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De nition of Economics: Economics is the study of how societies use scarce

resources to produce valuable commodities and distribute them among different people.

Types of Economies:
Market Economy: It is based on the principles of supply and demand, with
minimal government intervention.
Command Economy: All economic activities are controlled and regulated by the
government.
Mixed Economy: Combines elements of both market and command economies. It
allows private ownership while the government regulates certain sectors.

Basic Economic Concepts:

Supply and Demand: The fundamental forces that drive the market. Demand
represents consumers' desire for a product, while supply represents its availability.
Market Equilibrium: The point where supply equals demand, determining the
price of a good or service in the market.
Gross Domestic Product (GDP): It measures the total value of all goods and
services produced within a country's borders in a speci c time frame. It's a key
indicator of a country's economic performance.
In ation: The rate at which the general level of prices for goods and services rises,
eroding purchasing power.
Unemployment: The percentage of people who are willing and able to work but
are unable to nd employment.

Factors of Production:
Land: Natural resources used in production.
Labor: Human effort used in production.
Capital: Tools, machinery, and equipment used in production.
Entrepreneurship: The ability to organize factors of production to create goods
and services.

Economic Systems:
Capitalism: An economic system where the means of production are privately
owned, and prices, production, and distribution of goods are determined by
competition in a market
Socialism: An economic system where the means of production are owned or
regulated by the state, aiming for equitable distribution of wealth among citizens.
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Fiscal and Monetary Policy:
Fiscal Policy: The government's use of taxing and spending to in uence the economy.
Monetary Policy: Control of the money supply and interest rates by the central bank
to achieve economic goals.

International Trade:
Imports and Exports: Goods and services bought from and sold to other countries.
Trade Surplus and De cit: A surplus occurs when exports exceed imports, while a
de cit happens when imports exceed exports.

Average Fixed Cost (AFC): AFC refers to the per-unit cost of xed expenses. It's
calculated by dividing total xed costs by the quantity of output produced.

Average Revenue: This denotes the revenue received per unit of output sold. It is
found by dividing the total revenue by the quantity sold.

Average Tax Rate: The average tax rate is calculated by dividing the total taxes paid
by a taxpayer's taxable income.

Average Total Cost (ATC): ATC refers to the total cost per unit of output. It
encompasses both xed and variable costs and is calculated by dividing total cost by the
quantity of output.

Balanced Budget: A budget is considered balanced when a government's income

matches its expenditure.

Balance of Trade: This re ects the relationship between a country's import and export
values. It focuses on visible trade items and forms part of the balance of payments, which
also includes invisible items and capital movements.

Budget De cit: When a government's expenditure exceeds its revenue, resulting in a

shortfall, it is termed as a budget de cit.

Call Money: It refers to short-term loans made for very brief periods, often a few days
or a week, typically at low interest rates, and often used in stock exchange transactions.

Cash Reserve Ratio (CRR): CRR represents the percentage of a bank's holdings that
it must maintain with the central bank (RBI in the case of India) as reserves against its
time liabilities.
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Circular Flow Diagram: A visual representation used in economics to demonstrate the

ow of money, goods, and services among rms, markets, households, and the government
in an economy.

Coase Theorem: An economic theory that, in the absence of transaction costs and with
competitive markets, an ef cient outcome occurs, regardless of how property rights are
initially distributed.

Deadweight Loss: The loss of economic ef ciency that occurs when the equilibrium for a
good or service is not achieved or when resources are not allocated ef ciently.

Diseconomies of Scale: Situations where increased production leads to higher average

costs due to inef ciencies or increased input costs.

De ation: A decrease in the general price level of goods and services leading to increased
purchasing power of money.

Devaluation: The of cial reduction of a country's currency value against foreign

currencies, often done to boost exports and discourage imports.

Direct Tax: A tax whose burden cannot be shifted and is directly imposed on the
individual or entity that owes it, like income tax or social security tax paid by employees.

Equity: The value of assets minus liabilities. In accounting terms, it refers to the ownership
interest in an asset after debts are paid off.

Elasticity: It measures the responsiveness of quantity demanded or supplied concerning

changes in price, income, or other factors.

Externality: The positive or negative impact of an economic activity on a third party not
directly involved in the activity.

Equilibrium: A state where economic forces are balanced, resulting in quantity demanded
equaling quantity supplied.

Excise Tax: A tax levied on speci c goods manufactured, sold, or consumed within a
country, such as taxes on alcohol, tobacco, or fuel.
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Fiscal Policy: The use of government spending and taxation to in uence the economy.

Foreign Exchange: Claims on a country by another, typically held in the form of

currencies and facilitating international trade.

Foreign Exchange Rate: The price of one country's currency in terms of another
country's currency.

Fixed Costs: Costs that do not change with the quantity of output produced or sold, such
as rent or insurance.

Factors of Production: Inputs used to produce goods and services: land, labor, capital,
and entrepreneurship.

Indirect Taxes: Taxes levied on goods and services, where the taxpayer's liability varies
based on the quantity of goods purchased or sold.

In ation: The persistent increase in the general price level of goods and services over time.

Inferior Good: A good for which demand decreases when consumer income rises.

Import Quota: A restriction on the quantity of goods that can be imported and sold
domestically.

Implicit Costs: Costs that are incurred but not necessarily reported as expenses.

Laissez-Faire: The economic principle advocating minimal government intervention in

market activities.

Law of Supply: A microeconomic principle stating that, all else being equal, the quantity
of goods or services supplied increases with an increase in their price.

Lorenz Curve: A graphical representation of income or wealth distribution within a

population, displaying inequality.

Monopoly: A market structure where a single entity dominates the industry with no close
substitutes.
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Marginal Cost: The additional cost incurred from producing one more unit of a good or
service.

Marginal Revenue: The change in total revenue from selling one additional unit of a
good or service.

Marginal Product: The change in output resulting from employing one more unit of
input.

National Income (at Factor Cost): The total income earned by factors of production
in an economy.

Oligopoly: A market structure characterized by a small number of rms dominating the

market.

Per Capita Income: Total Gross National Product (GNP) of a country divided by its
population, used as an economic indicator.

Phillips Curve: Represents the trade-off between in ation and unemployment in an

economy.

Pigovian Tax: A tax levied to correct negative externalities by discouraging certain

behaviors or activities.

Price Elasticity of Demand: A measure of how demand for a good or service responds
to a change in its price.

Price Elasticity of Supply: A measure of how supply of a good or service responds to a

change in its price.

Statutory Liquidity Ratio (SLR): The percentage of a bank's total deposit liabilities
that it is mandated to hold in the form of cash reserves or speci ed securities with the
central bank.

Supply-Side Economics: An economic theory advocating that economic growth can be

most effectively created by reducing barriers to production and investing in capital.

Sunk Cost: A cost that has already been incurred and cannot be recovered.
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Scarcity: The fundamental economic problem of limited resources and unlimited wants.

Tariff (Ad Valorem): A tax levied on imported goods based on a percentage of their
value at the point of entry into the importing country.

Tobin Tax: A suggested global tax on nancial transactions to generate revenue for
supporting developing economies or debt relief.

Total Revenue: The overall income received from selling a speci c quantity of goods or
services.

Value-Added Tax (VAT): A tax imposed at each stage of the production and
distribution process based on the value added at each stage.
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