidity is found where the demand curve is kinked.
301.Segment of the demand curve above the prevailing price level is more elastic and the
segment of the demand curve below the prevailing price is less elastic.
302.Kinked demand curve is based on the assumption that if a firm lowers the price of its
product, its competitors will follow him and will accordingly lower prices, whereas if he
raises the price above the prevailing level, its competitors will not follow its increase in
price. Types of markets:
(a) Perfect market (b) Monopoly market
(c) Monopolistic competition (d) Oligopoly market.
303.Types of Oligopoly:
(a) Pure or perfect oligopoly (b) Imperfect Oligopoly (c)
Open oligopoly
(d) Closed oligopoly (e) Collusive oligopoly (f)
Competitive oligopoly
 (g) Partial oligopoly (h) Full oligopoly (i)
Syndicated oligopoly
(j) Organized oligopoly.
304. Chronic excess capacity is found in monopolistic competition.
305.The term 'Business cycle' refers to the fluctuating levels of economic activity over a
period of time.
306.The trough of a business cycle occurs when aggregate economic activity hits its lowest
point.
307.Economic expansions are followed by economic contractions in a typical business cycle.
308.The different phases of a business cycle do not have the same length and severity.
309.Business cycles do not have uniform characteristics and causes.
310.During 1920s, UK saw rapid growth in gross domestic product, production levels and
living standards. It is an example of business cycle.
311.Due to bursting of Information Technology bubble stock markets crashed and countries
began feeling of downturn in their economies. It is an example of business cycle.
312.The Sub-prime crisis led to chain effect and it had worldwide impact. It is an example of
business cycle.
313.The cycle business has seen a slowdown in growth over a period of time. It is not an
example of el business cycle.
314.Fluctuations in effective demand, investment and government spending may be
considered a cause of business cycle.
315.When aggregate economic activity is increasing, the economy is said to be in expansion.
316.Rising Interest Rates, Falling Investment Spending and aggregate demand are found in
Recession
317.Turning points of the business cycle are peak and Depression.
318.The most probable outcome of an increase in the money supply is interest rates to fall,
investment spending to rise, and aggregate demand to rise.
319.An increase in Government spending would cause the aggregate demand curve to shift
to the right.
320.A variable that tends to move in advance of aggregate economic activity is called a
Leading Indicator.
321.A variable that tends to move consequent on aggregate economic activity is called a
Lagging Indicator.
322.A variable that tends to move along with the level of aggregate economic activity is
called a coincident Indicator.
323.Leading economic indicators are generally used to forecast economic fluctuations.
324.New orders for plant and equipment is not an example of coincident indicator.
325.Prime rate is not a variable in the index of leading indicators.
326.According to J M Keynes, Business Cycles occurs due to fluctuation in aggregate effective
demand.
327.According to Hawtrey, Business Cycles occurs due to Unplanned changes in the money
supply,
328.According to Pigou, Business Cycles occurs due to waves of optimism or pessimism.
329.According to Schumpeter, Business Cycles occurs due to onset of Innovations.
330.Great Depression of 1930, Dot. Com bubble burst and Global Economic Crisis (2008-09)
have their origin in US.
331.National Income Accounting was pioneered by Simon Kuznets and Richard Stone.
332.Nominal GDP is known as GDP at current prices, whereas Real GDP is known as GDP at
constant prices.
333.GDP deflator or Price Index = (Nominal GDP/Real GDP)*100
334.Gross to Net = Deduct Depreciation from Gross
335.Domestic to National = Add NFIA to Domestic
336.Market Price to Factor Cost Deduct Net Indirect Taxes from Market Price
337.Personal Income = NI + Income received but not earned - Income earned but not
received.
338.Disposable Personal Income Personal Income - Personal Income Taxes - Non Tax
Payments
339.Private Income = Factor income from net domestic product accruing to the private
sector + Net factor income from abroad + National debt interest + Current transfers
from government + Other net transfers from the rest of the world.
340.As per Value Added Method, Gross Value Added (GVAMP) or GDPMP = Value of Output -
Intermediate consumption, where, Value of Output = Sales - Change in Stock
341.As per Income Method, National Income or NNPFC = Compensation of employees +
Operating Surplus (Rent + Interest+ Profit) + Mixed Income of Self-employed + Net
Factor Income from Abroad
342.As per Expenditure Method, National Income or NNPFC = Final Consumption
Expenditure + Gross Domestic Capital Formation + Net Exports - Depreciation - Net
Indirect Taxes + NFIA
343.ADC+I & AS=C+S
344.If the aggregate demand for an amount of output is less than the full employment level
of output, then we say there is deficient demand. Deficient demand gives rise to a
'deflationary gap'.
345.If the aggregate demand is for an amount of output greater than the full employment
level of output, then we say there is excess demand. Excess demand gives rise to
'inflationary gap'.
346.Marginal propensity to consume (b) refers to increase in consumption expenditure with
a unit increase in income. b =
347.Multiplier refers to the phenomenon whereby increase in investment expenditure will
lead to a proportionately larger change in the equilibrium level of national income.
348.In a Two sector model, equilibrium income (Y) = C+I
349.In a Three sector model, equilibrium income (Y) = C+I+G
350.In a Four sector model, equilibrium income (Y) = C+I+G+ (X-M)
351.Richard Musgrave separated the government functions into resource allocation, income
distribution and macroeconomic stabilization.
352.Resource allocation refers to the way in which the available resources or factors of
production are allocated among the various uses to which they might be put.
353.Distribution function is concerned with the distribution of income and wealth so as to
ensure distributive justice, equity and wealth.
354.The stabilization function aims at eliminating macroeconomic fluctuations arising from
suboptimal allocation. It is implemented through monetary policy or Fiscal policy.
355.Expansionary Fiscal Policy is adopted to lift recession and Contractionary Fiscal Policy
is adopted to control high inflation.
356.Fiscal federalism, introduced by Richard Musgrave, addresses the distribution of
governmental functions and financial responsibilities among government levels.
357.Article 280 of the Indian Constitution provides for formation of Finance Commission.
358.Market failure is a situation in which the free market leads to misallocation of society's
scarce resources in the sense that there is either overproduction or underproduction.
359.Four major reasons for market failure are Market Power, Externalities, Public Goods
and for mar Incomplete Information.
360.Externalities are divided into Production and Consumption Externalities. These are
further subdivided into positive and negative externalities.
361.Social Cost = Private cost + External Cost
362.Paul A. Samuelson who introduced the concept of 'collective consumption good' in his
path- breaking 1954 paper 'The Pure Theory of Public Expenditure' is usually
recognized as the first economist to develop the theory of public goods.
363. Excludable goods are those which are purchased at a price, and depend upon
willingness to purchase. Eg: Mercedes Car
364.Rivalrous goods are those which if consumed by one consumer, cannot be consumed by
another consumer. Eg: Public Park
365.Tragedy of Commons refers to goods which are rivalrous but not excludable.
366.Government ensures well functioning market by creating physical infrastructure,
ensuring competition framework, and provision of legal and regulatory framework.
367.Because of the social costs imposed by monopoly, governments intervene by
establishing rules and regulations designed to promote competition and prohibit
actions that are likely to restrain competition.
368.Government initiatives towards negative externalities direct control or regulations and
market based policies.
369.Taxation on goods with negative externalities, like pollution, can decrease their
consumption and poses challenges due to complex production. However, implementing
efficient pollution taxes monitoring procedures, potential ineffectiveness with inelastic
demand, and the risk of impacting employment and investments as producers may
relocate to countries with lower taxes.
370.Government responses to merit goods include regulation, subsidies, and direct
provision, aiming to enhance access and consumption of these socially beneficial goods.
371.The government budget is a document presented for approval and legislation by a
government and contains estimates of the proposed expenditure for a given period and
the proposed means of financing them.
372.In simple terms, Article 112 of the constitution says that every year, the President must
share a statement with both houses of Parliament. This statement, called the "Annual
Financial Statement," shows how much money the government of India plans to receive
and spend in that year.
373.The list of budget documents presented to the parliament:
(a) Annual Financial Statement (AFS)
(b) Demands for Grants (DG)
(c) Finance Bill
(d) Statements mandated under FRBM Act:
i. Macro-Economic Framework Statement
ii. Medium-Term Fiscal Policy cum Fiscal Policy Strategy Statement
374.Government receipts are classified under two categories:
375.Revenue receipts which consists of tax revenue and non tax revenue.
376.Capital receipts which consists of debt receipts and non debt capital receipts.
377.Internal Debt Management Department (IDMD) of the Reserve Bank of India is
responsible for managing domestic debt of the central government, 28 state
governments, and two union territories.
378.Since 1997, RBI provides short-term credit (Ways and Means Advances) up to three
months to state governments to address temporary cash flow mismatches.
379.External debt (bilateral and multilateral loans) is managed by the Department of
Economic Affairs in the Ministry of Finance.
380.The Fiscal Responsibility and Budget Management (FRBM) was passed in 2003 to
provide a legislative framework for reduction of deficit and thereby debt of the central
government to a sustainable level.
381.Balanced Budget: Revenue = Expenditure
382.Deficit Budget: Revenue < Expenditure
383.Surplus Budget: Revenue > Expenditure
384.Fiscal Deficit = (Revenue Expenditure + Capital Expenditure) - (Revenue Receipts +
Capital Receipts excluding borrowing)
385.Primary deficit = Fiscal deficit – Net Interest liabilities
386. Important definitions:
Finance Bill - The Bill produced immediately after the presentation of the union budget
detailing the Imposition, abolition, alteration or regulation of taxes proposed in the
budget.
Outcome budget - The outcome budget establishes a direct link between budget
allocations and performance targets, providing a transparent assessment of how
government funds contribute to development outcomes across various programs.
Guillotine-The parliament has very limited time for examining the expenditure
demands of all the ministries. So, once the prescribed period for the discussion on
demands for grants is over, the gel speaker of Lok Sabha puts all the outstanding
demands for grants, whether discussed or not, to the vote of the house.
Cut Motions - Motions for reduction to various demands for grants are made in the
form of cut motions seeking to reduce the sums sought by government on grounds of
economy or difference of opinion on matters of policy or just in order to voice a
grievance.
Consolidated Fund Of India - All revenues received, loans raised and all moneys
received by the government in repayment of loans are credited to the Consolidated
Fund of India and all expenditures of the government are incurred from this fund.
Money can be spent through this fund only if appropriated by the parliament. The
consolidated Fund has further been divided into revenue' and 'capital' divisions.
Contingency Fund of India - The contingency fund, controlled by the President,
provides advances for unforeseen expenses to the government without prior legislative
 approval, and it is replenished by Parliament from the Consolidated Fund after the
exigencies are addressed. Public Account - Is used in relation to all the fund flows where
government is acting as a banker.
387.Fiscal policy is the deliberate policy of the government under which it uses the
instruments of taxation, public expenditure and public borrowing to influence both the
pattern of economic activity boy and level of aggregate demand, output and
employment.
388. OBJECTIVES OF FISCAL POLICY
Achievement and maintenance of full employment,
maintenance of price stability,
acceleration of the rate of economic development, and
equitable distribution of income and wealth
389.GDP=C+1+G+ (X-M)
390.Contra cyclical fiscal policy measures to correct different problems created by business-
cycle instability are of two basic types namely, expansionary fiscal policy and
contractionary fiscal policy.
391.Expansionary fiscal policy is designed to stimulate the economy during the
contractionary phase of a business cycle and is accomplished by increasing aggregate
expenditures and aggregate demand through an increase in all type of government
spending and / or a decrease in taxes,
392.Contractionary fiscal policy refers to the deliberate policy of government applied to
restrict aggregate demand and consequently the level of economic activity. In other
words, it is fiscal policy aimed at eliminating an inflationary gap.
393. Instruments of Fiscal Policy are Taxes, Government expenditure, public debt and
government budget.
394.Government expenditures include:
a) Current expenditures to meet the day to day running of the government,
b) Capital expenditures which are in the form of investments made by the
government capital equipments and infrastructure,
c) Transfer payments i.e. government spending which does not contribute to GDP
because income is only transferred from one group of people to another without
any direct contribution delude from the receivers.
395.Fiscal policy manages short-term economic conditions but long-term growth needs a
focus on stimulating supply.
396.Limitations of fiscal policy include recognition lag, decision lag, implementation lag and
impact lag.
397.Crowding out refers to the phenomenon where government spending substitutes
private spending, cons reducing the impact of fiscal policy.
398.Fiat money indicates that the face value of the currency is greater than its intrinsic
value.
399.Demand for money is demand for liquidity and demand to store value, which means
that the demand for money is derived demand.
400.Fisher's version, also termed as 'Quantity theory of money', 'equation of exchange' or
'transaction approach' is formally stated as follows:
MV=PT
401.Fisher extended the equation of exchange to include demand (bank) deposits (M') and
their velocity (V) stated as follows:
MV+M'V'= PT
402.The Cambridge version holds that money increases utility in the following two ways:
possibility of split-up of sale and purchase; Being a hedge against uncertainty.
403.The Cambridge money demand function is stated as: Md=k.PY
404.According to Keynes, people hold money (M) in cash for three motives: Transactions
motive (Lr =kY), Precautionary motive, and Speculative motive.
405.rn>rc then bond prices↑
406.Inventory models assume that there are two media for storing value: money and; an
interest- bearing alternative financial asset. (Interest ↑ =opportunity cost ↑ Bond ↑ =
Money holding!) (Transaction costs ↑ = Money holding ↓)
407.Factors involved in Friedman's Theory are: Permanent income (positive direction);
Relative returns on assets (negative direction).
408.As per Tobin, money is safe asset but investor is willing to sacrifice it for higher returns.
409.The primary source of money supply in the economy is high powered money injected by
the central org bank and secondary source is money created by commercial banks
through credit creation process
(credit multiplier).
410.M1=Currency notes and coins with the people + demand deposits with the
411.banking system (Current and Saving deposit accounts) + other deposits with the RBI.
412.M2 = M1+ savings deposits with post office savings banks.
413.M3 M1+ time deposits with the banking system.
414.M4 = M3+ total deposits with the Post Office Savings Organization
415.NM1 = Currency with the public + Demand deposits with the banking system + 'Other'
deposits with the RBI
416.NM2 = NM1 +Short-term time deposits of residents (including and up to contractual
maturity of one year)
417.NM3=NM2+ Long-term time deposits of residents + Call/Term funding from financial
institutions
418.L1=NM3+ All deposits with the post office savings banks (excluding National Savings
Certificates).
419.L2 L1 +Term deposits with term lending institutions and refinancing institutions (Fls) +
Term borrowing by Fls+ Certificates of deposit issued by Fls
420.The money supply is defined as: M = m X MB
421.Money Multiplier (m) = Money Supply/Money base or 1/R
422.Money Supply = 1/R*  Reserves
423.Objectives if monetary policy: economic growth, adequate flow of credit, encourage
investment, creating market for government securities.
424.Changes in monetary policy affect interest rate which in turn affect economic activity
and inflation.
425.Channels of monetary policy: Interest rate channel, Asset price channel, Exchange rate
channel, Expectation channel, Quantum channel.
426.CRR-Portion of total deposits maintained with RBI as cash.
427.SLR- Portion of total deposit maintained as liquid assets and approved securities held
by bank
428.RBI buys and sells government securities in the open market to control money supply.
429.Some policy rates are Bank rate, Liquidity adjustment facility, Repo rate, reverse repo
rate and Marginal standing facility.
430. The Central Government has notified 4 percent Consumer Price Index (CPI) inflation
with deviation of 2% as the target.
431.Monetary policy committee has 6 members: RBI Governor (Chairperson), the RBI
Deputy Governor, three central government nominees and one person nominated by
RBI board.
432.Mercantilist's view proposes aggressive high exports while minimising imports to bring
in precious metal.
433.As per theory of absolute advantage, a country will export products which it can
produce with higher efficiency that other nations.
434.As per theory of comparative advantage, a country will export products which it can
produce with lesser opportunity cost than that of another commodity.
435.As per Heckscher-Ohlin theory of trade, a country exports products whose production
requires factor of production that is abundantly available with them.
436.Paul Krugman received the 2008 Nobel Prize and he noticed that most international
trade takes place between nations with roughly same ratio of capital and labour.
437.Tariffs are taxes and duties imposed on exports and imports. Some types of tariffs are
specific, Ad valorem, mixed, compound, technical, tariff rate quota, most favoured
nation, variable, preferential, bound, applied, escalated, prohibitive, import subsidies,
anti-dumping duties, and countervailing duties.
438.Non-tariff measures include technical (product specific) and non-technical (trade
requirements) measures.
439.Technical measure includes Sanitary and Phytosanitary (SPS)and Technical Barriers
to trade (TBT).
440.Non-technical measures include import quotas, price control, licensing, and
prohibitions, financial, government procurement, investment measures, distribution
and post sales service restrictions, administrative procedures, rules of origin, safeguard
measures, and Embargos.
441.Export Related measures include ban on export, export taxes, export subsidies and
voluntary export restraints.
442.Regional Trade Agreements (RTAs) are defined as groupings of countries, they can be
classified as Unilateral trade agreements, Bilateral trade agreements, Regional
Preferential Trade Agreements, Trading Bloc, Free-trade area, A customs union,
Common Market, and Economic and Monetary Union.
443.The General Agreement on Tariffs and Trade (GATT):
(a) Its working is responsibility of council for Trade in Goods.
(b) This council has 10 committees dealing with specific subjects.
(c) However, it lost its relevance as it was unable to keep up everchanging world.
444.The final round of GATT started in Punta del Este in Uruguay in September 1986, which
at its end in December 1993 it marked birth of World Trade Organisation.
445.Goal of WTO is to ensure that trade flows as smoothly, predictably, and freely as
possible.
446.WTO's secretariat is in Geneva and headed by Director General. It has a three-tier
system for decision making hierarchy being:
(a) Ministerial Conference: decisions on all matters under any of the multilateral
trade agreements
(b) General Council: Trade Policy Review and Dispute Settlement Body
(c) Goods Council, Services Council, and Intellectual Property (TRIPS) Council
447.Guiding Principles of WTO: Most-favoured Nation, National treatment, Free Trade,
Predictability, promoting fair competition, Encouraging development and economic
reform.
448. Some important WTO agreements: Agreement on Agriculture, Application of Sanitary
and Phytosanitary (SPS) Measures, Textiles and Clothing, Technical Barriers to Trade
(TBT), Trade-Related Investment Measures, Anti-Dumping Agreement, Customs
Valuation Agreement, Pre-shipment Inspection (PSI), Rules of Origin, Import Licensing
Procedures, Subsidies and Countervailing, Safeguards, General Agreement on Trade in
Services (GATS), Trade-Related Aspects of Intellectual Property Rights (TRIPS), Trade
Policy Review Mechanism (TPRM), and Plurilateral Trade Agreements.
449. Doha round was 9th round Since 2nd world war at WTO’s Fourth Ministerial
Conference, its aim was to accomplish major modifications of the international trading
system by lowering trade barriers and revising trade rules.
450.After 12th round G20 economies had to pledge collectively to keep markets open and
predictable to allow free flow of food and fertilizer.
451.In free floating exchange rate system, exchange rate is determined by market without
government or central bank interventions.
452.In managed float system exchange rates are free to float but Government or Central
bank may intervene to influence their value.
453.In fixed exchange rate system, the exchange rate is determined by Government Policy.
454.Nominal exchange rate is the rate rate is the rate for which a person can exchange
currency of one country with another.
455.Real exchange rate is rate at which a person can trade goods and services of one
country for goods and services of another.
456.Real Exchange Rate= Nominal Exchange Rate x Domestic Price/Foreign price
457.Forex market has two types of transactions; current transactions in spot market and;
future transaction for future delivery in forward and/or futures markets.
458.Appreciation of currency is increase in value of currency in respect to other countries
and depreciation is decrease in value of a currency in respect to other countries.
459.Devaluation is deliberate downward adjustment in value of currency.
460.Foreign Direct Investment (FDI) involves real investment in asset and involves
ownership and it may be horizontal, vertical, or conglomerate.
461.Foreign Portfolio Investment (FPI) is flow of financial capital for profits rather than
ownership and management.
462.FDI's are made by opening subsidies, equity injection, acquiring control, mergers and
acquisition, etc.
463.The earliest known treatise on ancient Indian economic philosophy is 'Arthashastra' the
pioneering work attributed to Kautilya (Chanakya).
464.At the end of the 19th century, the Indian jute mill industry was the largest in the world
in terms of the amount of raw jute consumed in production.
465.The cotton mill industry in India had 9 million spindles in the 1930s, which placed India
in the fifth position globally in terms of number of spindles.
466.The Industrial Policy Resolution (1948) granted state monopoly for strategic areas such
as atomic energy, arms and ammunition and railways. Also, the rights to new
investments in basic Industries were exclusively given to the state.
467.Philosophies guiding the policies in 1950's were: Nehru's vision to build socialist
economy and Gandhian philosophy. During 1950-1980, the GDP growth rate (referred
to as Hindu Growth rate) was mere 3.5%.
468.The Industrial Policy Resolution of 1956 led to enormous expansion of public sector.

469.The government nationalized 14 banks in 1969 and then followed it up with

nationalizing another 6 in 1980.
470.The 1991 policies can be broadly classified as: stabilisation measures and structural
reform measures.
471.The fiscal reforms included: betterment of tax structure and compliance, reducing
government expenditure, reduction in subsidies, selling stake in PSU's and encouraging
private investment.
472.The New Economic Policy put an end to the license Raj' by removing licensing
restrictions for all industries except 18.
473.FDI is prohibited only in four sectors viz. retail trade, atomic energy, lottery business
and betting and gambling.
474.India enjoys a solid cushion of foreign exchange reserves close to eight months of
import cover.
475.On 1st January 2015, Planning commission was replaced by National Institution for
Transforming India (NITI) Aayog.
476.Objectives of NITI Aayog is to create shared vision, foster cooperative federalism,
develop credible plans at village level, national security with economic growth,
attention to backward sectors of economy, design long term policy, create support
system for innovation, partnership, and entrepreneurs, etc.
477.India has emerged as the world's largest producer of milk, pulses, jute and spices. India
has the largest area planted under wheat, rice and cotton.
478.In Industry 4.0, manufacturing transformation needs to integrate new technologies such
as cloud computing, IoT, machine learning, and artificial intelligence (AI).
479.FDI equity inflows into the services sector accounted for more than 60 per cent of the
total FDI equity inflows into India.
480.The Real GDP of India grew by 6.3 percent in July-September of 2022-23 driven by
strong private consumption and investment.