Article-1: Introduction to Economics

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Article 1: Introduction to Economics

Contents

  1. Meaning of Economy
  2. Sectors of Economy
  3. Types of economies
  4. Concept of public welfare
  5. Quiz

1.Meaning of Economy

1.1 Economy: Discipline

  • Economy encompasses all activities related to production, consumption and trade of goods and services in an area.
  • An economy applies to everyone from individuals to entities such as corporations and governments.

1.2 Meaning of Economy

  • An economy is the large set of interrelated production and consumption activities
  • This is also known as an economic system.
  • Human activities which generate income are known as economic activities.

1.3 Concepts of Economics

It is the branch of knowledge concerned with the production, consumption, and transfer of wealth.

2. Sectors of Economy

Economic activities are broadly grouped into primary, secondary, tertiary activities. Higher services under tertiary activities are again classified into quaternary and quinary activities.

2.1 Primary activities:

  • Primary activities are directly dependent on environment
  • Involves utilisation of earth’s resources such as land, water, vegetation, building materials and minerals.
  • It, thus includes, hunting and gathering, pastoral activities, fishing, forestry, agriculture, and mining and quarrying etc.
  • People engaged in primary activities are called red-collar workers.

2.2 Secondary activities:

  • Secondary activities add value to natural resources by transforming raw materials into valuable products.
  • Secondary activities, therefore, are concerned with manufacturing, processing and construction (infrastructure) industries.
  • People engaged in secondary activities are called blue collar workers.

2.3 Tertiary activities:

  • Tertiary activities include both production and exchange.
  • Here the ‘production’ involves the ‘provision of services’.
  • ‘Exchange’  involves trade, transport and communication facilities.
  • Tertiary jobs are called White collar jobs.

2.4 Quaternary activities:

  • Quaternary activities are specialized tertiary activities in the ‘Knowledge Sector’.
  • Examples are  information based services like mutual fund managers, tax consultants, software developers and statisticians.

2.5 Quinary activities:

  • Quinary activities are services that focus on the creation, re-arrangement and interpretation of new and existing ideas.
  • Involves data interpretation and the use and evaluation of new technologies.
  • Example – The highest level of decision makers or policy makers.
  • Quinary jobs are called Gold collar professions.

3. Types of Economies

3.1 Capitalistic Economy

  • The capital goods are owned by private individuals or businesses.
  • The production of goods and services is based on supply and demand in the general market.
  • Ex: The USA

3.2 Socialistic Economy

  • It is based on the public ownership (also known as collective or common ownership) of the means of production.
  • In a purely socialist system, all legal production and distribution decisions are made by the government, and individuals rely on the state for everything from food to healthcare.
  • Ex: former USSR.

3.3 Mixed Economy

  • A mixed economic system is a system that combines aspects of both capitalism and socialism.
  • A mixed economic system protects private property and allows a level of economic freedom
  • Also allows for governments to interfere in economic activities in order to achieve social aims.
  • Ex: India

4. Concept of public welfare

4.1 Public Good, Private Good and Merit Goods

  • Public goods are generally open for all to use and consumption by one party does not deter another party’s ability to use it. Ex: Public Parks
  • a good is considered to be a private good if there is competition between individuals to obtain the good and if consuming the good prevents someone else from consuming it. Ex: cell phones

Merit Goods

  • Merit Goods are those essentially private in consumption characteristics but provided publicly
  • Ex: Education, Health care, job training programs, public library etc
  • Due to the merits and importance associated with them, government feels that everybody in a society should consume these goods even if they are not able to pay for them
  • These are normally governmentally supplied or heavily subsidized

4.2 Welfare State

  • A welfare state is a state or a government meant for the welfare, or the wellbeing of the people.

Extent of welfare measures:

  1. The sick, the poor, the disabled, the unemployed and similar groups of people are to be taken care of in a welfare state.
  2. Education, health care, social insurance, housing, old age pensions and medical care have become the responsibility of welfare states.

Characteristics of welfare state

  1. It aims to ensure equitable distribution of wealth.
  2. It exercises control over all the economic activities.
  3. It provides the basic facilities to its citizens.
  4. Regulate and control all private enterprises engaged in economic activities.

5. Quiz

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