These notes are perfectly summarized, which makes it easy to understand for the students. Each and Every topic is covered in short which saves the time of the students from reading the actual thick book.
Types of Goods Produced in the Economy :
1. Final Goods : Those goods which have crossed the boundary line of the
production & are ready to use by their final users.
{ wo goods jo factory se bankar market m aa chuke h & unko ab consumer consume
karenge & further sell nahi karenge }
These goods are of two types:
A. Final consumer goods
( eg - clothes )
B. Final producer goods
( eg - Fixed Assets )
2. Intermediate Goods : Those Goods -
A. Which have not crossed the production boundary line of production. [ still in the
production phase ]
B. Value is still to be added to these goods. [ abhi bhi kuch kuch add krna baki hota
h]
C. Which are not ready for use by their final users .
Eg. - Goods purchased for resale
The same goods may be final for one & intermediate for another, it all
depends on end use of those goods.
Consumption goods :
1. Durable goods : can be used again & again . [ eg. Television ]
2. Semi-Durable goods : can be used for limited period of time. [ eg. Clothes ]
3. Non-Durable goods : used up in single act of consumption. [ eg. Milk, bread ]
4. Services : non-material goods. [ eg. Doctor ]
Capital Goods :
Those final goods which helps in the production of other goods & services & which
are of high value & use of these goods leads to depreciation.
Eg. Plant & Machinery
EXCEPTION :
Nails & screws are used for several years but are not Capital Goods.
,Capital Goods are only those durable goods which are used as producer goods, and
not as consumer goods .
Investment :
Process of Capital Formation ( increases the stock of capital ).
Components-
1. Fixed Investment : Increase in the stock of fixed assets, it is also called as capital
formation.
2. Inventory Investment : Change in the stock of inventory during the year. [ eg.
Unsold finished goods, raw material, semi-finished goods]
Higher production Capacity uninterrupted supply of
inputs
Higher level of output
Avoiding day to day purchase
From market
High GDP
Uncertainties of market
are avoided
Gross Investment :
Expenditure on the purchase of new assets as well as replacement of existing assets
by producer.
Net Investment :
Expenditure on the purchase of new assets only by producer.
Expected Obsolescence :
Fall in the value of fixed assets due to change in technology or change in demand.
Unexpected Obsolescence :
Fall in the value of fixed assets due to natural calamity or economic recession.
Consumption of Fixed Capital :
Refers to loss of value of fixed assets while these are used continuously in the
process of production.
Capital Loss :
Refers to loss of value of fixed assets while these are not in use.
Eg. Loss due to natural calamities, fall in the market value of assets during the period
of economic recession.
,Stock & Flow :
Stock :-
1. Value of Variable at a particular point of time.
2. It is not time dimensional.
3. It is a static Concept.
4. Stock impacts flow.
( Greater stock of capital, greater is the flow of goods & services )
Eg. Wealth, Capital, Bank Deposits.
Flow :-
1. Value of variable during a period of time.
2. It is time dimensional.
3. It is a dynamic concept.
4. Flow impact stock.
( Greater the flow of income, greater is the stock of wealth with people )
Eg. Income, Capital Formation, Interest on Capital.
What are the four sectors of the economy ?
1. Household Sector :
Includes consumer of goods & services.
( owners of factors of production )
2. Production Sector :
Producing units (firms) in the economy. They hire/purchase factors of production.
( Land, Labour, Capital & entrepreneur )
3. Government Sector :
Includes government as welfare agency & as a producer.
4. The External Sector :
Includes Rest of the world.
What are the types of circular flow ?
How money flow are opposite to real flow ?
Production
(Goods & services) sector
1. It is the flow of goods & services between firms and households.
2. It is also known as “Physical Flow”
, 3. Difficulties of barter system may occur. (because no money is involved)
Money Flow :-
Household (Consumption Expenditure)
Sector (On Goods & Services)
Production
(Factor Payments) sector
(Rent, Wages, Interest, & Profit)
1. It is the Flow of money between firms & households.
2. It is also known as “Nominal Flow”
3. No difficulties of barter system can occur.
Why is the flow of income & product called as circular flow ?
Explain circular flow in a two sector economy ?
Household Production
Sector sector
It refers to cycle of generation of income in the production process, its distribution
among the factors of production, & finally its circulation from household to firms in
the form of consumption expenditure on goods and services produced by them.
Phases of Circular Flow of Income :
1. Generation Phase :
In this phase, firms produce goods and services with the help of factor services.
2. Distribution Phase :
This phase involves the flow of factor income (rent, wages, interest and profit)
from firms to the households.
3. Disposition Phase :
In this phase, the income received by factors of production, is spent on the goods
and services produced by firms.
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