Types of Economics:
Economics is basically divided into two basic categories i.e., Macroeconomics and Microeconomics.
Microeconomics is the study of decisions made by people and businesses regarding the allocation of resources and prices of goods and services. The government decides the regulation for taxes. Microeconomics focuses on the supply that determines the price level of the economy.
The key factors of microeconomics are as follows:
- Demand, supply, and equilibrium
- Production theory
- Costs of production
- Labour economics
Macroeconomics is a branch of economics that depicts a substantial picture. It scrutinises itself with the economy at a massive scale, and several issues of an economy are considered. The issues confronted by an economy and the headway that it makes are measured and apprehended as a part and parcel of macroeconomics.
The important concepts covered under macroeconomics are as follows:
- Capitalist nation
- Investment expenditure
Some of the most important Economics terminologies are as follows:
Average fixed cost: Per unit output of fixed costs, found by dividing the fixed cost of production by the quantity produced (output) Refers to the revenue received for selling a good per unit of output sold. This is found by dividing the total revenue by the quantity sold.
Average tax rate: Tax rate that is paid when all sources of taxable income are added and divided by the number of taxes owed.
Average total cost: Total cost per unit including fixed and variable costs, found by dividing total cost by the quantity of output.
Balanced budget: A budget is said to be a balanced budget when the current income is the same as the current expenditure.
The balance of Trade: Refers to the relationship between the values of country's imports and its export, i.e., the visible balance. These items only form part of the balance of payments which are (a) invisible items and (b) movements of capital.
Budget Deficit: When the expenditure of the Govt. exceeds the revenue, the balance between the two is the budget deficit.
Call Money: Is a loan that is made for a very short period of a few days only or for a week. It sanctions with a low rate of interest. In case of a stock exchange, the duration length of the call money may be for a fortnight.
Cash Reserve Ratio: Refers to the ratio which banks have to maintain with the RBI as the certain percentage of their holdings of cash and their time liabilities.
Circular flow diagram: Basic visual model used in Economics to show how Economy functions (flow of money through firms, markets, etc.)
Coase theorem: An economic theory which affirms that where there are competitive markets without any transaction costs, an efficient set of inputs & outputs, to & from production-optimal distribution are selected, regardless of how property rights are divided. When there is involvement of property rights, people involved will naturally gravitate toward the most beneficial and efficient outcome.
Deadweight loss: Fall in total surplus caused by market inefficiency. Can be applied to any deficiency caused by an inefficient allocation of resources.
Diseconomies of scale: Economic concept that refers to a situation in which economies of scale no longer function for a firm.
Deflation: Decline in the general price level of goods and services leading to rise in the value (purchasing power). A method of statistical conversion of a series of data to compensate for the general rise in prices.
Devaluation: Official reduction in the foreign value of domestic currency. It is done to encourage the country's export and discourage imports.
Direct Tax: Tax that cannot be shifted. The burden of the direct tax is borne by the person on whom it is initially fixed. Examples: Personal income tax, Social Security tax paid by employees.
Equity: Value of assets minus the liabilities of the asset. Equity = Assets – Liability.
Elasticity: The degree of responsiveness of quantity demanded or supplied to a change in price.
Externality: The positive or negative impact of an economic activity experienced by an unrelated bystander.
Equilibrium: State in which economic forces are balanced where quantity demanded = quantity supplied.
Excise Tax: Tax imposed on the manufacture, sale or consumption of different commodities, such as taxes on textiles, fabric, cloth, liquor etc.
Fiscal policy: The government's expenditure and tax policy, is an important means of moderating the upswings and downswings of the business cycle.
Foreign Exchange: Claims on a country by another, held in the form of currency of that country. The foreign exchange system enables one currency to be exchanged for another thus facilitating trade between countries.
Foreign Exchange Rate: Prices of the domestic currency in terms of foreign currencies.
Fixed costs: Cost that doesn’t change with the quantity of output produced or sold.
Factors of production: Inputs used to produce goods and services to make an economic profit.
Indirect taxes: Taxes levied on goods purchased by the consumer (and exported by the producer) for which the taxpayer's liabilities vary in proportion to the number of particular goods purchased or sold.
Inflation: A sustained and appreciable increase in the price level over a considerable period of time.
Inferior good: Good for which demand declines with increase in income or real GDP.
Import quota: A limit set on the quantity of goods that can be produced abroad & sold domestically.
Implicit costs: Cost occurred but not necessarily reported as an expense.
Laissez-faire: The principle of non-intervention of government in economic affairs.
Law of supply: Another microeconomic law that states, all factors being equal, quantity of supply of goods/services increases, when the price of goods/services increases.
Lorenz curve: A curve representing wealth/income inequality. Plots percentile of population according to income/wealth on x-axis and cumulative wealth/income on y-axis.
Monopoly: Industry dominated by one entity/corporation without close substitutes
Marginal cost: Change in total cost that arises from producing an extra unit
Marginal revenue: Change in total revenue resulting from the sale of one additional unit of output.
Marginal product: Change in output from employing one more unit of input.
National Income (at factor cost): Total of all incomes earned or imputed to factors of manufacturing, used in economic literature to represent the output or income of an economy in a simple fashion.
Oligopoly: Market structure where small number of firms have large majority of market share.
Per Capita Income: Total GNP of a country divided by the total populace. Per capita income is often used as an economic indicator of the levels of living and development. If however, can be a biased index because it takes no account of the income distribution.
Phillips curve: a curve that shows the concept that inflation & unemployment have stable & inverse relationship.
Pigovian tax: Affluent fee assessed against business/individuals for engaging in a specific activity.
Price elasticity of demand: Measure of relationship between change in the price of a good and the quantity demanded of that good. Price elasticity of demand = Change in quantity demanded(%)/change in price (%).
Price elasticity of supply: Measure of relationship between a good's price change and the quantity supplied of that good. Price elasticity of demand = Change in quantity supplied(%)/change in price (%).
Statutory Liquidity Ratio: The SLR is the ratio of cash in hands, exclusive of cash balance maintained by ranks to meet required CRR, but no excess reserves.
Supply side economics: Branch of economics that argues that Economic growth can be created effectively by lowering the barriers on production & investing in capital.
Sunk cost: Cost already incurred/committed and cannot be recovered.
Scarcity: Limited nature of society’s resources
Tariff (ad valorem): A fixed percentage tax on the value of an imported product, the tax levied at the point of entry into the importing country.
Tobin tax: Named after James Tobin, the Nobel prize winner for economics in 1981, a global tax on capital transfers, which could raise possibly $250 billion from financial markets worldwide. And this huge sum could be used to support the developing economies of the third world. The revenue from the Tobin tax can also be used to write off the third-world countries' debts.
Total revenue: Total receipt of a firm, from sale of given quantity of service/good.
Value Added Tax (VAT): This form of tax has been in operation in some countries. It brings a value-added tax, a tax levied on the values that is added to goods and services turned out by the producers during stages of production and distribution.
Welfare economics: Study of how allocation of resources affects social welfare.
Zero Based Budgeting: The practice of justifying the utility in cost-benefit terms of each government expenditure on projects. The ZBB technique involves a serious review of every scheme before a budgetary provision is made in its favour. This form of financial planning is with an objective to ensure that every rupee spent is result oriented. If ZBB is properly implemented it could help to reverse the trend of large deficits on the revenue account of the Union Government.
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