e&m Unit i (Part i)

Economics & Management
Course Code: NHS 201

Unit I (Part-I)
Offered to: B. Tech 2nd Year

Technology Branches: BE, FT, LT, PL, OT, CH, PT
Session: 2024-25
Semester: (IIIrd, Odd)
Course Instructor:
Ms. Sonal Mehrotra
Humanities Department, SoHSS,
HBTU, Kanpur.
Unit I: Introduction to Economics B.Tech 2nd: 2024-25
Unit-I: Introduction to Economics

(Part I)
Introduction
Humans have unlimited wants within a world of limited means. There is scarcity of
resources in the world. Scarcity refers to a gap between availability of limited resources
and the unlimited wants of people for such resources.
The notion (idea) of scarcity is that there is never enough (of something) to satisfy all
human wants, even at advanced states of human technology. Therefore, we can say
“Economics is the study of how society manages its limited resources.”
In simple words, economics is about decision-making about how these scarce resources
are allocated to some productive use so that maximum wants of society are fulfilled.
Economics is the study of choices or choice making. Economists make choices to cope with
scarcity. It is primarily concerned with analyzing the choices that individuals, businesses,
governments, and nations make to allocate scarce resources. Hence, Economics has wide
applications in other fields such as business, politics, psychology and law.
Definitions of Economics
There are numerous definitions of economics. Different economists have defined different
points of view. Adam Smith is considered as father of economics. In his famous book, the
“Wealth of Nations” published in 1776, he defines economics as the study of wealth.
Let us summarize,
 Economics is the study of how society manages its limited resources.

 According to Adam Smith, “Economics is the science of wealth”.
 Economics is a social science seeking to analyze and describe the production,
distribution, and consumption of goods and services.
 According to Chanakya or Kautilya in Arthashastra, “Economics is the most
important aspect as it provides the basis for human existence and survival”. It is
made for welfare and development of the people.
 Economics is also the study of commerce among nations. It explains why nations
export some goods and import others. It analyzes the effect of putting economic
barriers at national frontiers.
Course Instructor: Ms. Sonal Mehrotra 2

Origin of the word Economics
The word economy originates from the Greek word which means “one who manages the
household.”
The English term 'Economics' is derived from the Greek word 'Oikonomia' meaning is
'household management', based on oikos ‘house’ + nemein ‘manage’
What is an Economy?
Simply put, an economy is a system by which goods and services are produced, sold, and
bought in a country or region.
An economy is a system of inter-related production, consumption and exchange
activities that determine how scarce resources are allocated in a country for period of
time.
Factors of Production
“Factors of production” is an economic term that describes the inputs used in the
production of goods or services to make an economic profit. These include land, labor, capital,
and entrepreneurship.
 Land: It refers to all natural resources either on the surface of the earth or below the
surface of the earth or above the surface of the earth is Land such as oil, gold, wood,
water, and vegetation. It includes all renewable and non-renewable resources.
 Labor: All human effort that assists in production is labour. It is the worker who applies
their efforts, abilities, and skills to produce. It can be of various types such as unskilled,
semi-skilled, skilled and professional.

 Capital: Capital refers to all manmade resources used in the production process. It is a
produced factor of production. It includes factories, machinery, tools, equipment, raw
materials, wealth etc.
 Entrepreneur: An entrepreneur is a person who brings other factors of production in
one place. He uses them to produce or bring new product in the market. He takes
decisions and risks with the aim of earning profits.
Micro and Macro Economics

There are two main branches of economics, microeconomics and macroeconomics. Both
involve examining economic behaviours, but they differ in terms of scale being studied.
Microeconomics focuses on individual consumers and businesses whereas
Macroeconomics deals with the behaviour of the aggregate economy.
Microeconomics
Microeconomics is the field of economics that deals with the study of individual economic
units. It looks at the economic behaviours of individuals, households, and companies.
It is the study of decisions made by people and businesses regarding the allocation of
resources and the prices at which they trade goods and services. It considers taxes,
regulations and government legislation.
Microeconomics focuses on supply and demand that determines price levels in the
economy. It takes a bottom-up approach to analyzing the economy. It tries to understand
human choices, decisions, and the allocation of resources.
Microeconomics involves several key principles such as:

 Demand, supply and equilibrium: Prices are determined by the law of supply and
demand.
 Production theory: This is the study of how goods and services are manufactured.
 Costs of production: The price of goods or services is determined by the cost of the
resources used during production.
 Labor economics: This principle looks at workers and employers and tries to
understand patterns of wages, employment, and income.
Macroeconomics
Macroeconomics is the field of economics that studies behaviour of economy as a whole.
Macroeconomics looks at the decisions of countries and governments. It studies the
behavior of a country and how its policies impact the entire economy. It takes a wider
view and looks at the economies on a much larger scale—regional, national, continental,
or even global. It is a top-down approach.
Macroeconomics is studies aggregate economic indicators such as aggregate demand,
national output, national income, gross domestic product (GDP), inflation,
unemployment, overall economic growth.
Macroeconomics Involves: Monetary policy/Fiscal Policy, Economic Growth, Reasons for
living standards and economic growth between countries, International trade etc.
Difference between Micro and Macroeconomics
Sr.No. Microeconomics Macroeconomics

1 Microeconomics is the field of economics Macroeconomics is the field of economics
that deals with the study of individual that studies behaviour of economy as a
economic units. whole.
2 It is smaller in scale. It studies particular It has broader scope/focus. It studies whole
market segment of the economy. economy having several market segments.
3 It looks at economic behaviours of It looks at government policies and its
individuals, households and companies. impact on economy.
4 It is a bottom-up approach. It is a top-down approach.
5 It studies demand and supply of individual It studies aggregate market demand and
goods. supply.
6 It studies demand and supply of individual It analyzes total employment in the
labor. economy.
7 It studies individual income. It studies national income.
8 It studies prices of individual goods. It studies overall price such as Inflation.
9 It deals with issues such as demand and It deals with national income,
supply, price determination, resource consumption, employment, supply of
allocation and so on. money and so on.
10 It is applied to internal issues. It is applied to environmental and external
issues.
Central Problem of an Economy: Choices-what, how and for whom

The three basic economic activities performed in an economy are production,
distribution, and disposition of goods and services. While performing these activities,
every economy has to face the issue of scarcity of resources, as the resources available
are limited and human wants are unlimited.
Therefore, it becomes essential to make choices and decide on how to allocate the
available scarce resources, leading to the three Central Problems of an Economy:
1. What to produce and in what quantities?
2. How to produce?
3. For whom to produce?
These are called “Central Problems”

because every economy has to face
them and find solutions to them. All
other economic problems cluster
around these problems.
Every economy wants to maximize its social economic utility, hence allocate
resources in such a way so that its maximum wants are fulfilled.
1. What to produce and in what quantities?
For example, a farmer has to choose between different crops (rice, wheat etc.) as to
which he should grow on one piece of land. Similarly, every economy must decide what it
will produce with its scarce resources. There are two aspects of this problem.
i. What type of good should be produced?

ii. What quantity of the good should be produced?
What type of good to produce? At first, economy decides what type of goods should be
produced. It means that an economy has to choose between consumer goods (general
utilities etc.) or producer goods (machinery etc.). Suppose, if choosing consumer goods,
then whether to select durables (furniture, clothes) or perishable goods (milk, eatables
etc.). Similarly, it can choose between civil goods or defence goods.
How much to produce: Once the economy has decided the good to be produced, it has to
decide the quantity of each good to be produced. It will depend on resources allocated. If
more resources are allocated to produce one good, fewer resources have to be allocated
for another good and so on.
2. How to produce?
It involves selecting a technique of production. Usually, there are two techniques of

production,
 Labour Intensive Techniques (LIT)

 Capital Intensive Techniques (CIT)
The former technique involves more use of labour (preferred in India as labor intensive),
and the latter involves more use of machines (preferred in USA as capital intensive). The
technique is based on different factors like the nature of the product, size of the market,
size of the location, budget, skilled/unskilled labor etc.
An economy must decide what combinations of factors should be used in selecting the
technique such that it can produce maximum output at minimum cost by using the least
possible scarce resources.
3. For whom to produce?

As an economy cannot satisfy the needs and wants of every individual of the society, it
has to make a decision for whom to produce a good or a service. In other words,
“Who will consume these goods and services?” OR

“How much production should be done for the poor and how much for the rich?”
An economy produces necessity goods for the poor and luxury goods for the rich section
of society. Thus, an economy produces goods for those who can pay for them which
further depend on their income level.
So, the problem of ‘for whom to produce’ is concerned with the income distribution
among the different factors of production (like capital, land, labor, and enterprise) which
ultimately contributes to the production process.
The problem of For Whom to Produce can be classified as:
1. Personal Distribution: It tells us about how an economy distributes its national income
among different groups of people.
2. Functional Distribution: It means deciding the share of different factors of production
in a country’s total national product.
The problem “For Whom to produce” can be solved by making sure that the urgent wants
of each productive factor of an economy are fulfilled to the maximum possible extent.

Production Possibility Curve

Professor Samuelson used the concept of the production possibility curve to explain the
central problem of an economy. PPC is an economic model showing how a nation or an
economy makes trade-offs in the production of different commodities.
What is PPC? A production possibility curve is a graph that shows all the different
combinations of two goods that an economy can produce using its given current resources
and technology. OR
It is also known as the production possibilities frontier (PPF).
The Basics of the PPC
In PPC, one commodity is represented on the x-axis and the other on the y-axis. The PPC
curve represents the maximum possible outcomes of the two limited commodities. It
demonstrates that the production of one commodity may increase only if the production
of the other commodity decreases.
Wheat Cotton
(In Lakh tonnes)
100 0
70 30
50 50
30 70
0 100
Assumptions
1. A company/economy wants to
produce two products.
2. There are limited resources.
3. Technology and techniques
remain constant.
4. All resources are fully and
efficiently used.
Points on the Curve

1. Let’s take an example of an economy that produces two goods: wheat and cotton. We
can draw the PPC on the basis of above schedule. We can plot points A, B, C, X and Y on
the curve, showing the various combinations of wheat and cotton. The curve is typically
concave from the origin (showing increasing opportunity costs).
2. Points on the PPC (A, B, C) represent efficient use of resources. These points indicate
that an economy is utilizing all of its resources fully.
3. Any point inside the curve (X) represents an underutilization of resources, while any
point outside the curve (Y) is unattainable given the current level of resources and
technology.
Shifts in the Production Possibilities Curve

The production possibilities curve can shift outward or inward due to changes in available
resources or improvements in technology.
I. Outward shift of PPC: When there is an increase in resources like increased capital
investment or technological advancements, an economy can produce more of both
goods, shifting the curve outward. It indicates economic growth and improved
productivity. With the enhancement in technology (e.g. better methods of cultivation,
better irrigational facilities, etc.), more wheat and cotton production is done. Hence,
Point Y in the graph becomes attainable.
II. Inward Shift of PPC: Conversely, if there is a decrease in resources or a decline in
technology, the curve will shift inward, indicating a reduction in potential output. It
indicates shrink in the economy. Point X represents inefficiency in resource allocation.
These points indicate that an economy is not utilizing all of its available resources
efficiently or is producing a combination of goods that is below its potential output.
Inefficiency can arise due to factors such as unemployment, underutilization of capital, or
inefficient allocation of resources.
Importance of the PPC
Maximum Output
 It indicates the maximum output an economy can produce with its limited resources.
 This curve also reflects the problem of ‘what to produce’. To produce maximum of
one good, it won’t be able to produce the other good and vice versa.
Efficient Utilization of Resources
 It further demonstrates that a nation’s economy has reached the highest level of
efficiency or not. In other words, each economy must decide what combination of
goods and services should be produced to attain maximum resource efficiency.
A decision making tool
 It acts as a decision making tool for managers deciding on the optimum product mix
for the company. The management uses PPC graph to plan the perfect proportion of
goods to produce in order to reduce the wastage and costs while maximising profits.
 For example, if a Coca-cola company wants to decide how much of soft drinks and
juices to produce, it can plot points on a graph representing the number of two
products, based on the allocated budget.
An economic tool
 The PPF curve can be utilized to observe how scarcity, resource allocation, trade-offs,
economic growth, inefficiency, efficiency, opportunity costs and other factors can
affect production.

Opportunity Cost: It is the value of next best alternative forgone. It represents the
potential benefits that a business, an investor, or an individual consumer misses out on
when choosing one alternative over another.
Examples of opportunity cost include investing in a new manufacturing plant in

Maharashtra as opposed to Uttar Pradesh, deciding to upgrade company equipment or
hire additional workers, or buying stock A vs. stock B.
Why the PPF is called the Opportunity Cost Curve?
PPF illustrates the opportunity cost of making decisions while allocating resources. When
you decide on one action, you lose the opportunity that the other action provides. Thus, an
opportunity cost exists that makes the curve concave.
 Opportunity costs can lead to better decision making.

 If an economy produces a good at a lower opportunity cost than other economies, it
develops a comparative advantage. The economies can specialize in producing goods
where they have a lower opportunity cost. This can enhance efficiency and gains from
trade between countries.
GDP and Some basic definitions

Gross domestic product (GDP) is the total monetary or market value of all the finished
goods and services produced within a country’s borders in a specific time period. It functions
as a comprehensive scorecard of a given country’s economic health.
GDP is defined by the following formula:
GDP = Consumption + Investment + Government Spending + Net Exports

GDP = C + I + G + NX
 Consumption (C) represents private-consumption expenditures by households
 Investment (I) refers to private expenditures by businesses
 Government spending (G) denotes expenditures on goods and services by the
government
 Net exports (NX) represent a nation’s exports(X) minus its imports (I).
The above way of calculating GDP is expenditure approach. The idea behind the expenditure
approach is that the output that is produced in an economy has to be consumed by final
users, which are either households, businesses, or the government. Therefore, the sum of all
the expenditures by these different groups should equal total output—i.e., GDP.

GDP Growth Rate: The GDP growth rate compares the year-over-year (or quarterly)
change in a country’s economic output to measure how fast an economy is growing.
Gross National Product (GNP): It includes all final goods and services produced by
resources owned by that country’s residents, whether located in the country or elsewhere.
Gross national income (GNI): It is the sum of all income earned by citizens or nationals of a
country (regardless of the fact that economic activity takes place domestically or abroad)
GDP Per Capita
 Gross domestic product per capita is a country's economic output per person. It is
used as a measure of a country’s standard of living.
 It's calculated by dividing the GDP of a country by its population.
Inflation
Definition: Inflation measures how quickly the prices of goods and services rise over time.
It indicates a gradual loss of purchasing power. Prices rise, which means that one unit of
money, buys fewer goods and services. This loss of purchasing power impacts the cost of
living for the common public which ultimately leads to a deceleration in economic growth.
High inflation means that prices are increasing quickly, while low inflation means that
prices are growing more slowly.
Although high inflation hurts an economy, deflation, or falling prices, is not desirable either.
When prices are falling, consumers delay making purchases if they can, anticipating lower
prices in the future. For the economy this means less economic activity, less income
generated by producers, and lower economic growth.
Disinflation refers to a slowing down in the (positive) rate of inflation. However,
Deflation indicates a general decline in prices when the inflation rate falls below 0%.
Most economists now believe that low, stable, and—most important—predictable inflation
is good for an economy. Moreover, knowing that prices will be slightly higher in the future
gives consumers an incentive to make purchases sooner, which boosts economic activity.
How to measure Inflation?
The most commonly used inflation indexes are the
 Consumer Price Index
 Wholesale Price Index
Consumer Price Index is another price index that measures average change in price levels
of goods and services in retail market.
Inflation rate is given as:
 The percentage change in Inflation is the change in the CPI over a certain period, the
most widely used measure of inflation. For example, if the base year CPI is 100 and
the current CPI is 140, inflation is 40 percent over the period.
Annual CPI (or CPI current year) is calculated as:
Suppose you're calculating the change in price of certain grocery food items from the year
2020 to the year 2022. The below table reflects the change in your basket of goods. Now,
the data can be utilized to measure inflation using CPI.
Particulars 2020 2022 *The CPI 2022 = (125-100 / 100)*100
(Base year) (Current year)
= 25.
Macroni noodle price 45 55
Pasta Sauce price 55 70
Total 100 125
Wholesale Price Index is a measure of the average change in the price of goods in the
wholesale market. It is an extensive measure of inflation expressed in percentages. It
considers prices at which wholesalers sell products to retailers. WPI generally examines
prices for goods from the base and current years.
Types of Inflation: Inflation is classified into three types:
 Demand-pull inflation
 Cost-push inflation
 Built-in inflation.
I. Demand-pull inflation occurs when an increase in the supply of money and credit
stimulates the overall demand for goods and services to increase more rapidly than the
economy's production capacity. This increases demand and leads to price rises.
When people have more money, it leads to positive consumer sentiment. This, in turn,
leads to higher spending, which pulls prices higher. It creates a demand-supply gap with
higher demand and less flexible supply, which results in higher prices.
II. Cost-push inflation is a result of the increase in prices due to cost of production inputs.
These developments lead to higher costs for the finished product or service and work their
way into rising consumer prices.
For instance, when the money supply is expanded, it creates a speculative boom in oil
prices. This means that the cost of energy can rise and contribute to rising consumer
prices, which is reflected in various measures of inflation.
III. Built-in inflation is related to adaptive expectations or the idea that people expect
current inflation rates to continue in the future. As the price of goods and services rises,
people may expect a continuous rise in the future at a similar rate.
As such, workers may demand more costs or wages to maintain their standard of living.
Their increased wages result in a higher cost of goods and services, and this wage-price
spiral continues as one factor induces the other and vice-versa.

GDP and business cycle
The business cycle
A business cycle is a cycle of the expansion and contraction in economic activity that an
economy experiences over time. It is a cycle of fluctuations in the Gross Domestic
Product (GDP) around its long-term natural growth rate. It explains rise and fall in economic
output over time.
Length of One Business Cycle

A business cycle is completed when it goes through a single boom and a single contraction
in sequence. Thus, the time period to complete a single boom and a single contraction in
sequence is called the length of the business cycle.
 A boom is a period of strong economic expansion (rapid economic growth) where
many businesses are operating at full capacity or above capacity. The unemployment
rate is very low. Income and production are at very high levels. This leads to rapid
growth in prices.
 A contraction (recession) is a period of relatively stagnated economic growth. The
output has fallen for period of time and the unemployment rate increases.
 These are measured in terms of the growth of the real GDP, which is inflation-adjusted.
The business cycle model (graph)

The business cycle model shows how a nation’s real GDP fluctuates over time, going
through phases as aggregate output increases and decreases. Over the long-run, the
business cycle shows a steady increase in potential output in a growing economy. The
model shows the four phases an economy experiences over the long-run: expansion, peak,
recession, and trough. (Recovery is part of expansion; Depression is part of Recession)
The straight line in the

middle is the steady
growth line or trend line.
The business cycle moves
about this line.
During an expansion, the

business cycle line is
above the growth trend.
During a contraction, the

business cycle is below
the growth trend.
The extreme points are

the peak and the trough.

Phases of Business Cycle
Below is a detailed description of each stage in the business cycle:
1. Expansion: The phase of the business cycle during which output is increasing is called
expansion. It is the first stage in the business cycle.
In this stage, there is an increase in positive economic indicators such as employment,

income, output, wages, corporate profits, demand and supply of goods and services and
consumer spending. Debtors are generally paying their debts on time, the money supply is
high, and investment is high. Interest rates are low and production increases. However, the
increase in the money supply may spur inflation during the economic growth phase. This
process continues as long as economic conditions are favourable for expansion.
2. Peak: The economy reaches a saturation point, or peak. It is the second stage of the
business cycle. The maximum limit of growth is attained. The economic indicators do not grow
further and are at their highest. Prices are at their peak. This stage marks the reversal point in
the trend of economic growth. Peak growth typically creates some imbalances in the economy
that need to be corrected. As a result, businesses may start to re-evaluate their budgets and
spending.
3. Recession: The recession is the stage that follows the peak phase. The demand for goods
and services starts declining rapidly and steadily in this phase. Producers do not notice the
decrease in demand instantly and go on producing, which creates a situation of excess supply
in the market. Prices tend to fall. All positive economic indicators such as income, output,
demand and supply, wages, profits, sales etc., consequently start to fall. Unemployment
increases and GDP decreases.
Depression (Part of Recession phase): A deep and prolonged recession is called depression.
There is a huge rise in unemployment. The growth in the economy continues to decline, and as
this falls below the steady growth line, the stage is called a depression. GDP growth rate
becomes negative.
4. Trough: There is further decline until the prices of factors, as well as the demand and supply
of goods and services, contract to reach their lowest point. The economy eventually reaches
the trough. It is the negative saturation point for an economy. There is extensive depletion of
national income and expenditure. GDP is at lowest point.
6. Recovery: After the trough, the economy moves to the stage of recovery. In this phase,
there is a turnaround in the economy, and it begins to recover from the negative growth rate.
Demand starts to pick up due to low prices and, consequently, supply begins to increase. The
population develops a positive attitude towards investment and employment and production
starts increasing. Employment begins to rise and, due to accumulated cash balances with the
bankers, lending also shows positive signals. Recovery continues until the economy returns to
steady growth levels.
This completes one full business cycle of boom and contraction.

Some Terms
Business cycle A model showing the increases and decreases in a nation’s real GDP over time.
model This model demonstrates an increase in real GDP over the long run, combined
with short-run fluctuations in output.
Expansion The phase of the business cycle during which output is increasing.
Recession The phase of the business cycle during which output is falling and unemployment
rate is increasing.
Depression It is a deep and prolonged recession. There is large contraction in the economy
and unemployment rate is likely to be at a very high level.
Peak It is the turning point in the business cycle between an expansion and a
contraction; during a peak in the business cycle, output has stopped increasing
and begins to decrease.
Trough It is the turning point in the business cycle between a recession and an
expansion; during a trough in the business cycle, output begins to increase again.
Recovery The phase of business cycle when GDP begins to increase following a contraction
and a trough in the business cycle. An economy is considered in recovery until
real GDP returns to its long-run potential level.
Growth trend The straight line in the business cycle model, which is usually upward sloping and
shows the long-run pattern of change in real GDP over time.
Potential output in the business cycle

The level of output an economy can achieve when it is producing at full employment. The
economy experiences only its natural rate of unemployment. Potential output is also called
full-employment output. Potential output is the level of real GDP that would be produced if all
resources are used efficiently.
For example, if labor is used efficiently, the actual rate of unemployment will be equal to the
natural rate of unemployment. In the business cycle model, a nation’s potential output at any
given time is represented as the long-run growth trend.
Output gaps in the business cycle: The output gap is the difference between actual output
and potential output in the business cycle. Output gaps exist whenever the current amount
that a nation is producing is more or less than potential output. In the business cycle model,
whenever the business cycle curve is above the growth trend that means an economy is
experiencing a positive output gap. Whenever the business cycle curve is below the growth
trend that means the economy is experiencing a negative output gap.
Positive Output gap: The difference between actual output and potential output when an
economy is producing more than full employment output; when there is a positive output gap,
the rate of unemployment is less than the natural rate of unemployment (NRU) and an
economy is operating outside of its PPC.
Negative Output gap: The difference between actual output and potential output when an
economy is producing less than full employment output; when there is a negative output gap,
the rate of unemployment is greater than the natural rate of unemployment (NRU) and an
economy is operating inside its PPC.
Unemployment
Definition: Unemployment in India refers to the condition where individuals who are
capable of working, actively seeking work, but are unable to find any form of
employment.
The unemployed are individuals in the labor force, primarily in the age group of 15 – 59
years, who currently do not have a job or a steady source of income. As individuals who are
capable and willing to work are unable to find gainful employment, it leads to wastage of
manpower resources. Unemployment and its related metrics are typically used to measure
the health of a country’s economy.
According to National Statistical Office (NSO), employment and unemployment can be

defined by the following activity statuses of an individual –
Employed – Individuals engaged in any economic activity are classified as 'Employed.' This
includes full-time, part-time, and temporary work, reflecting a broad understanding of
employment.
1. Unemployed – Individuals who are actively seeking or available for work but are not
currently engaged in any economic activity. This emphasizes the willingness and
ability to work as key criteria.
2. Neither working nor willing to work – These include individuals who are neither
seeking nor available for work fall outside the labor force, according to NSO. This
category might include students, retirees, or homemakers.
3. The first two categories, i.e., Employed and Unemployed constitute the Labor
Force of an economy. It is typically the individuals between the age group of 15–59
years.
4. The following formula can be used to calculate the unemployment rate of a country –
Unemployment increases economic overload, as the unemployed become dependent on the

working population, adversely affecting the quality of life, health status, and education. It is an
indicator of a depressed economy, reflecting inefficiencies and missed opportunities for
growth.
Types of Unemployment
1. Frictional Unemployment: It arises when individuals are temporarily without a job while
transitioning from one position to another or entering the workforce for the first time.
For example, a recent graduate actively looking for a job or a professional who has quit one job
to find a more suitable one would fall into this category. This type of unemployment is
generally short-term and is often seen as a regular and healthy part of a dynamic economy.

2. Structural Unemployment: Structural unemployment arises when there is a mismatch
between the skills that workers in the economy can offer and the skills demanded by
employers.
For instance, the automation of manufacturing processes may render certain manual jobs
obsolete, leaving those without the necessary technological skills unemployed. This type of
unemployment can be long-term and may require significant retraining to overcome.
3. Cyclical Unemployment: Cyclical unemployment is related to the fluctuations in the

economy over the course of the business cycle. During recessions, many industries can suffer,
leading to layoffs and thus, higher unemployment.
An example would be the increase in unemployment during the global financial crisis of 2008.
Cyclical unemployment will decrease when the economy starts to improve.
4. Institutional Unemployment: Institutional unemployment results from long-term or

permanent institutional factors and incentives in the economy. Government policies, such as
high minimum wage floors or restrictive occupational licensing laws, can contribute to this
type of unemployment.
For example, if a government sets the minimum wage too high, it might lead to employers
being unable or unwilling to hire workers at that wage, leading to increased unemployment.
5. Demand Deficient Unemployment: Demand deficient unemployment, or demand-deficit

unemployment, occurs when there is not enough demand for workers that are available. This
is often a result of a general downturn in the economy and is closely related to cyclical
unemployment.
For example, during a severe recession, consumer demand falls, leading to reduced production
and, consequently, a reduction in the workforce.
6. Voluntary Unemployment: Voluntary unemployment happens when a worker decides to

leave a job because it is no longer financially compelling or satisfying.
An example might be a worker whose take-home pay is less than his or her cost of living or
someone who leaves a job to pursue a hobby or other personal interests. While it's a personal
choice, it can still contribute to the overall unemployment rate.
7. Involuntary Unemployment: Involuntary unemployment occurs when individuals who are

willing and able to work at the prevailing wage rate are unable to find employment. This type
of unemployment is not a result of a personal choice or voluntary decision to leave a job;
rather, it's a situation where individuals are actively seeking employment but are unable to
secure a position.
An example might be factory workers who lose their jobs due to a factory closure and are
unable to find new employment despite their best efforts. Involuntary unemployment can be
particularly distressing as it's often beyond the control of the individual and may require
broader economic or policy interventions to address. It can encompass aspects of structural,
cyclical, and demand deficient unemployment, reflecting broader economic challenges and
trends.
8. Disguised Unemployment: Disguised unemployment refers to a situation where more

people are employed in a job than is actually required. It is often prevalent in the agricultural
sector, especially in developing countries like India.
For example, a farm may need only three workers, but the entire family of five may be
working. The extra two workers appear to be employed, but their contribution to productivity
is minimal or nil. Disguised unemployment represents an inefficient allocation of labor, where
individuals are underemployed rather than completely unemployed.
9. Seasonal Unemployment: Seasonal unemployment occurs when individuals are

unemployed during certain seasons or times of the year when their skills or labor are not in
demand. This type of unemployment is common in industries that are dependent on particular
seasons, such as agriculture, tourism, and construction.
For example, agricultural workers may face unemployment after the harvest season, while ski
resort employees might be without work during the summer months. Governments and
industries often address seasonal unemployment through temporary employment
opportunities and unemployment benefits tailored to these fluctuations.
10. Vulnerable Unemployment: Vulnerable unemployment refers to individuals who are

employed in precarious or insecure conditions, often lacking legal protections, benefits, or
job security. This type of unemployment is prevalent in the informal sector, where workers
might be engaged in low-paying, temporary, or part-time jobs without contracts.
For example, street vendors, daily wage laborers, and domestic workers often fall into this
category in many developing countries, including India. Vulnerable unemployment highlights
the need for comprehensive labor laws and social protections to ensure the well-being and
rights of these workers.
11. Technological Unemployment: Technological unemployment arises when advancements

in technology render certain jobs or skills obsolete, leading to job losses in affected industries.
Automation, artificial intelligence, and digitalization are common drivers of technological
unemployment.
For instance, the introduction of automated teller machines (ATMs) has reduced the need for
bank tellers, while automation in manufacturing has replaced many manual labor positions.
While technological unemployment can lead to increased efficiency and productivity, it also
raises concerns about retraining, education, and social support for displaced workers,
emphasizing the need for a balanced approach to technological progress.

Causes of Unemployment in India: What Leads to the Unemployment Situation?
Unemployment in India is a multifaceted socio-economic issue, which has economic, technological,
demographic, educational, social, and policy-related cause factors. In the Indian context, the
primary cause of unemployment is the increasing population growth rate which is not at par with
the number of qualified individuals graduating from the colleges/universities every year. However,
there are various causes of unemployment due to the mix of factors. The following are the major
causes of unemployment in India –
S.No. Cause Description Example

1 Economic Economic downturns and global The 2008 global financial crisis led to a
Factors fluctuations lead to reduced demand for slowdown in many sectors, causing job
goods and services. losses in India.
2 Technological Advancements in technology can make Automation in manufacturing has
Changes certain jobs obsolete. reduced the need for manual laborers.
3 Demographic A growing population exceeds the rate India's youth population is increasing,
Factors of job creation. but job opportunities aren't growing at
the same rate.
4 Educational Mismatch between education and Many engineering graduates struggle to
Factors industry demands. find jobs due to a lack of industry-
relevant skills.
5 Rural-Urban Limited opportunities in rural areas Lack of industrial development in rural
Divide compared to urban centers. areas leads many to migrate to cities
seeking work.
6 Seasonal and Dependence on agriculture leads to Farmers often face unemployment post-
Agricultural unemployment during off-seasons. harvest due to the seasonal nature of
Factors agriculture.
7 Government Policies and regulations can sometimes Stringent labor laws might deter some
Policies limit job creation. industries from expanding operations in
India.
8 Lack of Inadequate infrastructure hinders Poor road connectivity in remote areas
Infrastructure economic growth and job creation. can deter businesses from setting up
operations there.
9 Social and Gender biases, caste discrimination, and Women in certain regions might be
Cultural other barriers limit access to discouraged from working due to
Factors opportunities. societal norms.
10 Globalization Global policies can lead to job losses in The influx of cheap Chinese goods might
Impact certain sectors. affect local manufacturing units, leading
to job losses.
11 Informal Labor A significant portion of the workforce in Street vendors might face
Market the informal sector lacks job security. unemployment due to urban
development projects.
12 Lack of Limited support for new businesses and Lack of easy access to credit might deter
Entrepreneurs innovations hinders job creation. potential entrepreneurs from starting
hip and businesses.
Innovation

The government's various Five-Year Plans have consistently addressed unemployment, with
measures to promote skill development, rural employment, and entrepreneurship. In recent years,
the rise of the service sector and the gig economy has further transformed the employment
landscape. Unemployment in India is a complex issue, reflecting the nation's diverse economy,
regional disparities, educational shortcomings, and the ongoing transition from traditional sectors
to modern industries.
Effects of Unemployment – Implications of Unemployment on Individuals & Society
The implications of unemployment on individuals and society are multifaceted and can have both
short-term and long-term effects.
Effects on Unemployment on Individuals

o Financial Strain - Unemployment leads to a loss of income, resulting in financial difficulties
that can affect an individual's ability to afford necessities like housing, food, and healthcare,
thereby reducing overall living standards.
o Mental Health Issues - The stress and uncertainty of being unemployed can lead to mental
health challenges such as anxiety, depression, and a sense of hopelessness, impacting
overall well-being.
o Skill Erosion - Long periods of unemployment can result in the erosion of professional skills,
making it more challenging for individuals to find new employment in their field, further
perpetuating the cycle of unemployment.
o Loss of Self-Esteem - Unemployment often leads to a loss of self-confidence and self-
respect, as individuals may feel a sense of failure or inadequacy, affecting personal
relationships and future job-seeking efforts.
Effects of Unemployment on Society

o Increase in Poverty - High unemployment rates contribute to increased poverty levels, as
more individuals and families struggle to meet basic needs, leading to a decline in overall
economic well-being and social stability.
o Rise in Crime - Lack of employment opportunities and financial desperation may lead some
individuals to engage in illegal activities, resulting in increased crime rates.
o Loss of Human Resources - Unemployment represents a waste of valuable human
resources, as skilled and capable individuals are unable to contribute to economic growth
and development, hindering national progress.
o GDP Impact - Unemployment can lead to a decrease in consumer spending and investment,
reducing overall demand in the economy, consequently impacting GDP growth negatively.
o Socio-Economic Costs - Governments may bear increased socio-economic costs in providing
support and welfare to the unemployed, diverting resources from other essential services
and investments.
o Globalization Impact - Economic policies and globalization can transform organized sectors
into unorganized ones, leading to job losses and contributing to unemployment, affecting
the stability and security of employment.
o Impact on Women's Participation - Lack of opportunities and gender disparities in the job
market may further reduce women's participation in the workforce, affecting gender
equality and economic diversity.
Alleviating Unemployment in India – Measures Taken by the Government
The Indian government has taken several measures to alleviate unemployment, focusing on
creating opportunities, enhancing skills, and promoting entrepreneurship. Here are some of the
key initiatives –
1. Integrated Rural Development Programme (IRDP): Launched in 1980, this initiative aims to
create employment opportunities in rural areas, focusing on full employment and economic
development.
2. Jawahar Rozgar Yojana (JRY): Launched in 1989, JRY focuses on generating meaningful
employment opportunities in rural areas through community and social development
projects.
3. Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA): A landmark
scheme from 2005, MGNREGA guarantees 100 days of paid employment to individuals
willing to do unskilled labor-intensive work, emphasizing the right to work.
4. National Skill Development Mission: Introduced in 2014, the National Skill Development
Mission aims to consolidate and coordinate skilling efforts across the country, improving
the scale and quality of skill development programs.
5. Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Started in 2015, Pradhan Mantri Kaushal
Vikas Yojana scheme aims to enable Indian youth to take up industry-relevant skill training,
enhancing employability and livelihood prospects.
6. Start-Up India Scheme: Launched in 2016, this initiative promotes and supports
entrepreneurship across the country, fostering innovation and job creation.
7. Pradhan Mantri Rojgar Protsahan Yojana (PMRPY): The Pradhan Mantri RojgarProtsahan
Yojana scheme incentivizes employers for the generation of new employment, where the
Government pays the full employer's contribution towards EPF and EPS for new
employment.
8. Atmanirbhar Bharat Rojgar Yojana (ABRY): Aatmanirbhar Bharat Rojgar Yojana
(ABRY) was launched with effect from 1st October, 2020 to incentivize employers for
creation of new employment along with social security benefits and restoration of loss of
employment during Covid-19 pandemic.
9. DeenDayal Upadhyaya Grameen Kaushalya Yojana (DDU-GKY): Focusing on rural
youth, DeenDayal Upadhyaya Grameen Kaushalya Yojana scheme aims to provide them
with skill training and placement in various industries.
10. Self-Employment and Talent Utilization (SETU): This initiative is aimed at supporting all
aspects of the startup ecosystem, including financial assistance, incubation, and
mentorship.
These measures reflect the government’s multifaceted approach to tackling unemployment,

focusing on rural development, skill enhancement, entrepreneurship promotion, and targeted
support for marginalized communities. The combination of these initiatives aims to create a more
inclusive and robust employment landscape in India, addressing the underlying challenges and
leveraging the country's human capital potential.
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Economics & Management

Course Code: NHS 201

Offered to: B. Tech 2nd Year

Unit-I: Introduction to Economics

“Economics is the study of how society manages its limited resources.”

 Economics is the study of how society manages its limited resources.

Course Instructor: Ms. Sonal Mehrotra 2

Course Instructor: Ms. Sonal Mehrotra 3

Micro and Macro Economics

Course Instructor: Ms. Sonal Mehrotra 4

Sr.No. Microeconomics Macroeconomics

Central Problem of an Economy: Choices-what, how and for whom

These are called “Central Problems”

1. What to produce and in what quantities?

i. What type of good should be produced?

It involves selecting a technique of production. Usually, there are two techniques of

 Labour Intensive Techniques (LIT)

3. For whom to produce?

“Who will consume these goods and services?” OR

The problem of For Whom to Produce can be classified as:

Course Instructor: Ms. Sonal Mehrotra 7

Production Possibility Curve

Points on the Curve

Shifts in the Production Possibilities Curve

Course Instructor: Ms. Sonal Mehrotra 9

Examples of opportunity cost include investing in a new manufacturing plant in

 Opportunity costs can lead to better decision making.

GDP and Some basic definitions

GDP is defined by the following formula:

GDP = Consumption + Investment + Government Spending + Net Exports

Course Instructor: Ms. Sonal Mehrotra 10

Inflation rate is given as:

Annual CPI (or CPI current year) is calculated as:

Course Instructor: Ms. Sonal Mehrotra 13

Length of One Business Cycle

The business cycle model (graph)

The straight line in the

During an expansion, the

During a contraction, the

The extreme points are

Course Instructor: Ms. Sonal Mehrotra 14

In this stage, there is an increase in positive economic indicators such as employment,

Course Instructor: Ms. Sonal Mehrotra 15

Potential output in the business cycle

According to National Statistical Office (NSO), employment and unemployment can be

Unemployment increases economic overload, as the unemployed become dependent on the

Course Instructor: Ms. Sonal Mehrotra 17

3. Cyclical Unemployment: Cyclical unemployment is related to the fluctuations in the

4. Institutional Unemployment: Institutional unemployment results from long-term or

5. Demand Deficient Unemployment: Demand deficient unemployment, or demand-deficit

6. Voluntary Unemployment: Voluntary unemployment happens when a worker decides to

7. Involuntary Unemployment: Involuntary unemployment occurs when individuals who are

8. Disguised Unemployment: Disguised unemployment refers to a situation where more

9. Seasonal Unemployment: Seasonal unemployment occurs when individuals are

10. Vulnerable Unemployment: Vulnerable unemployment refers to individuals who are

11. Technological Unemployment: Technological unemployment arises when advancements

Course Instructor: Ms. Sonal Mehrotra 19

S.No. Cause Description Example

Course Instructor: Ms. Sonal Mehrotra 20

Effects of Unemployment – Implications of Unemployment on Individuals & Society