Question: Define Economics.
Economics is the social science that analyzes the production,
distribution, and consumption of goods and services.
The term economics comes
from the Ancient Greek “oikonomia”, where ‘oikos’ means "house" and ` nomos’ means
“custom" or "law". In this sense “oikonomia” means
"management of a household, or "rules of the house"
There are a variety of modern definitions of economics. Some of the
differences may reflect evolving views of the subject or different views among
economists.
Definition of Economics by Alfred Marshall :
"Economics is a study of man in the ordinary business of life.
It enquires how he gets his income and how he uses it. Thus, it is on the one
side, the study of wealth and on the other and more important side, a part of
the study of man."
Definition of Economics by Lionel Robbins:
"Economics is a science which studies human behaviour as a
relationship between ends and scarce means which have alternative uses."
Lastly we can say that, the theories, principles, and models that
deal with how the market process works. It attempts to explain how wealth is
created and distributed in communities, how people allocate resources that are
scarce and have many alternative uses, and other such matters that arise in
dealing with human wants and their satisfaction.
Question: What is the importance /advantages/ objectives of the study of economics?
The Importance /Advantages/ Objectives of the study of Economics
are mentioned below:
(1) Intellectual Value:
The knowledge of Economics is very useful as it broadens our
outlook, sharpens our intellect, and inculcates in us the habit of balanced
thinking.
The study of Economics makes us realize that we as human beings are
dependent upon one another for our daily needs. This feeling creates in us the
intelligent appreciation of our position and the spirit of co-operation with
others.
(2) Practical Advantages:
The practical advantages of Economics are much more important than
its theoretical advantages. These advantages can be looked at from the
individual and community point of view.
(3) Personal Stake in Economics:
From
personal point of view, the study of Economics is useful as it
enables each of us to understand better and appreciate more
intelligently the
nature and significance of our money earning and money spending
activities. With the knowledge of Economics, the consumer can better
adjust his expenditure
to his income.
The study of Economics is also useful to a producer. It suggests
him the ways of bringing about the most economical combinations of the various
factors of production at his disposal. It also helps in solving the various
intricacies of exchange.
From the study of Economics, one can easily judge as
to why the prices have risen or fallen. The knowledge of Economics also
explains us as to how the reward of various factors of production is
determined.
Thus, we find that every individual can rightly hope to become a
better and more efficient consumer, producer and businessman, if he has the
working knowledge of economics.
(4) Economics for the Leader:
The study of economics is not only helpful from the individual
point of view but it is also very useful for the welfare of the community. It
enables a statesman to understand and better grasp the economic and social
problems facing the country.
Every government has to tackle different kinds of
economic problems such as unemployment, inflation, over-production,
under-production, imposition of tariffs and control, problem of monopolies,
etc. The statesmen can successfully solve these problems, if he has thorough
knowledge of the subject of Economics.
The knowledge of Economics for a finance
minister is also indispensable. He has to raise revenue by imposing taxes on
the incomes of the people for meeting the necessary expenditure of the
government. Economics here comes to his rescue and guides him as to how the
taxes could be levied and collected.
(5) Poverty and Development:
The greatest advantage of Economics is that it helps in removing
traces of poverty from the country.
Take the case of Bangladesh; we in Bangladesh
are confronted with different kinds of problems. For example, low-per capita
income, low productivity of agriculture, slow development of industries, fast
increase in population, under-developed means of communication and transport,
etc.
The study of Economics helps in devising ways and means and suggesting
practical measures in solving these problems.
(6) Economics for the citizen:
Such being, the importance of study of Economics, it is rightly
remarked by Wooten that “you cannot be in real sense a citizen unless you are
also in some degree an economist”. He is perfectly right in giving the
statement.
The world is so fast changing that we are completely now living in a
world dominated by economic forces and economic ideas.
If the people of any
country do not have the working knowledge of an economic system, then the
government of that country can easily hoodwink their citizens.
On the contrary, if the citizens have proper knowledge of economics, the government will be very vigilant and spend the money in a
wise manner.
The importance of the study of Economies can also be judged from
this fact that the daily newspapers cannot be understood without some knowledge
of Economics. The newspapers often describe complicated economic problems such
as inflation, balance of payment, balance of trade, imperfect markets, dumping,
co-operative farming, sub-division and fragmentation of holdings, mechanization
of agriculture, If you do not have working knowledge of Economics, you cannot
understand these diverse problems.
From the above brief discussion, we conclude that the knowledge of Economics is very useful. As such it is necessary that every citizen, worker, administrator, consumer, etc., should have at least working knowledge of it.
In the words of Sir
Henry Clay:
“Some study of Economics is at one a practical necessity and a
normal obligation”.
Question: What is the meaning of Production?
Production is the conversion of input into output.
The factors
of production and all other things which the producer buys to carry out
production are called input.
The goods and services produced are known as output.
Thus production is the activity that creates or adds utility and value.
In the
words of Fraser, "If consuming means extracting utility from matter,
producing means creating utility into matter".
According to Edwood Buffa,
“Production is a process by which goods and services are
created"
Question: What are the Factors of Production?
The factors of
production may be defined as resources which help the firms to produce goods or
services.
In other words, the resources required to produce a given product are
called factors of production.
Production is done by combining the various
factors of production. Land, labor, capital and organization (or
entrepreneurship) are the factors of production (according to Marshall).
Question: What are the Characteristics of Factors of Production?
The characteristics of factors of production are described below:
1. The ownership of the factors of production is vested in the
households.
2. There is a basic distinction between factors of production
and factor services. It is these factor services, which are combined in the
process of production.
3. The different units of a factor of production are not
homogeneous. For example, different plots of land have different level of
fertility. Similarly laborers differ in efficiency.
4. Factors of production are complementary. This means their
co-operation or combination is necessary for production.
5. There is some degree of substitutability between factors of
production. For example, labour can be substituted for capital to a certain
extent.
Question: What is Money? Discuss the functions of money.
Money is any good that is widely used and accepted in transactions
involving the transfer of goods and services from one person to another.
Economists differentiate among three different types of money: commodity money,
fiat money, and bank money.
The functions of money
The function of money
can be categorized in two classes. These are-
A. Primary or main
function
B. Secondary or
Supporting function
Primary or main function
Money is often defined in terms of the four functions or services
that it provides. Money serves as a medium of exchange, as a Measure of Value,
Standard of Deferred Payments and as Store of Value.
1. Medium of Exchange:
The most important function of money is to serve as a medium of
exchange or as a means of payment. To be a successful medium of exchange, money
must be commonly accepted by people in exchange for goods and services.
While
functioning as a medium of exchange, money benefits the society in a number of
ways:
(a) It overcomes the inconvenience of baiter system (i.e., the need
for double coincidence of wants) by splitting the act of barter into two acts
of exchange, i.e., sales and purchases through money.
(b) It promotes transactional efficiency in exchange by
facilitating the multiple exchange of goods and services with minimum effort
and time,
(c) It promotes allocation efficiency by facilitating
specialization in production and trade,
(d) It allows freedom of choice in the sense that a person can use
his money to buy the things he wants most, from the people who offer the best
bargain and at a time he considers the most advantageous.
2. Measure of Value:
Money serves as a common measure of value in terms of which the
value of all goods and services is measured and expressed. By acting as a
common denominator or numeraire, money has provided a language of economic
communication. It has made transactions easy and simplified the problem of
measuring and comparing the prices of goods and services in the market. Prices
are but values expressed in terms of money.
Money also acts as a unit of account. As a unit of account, it
helps in developing an efficient accounting system because the values of a
variety of goods and services which are physically measured in different units
(e.g, quintals, metres, litres, etc.) can be added up. This makes possible the
comparisons of various kinds, both over time and across regions. It provides a
basis for keeping accounts, estimating national income, cost of a project, sale
proceeds, profit and loss of a firm, etc.
To be satisfactory measure of value, the monetary units must be
invariable. In other words, it must maintain a stable value. A fluctuating
monetary unit creates a number of socio-economic problems. Normally, the value
of money, i.e., its purchasing power, does not remain constant; it rises
during periods of falling prices and falls during periods of rising prices.
3. Standard of Deferred Payments:
When money is generally accepted as a medium of exchange and a unit
of value, it naturally becomes the unit in terms of which deferred or future
payments are stated.
Thus, money not only helps current transactions though functions as
a medium of exchange, but facilitates credit transaction (i.e., exchanging
present goods on credit) through its function as a standard of deferred
payments. But, to become a satisfactory standard of deferred payments, money
must maintain a constant value through time ; if its value increases through
time (i.e., during the period of falling price level), it will benefit the
creditors at the cost of debtors; if its value falls (i.e., during the period
of rising price level), it will benefit the debtors at the cost of creditors.
4. Store of Value:
Money, being a unit of value and a generally acceptable means of
payment, provides a liquid store of value because it is so easy to spend and so
easy to store. By acting as a store of value, money provides security to the
individuals to meet unpredictable emergencies and to pay debts that are fixed
in terms of money. It also provides assurance that attractive future buying
opportunities can be exploited.
Money as a liquid store of value facilitates its possessor to purchase
any other asset at any time. It was Keynes who first fully realised the liquid
store value of money function and regarded money as a link between the present
and the future. This, however, does not mean that money is the most
satisfactory liquid store of value. To become a satisfactory store of value,
money must have a stable value.
Secondary or Supporting function
1. Transfer of Value:
Money also functions as a means of transferring value. Through
money, value can be easily and quickly transferred from one place to another
because money is acceptable everywhere and to all. For example, it is much
easier to transfer one lakh rupees through bank draft from person A in Amritsar
to person B in Bombay than remitting the same value in commodity terms, say
wheat.
2. Distribution of National Income:
Money facilitates the division of national income between people.
Total output of the country is jointly produced by a number of people as
workers, land owners, capitalists, and entrepreneurs, and, in turn, will have
to be distributed among them. Money helps in the distribution of national
product through the system of wage, rent, interest and profit.
3. Maximization of Satisfaction:
Money helps consumers and producers to maximize their benefits. A
consumer maximizes his satisfaction by equating the prices of each commodity
(expressed in terms of money) with its marginal utility. Similarly, a producer
maximizes his profit by equating the marginal productivity of a factor unit to
its price.
4. Basis of Credit System:
Credit plays an important role in the modern economic system and
money constitutes the basis of credit. People deposit their money (saving) in
the banks and on the basis of these deposits, the banks create credit.
5. Liquidity to Wealth:
Money imparts liquidity to various forms of wealth. When a person
holds wealth in the form of money, he makes it liquid. In fact, all forms of
wealth (e.g., land, machinery, stocks, stores, etc.) can be converted into
money.
Question: What are the Factors Affecting Demand Elasticity?
There
are three main factors that influence a demand’s price elasticity:
1. The availability of substitutes
This
is probably the most important factor influencing the elasticity of a good or
service. In general, the more substitutes, the more elastic the demand will be.
For example, if the price of a cup of coffee went up by $0.25, consumers could
replace their morning caffeine with a cup of tea. This means that coffee is an
elastic good because a raise in price will cause a large decrease in demand as
consumers start buying more tea instead of coffee.
However,
if the price of caffeine were to go up as a whole, we would probably see little
change in the consumption of coffee or tea because there are few substitutes
for caffeine. Most people are not willing to give up their morning cup of
caffeine no matter what the price. We would, therefore, say that caffeine is an
inelastic product because of its lack of substitutes.
Thus, while a product
within an industry is elastic due to the availability of substitutes, the
industry itself tends to be inelastic. Usually, unique goods such as diamonds
are inelastic because they have few - if any - substitutes.
2. Amount of income available to spend on the good
This
factor affecting demand elasticity refers to the total a person can spend on a
particular good or service. Thus, if the price of a can of Coke goes up from
$0.50 to $1 and income stays the same, the income that is available to spend on
Coke, which is $2, is now enough for only two rather than four cans of Coke. In
other words, the consumer is forced to reduce his or her demand of Coke.
Thus
if
there is an increase in price and no change in the amount of income
available to spend on the good, there will be an elastic reaction in
demand, that is, demand will be sensitive to a change in price if there
is no change in income.
3. Time
The
third influential factor is time. If the price of cigarettes goes up $2 per
pack, a smoker, with very little available substitutes, will most likely
continue buying his or her daily cigarettes. This means that tobacco is
inelastic because the change in the quantity demand will have been minor with a
change in price. However, if that smoker finds that he or she cannot afford to
spend the extra $2 per day and begins to kick the habit over a period of time,
the price elasticity of cigarettes for that consumer becomes elastic in the
long run.
Question: Define Inflation.
Inflation can be defined as a sustained or continuous rise in the
general price level or, alternatively, as a sustained or continuous fall in the
value of money.
Several things should be noted about this definition. First, inflation
refers to the movement in the general level of prices. It does not refer to
changes in one price relative to other prices. These changes are common even
when the overall level of prices is stable and the rise in the price level must
be somewhat substantial and continue over a period longer than a day, week, or
month.
Question: What are the Causes/ Source of Inflation?
Economists wake up in the morning hoping for a chance to debate the
causes of inflation. There is no one cause that's universally agreed upon, but
at least two theories are generally accepted:
Demand-Pull Inflation
This theory can be summarized as "too much money chasing too
few goods". In other words, if demand is growing faster than supply,
prices will increase. This usually occurs in growing economies.
Cost-Push Inflation
When companies' costs go up, they need to increase prices to
maintain their profit margins. Increased costs can include things such as
wages, taxes, or increased costs of imports.
Question: What are the Costs/ affects of Inflation?
Almost everyone thinks inflation is evil, but it isn't necessarily
so. Inflation affects different people in different ways. It also depends on
whether inflation is anticipated or unanticipated. If the inflation rate
corresponds to what the majority of people are expecting (anticipated
inflation), then we can compensate and the cost isn't high. For example, banks
can vary their interest rates and workers can negotiate contracts that include
automatic wage hikes as the price level goes up.
Costs/ affects arise when there is unanticipated inflation:
1. Creditors
lose and debtors gain if the lender does not anticipate inflation correctly.
For those who borrow, this is similar to getting an interest-free loan.
2. Uncertainty about what will happen next
makes corporations and consumers less likely to spend. This hurts economic
output in the long run.
3. People living off a fixed-income, such as
retirees, see a decline in their purchasing power and, consequently, their
standard of living.
4. The entire economy must absorb repricing
costs ("menu costs") as price lists, labels, menus and more have to
be updated.
5. If the inflation rate is greater than that
of other countries, domestic products become less competitive.
People often complain
about prices going up, but they often ignore the fact that wages should be
rising as well. The question shouldn't be whether inflation is rising, but
whether it's rising at a quicker pace than your wages.
Lastly, inflation is a sign that an economy is
growing. In some situations, little inflation (or even deflation) can be just
as bad as high inflation. The lack of inflation may be an indication that the
economy is weakening. As you can see, it's not so easy to label inflation as
either good or bad - it depends on the overall economy as well as your personal
situation.
Question: Define Unemployment.
Unemployment occurs when people are without work and actively
seeking work.
According to the ILO guidelines, a person is unemployed if the
person is (a) not working, (b) currently available for work and (c) seeking
work.
Here a person is to be considered unemployed if he/she during the
reference period simultaneously satisfies being:
(a) ‘Without work’, i.e., were not in paid employment or self-employment
as specified by the international definition
(b) ‘Currently available for work’, i.e., were available for paid
employment or self-employment during the reference period; and
(c) ‘Seeking work’, i.e., had taken specific steps in a specified
recent period to seek paid employment or self-employment.
In the words of Fairchild, “unemployment is forced and
involuntary separation from remunerative work on the part of the normal wages
and normal conditions.”
According to Sergeant Florence, “unemployment has been defined as
the idleness of persons able to work.”
Lastly we can say that When a person is failed to get any job and
unable to found the means of livelihood, we call him an unemployed person.
Thus, unemployment means lack or absence of employment.
In other words, unemployment is largely concerned with those persons who constitute the labor
force of the country, who are able-bodied and willing to work, but they are
gainfully employed. Unemployment, therefore, is the lack of earning or idleness
on the part of a person who is able to work.
Question: What are the types of Unemployment?
As unemployment is a universal problem and is found in every
country more or less, therefore, it is categorised into a number of types. The
chiefs among them are stated below:
1) Structural unemployment:
Basically Bangladesh's unemployment is structural in nature. It is
associated with the inadequacy of productive capacity to create enough jobs for
all those able and willing to work. In Bangladesh not only the productive
capacity is much below the needed quantity, it is also found increasing at a slow
rate. As against this, addition to labour force is being made at a first rate
on account of the rapidly growing population. Thus, while new productive jobs
are on the increase, the rate of increasing being low the absolute number of
unemployed persons is rising from year to year.
2) Disguised unemployment:
Disguised unemployment implies that many workers are engaged in
productive work. For example, in Indian villages, where most of unemployment
exists in this form, people are found to be apparently engaged in agricultural
works. But such employment is mostly a work sharing device i.e., the existing
work is shared by the large number of workers. In such a situation, even if
many workers are withdrawn, the same work will continue to be done by fewer
people.
It follows that all the workers are not needed to maintain the
existing level of production. The contribution of such workers to production is
nothing. It is found that the very large numbers of workers on Indian farms
actually hinder agricultural works and thereby reduce production.
3) Cyclical unemployment:
Cyclical unemployment in caused by the trade or business cycles. It
results from the profits and loss and fluctuations in the deficiency of
effective demand production is slowed down and there is a general state of
depression which causes unemployment periods of cyclical unemployment is longer
and it generally affects all industries to a greater or smaller extent.
4) Seasonal unemployment:
Seasonal unemployment occurs at certain seasons of the year. It is
a widespread phenomenon of Indian villages basically associated with
agriculture. Since agricultural work depends upon Nature, therefore, in a
certain period of the year there is heavy work, while in the rest, the work is
lean. For example, in the sowing and harvesting period, the agriculturists may
to engage themselves day and night.
But the period between the post harvest and pre sowing is almost
workless, rendering many without work. Thus, seasonal unemployment is largely
visible after the end of agricultural works.
5) Underemployment:
Underemployment usually refers to that state in which the self
employed working people are not working according to their capacity. For
example, a diploma holder in engineering, if for wants of an appropriate job,
start any business may be said to be underemployed. Apparently, he may be
deemed as working and earning in a productive activity and in this sense
contributing something to production.
But in reality he is not working to his capability, or to his full
capacity. He is, therefore, not full employed. This type of unemployment is
mostly visible in urban areas.
6) Open Unemployment:
Open unemployment is a condition in which people have no work to
do. They are able to work and are also willing to work but there is no work for
them. They are found partly in villages, but very largely in cities. Most of
them come form villages in search of jobs, many originate in cities themselves.
Such employment can be seen and counted in terms of the number of such persons.
Hence it is called upon unemployment. Open unemployment is to be
distinguished from disguised unemployment and underemployment in that while in
the case of former unemployment workers are totally idle, but in the latter two
types of unemployment they appear to be working and do not seem to be away
their time.
7) Voluntary Unemployment:
Voluntary unemployment occurs when a working persons willingly
withdraws himself from work. This type of unemployment may be caused due to a
number of reasons. For example, one may quarrel with the employer and resign or
one may have permanent source of unearned income, absentee workers, and
strikers and so on. In voluntary unemployment, a person is out of job of his
own desire. She does not work on the prevalent or prescribed wages. Either he
wants higher wages or does not want to work at all.
8) Involuntary unemployment:
Involuntary unemployment occurs when at a particular time the
number of worker is more than the number of jobs. Obviously this state of
affairs arises because of the insufficiency or non availability of work. It is
customary to characterise involuntary unemployment, not voluntary as
unemployment proper.
Question: What are the ways to remove unemployment?
Ways and means to remove unemployment in Society of Bangladesh
In Society we have already seen that there is a good deal of
unemployment. This removal of unemployment is necessary for the prosperity of
the nation. For this, the following steps have to be taken:
1. Improvement in the agricultural system:
We have already seen that the agricultural system in Bangladesh is
backward and underdeveloped. This backwardness is responsible for a lot of
unemployment. If the unemployment has to be removed, the system of agriculture has
to be modernized and improved, for this the following steps to be taken:
1) Holding should be consolidated and made economic.
2) Methods of agriculture should be improved and as far as possible
farmers should be freed from dependence on nature.
3) System of crops should be planned scientifically and improved. If
more crops earned they would provide more employment.
4) The farmers should be provided with good seed, good fertilizer,
healthy animals, modern implements and tools etc.
2. Adequate arrangement of facilities of irrigation:
In villages the agriculture very much depends on nature. If rains
fail, the crops are destroyed. This brings about a good deal of unemployment.
Methods of irrigation should be made more modern. They should also be adequate
so that it may be possible for people to water their fields.
3. Increasing the area of cultivable land:
Today in the villages there is a great pressure on land. The area
under cultivation is not sufficient to provide food to all the people of this
country. Barren land should be broken and made fertile. Other methods should
also be made for improving the area of cultivable land which is not normally
fit for agriculture, also be improved and made fit. This would remove
unemployment in the villages.
4. Setting up and develop the cottage and village industries:
In village, people have seasonal employment in agriculture. Apart
from it all the persons do not have avenues for the employment. What is needed
is to set up of industries so that those who do not have land are employed in
it. Apart from it, the agriculturalists during dull season should get
employment in these industries. Women and land-less laborers shall also be able
to get employment if industries are set up.
5. Improving the means of transport and communication:
In villages there is need to have proper roads and places where
offices and stores for seeds etc, may be set up. Public construction should be
undertaken in the villages to provide employment to the idle hands. This would
improve the employment position in the village. Apart from it, it would also
add to the prosperity of the villages.
6. Construction of public Transports, Roads etc:
It is necessary to improve the means of transport and
communication. This would have two fold advantages. Firstly, the village people
shall be able to send their products to markets for sale and secondly, they
shall also be able to go to such other places where they can get employment.
Apart from it, this would also provide employment to many persons who shall
engage themselves in the task of transporting these people.
7. Organization of the agricultural market:
There is need to organize markets for the agricultural product. At
present, there is dearth of such market. This situation creates difficulties
for the agriculturalists. On the one hand, they are not able to get proper
price and on the other hand they have to suffer from other handicaps. If
markets are organized, they would provide employment to certain hands and also
help the agriculturalists to get proper price for their labor.
In
fact, Bangladesh is such a vast country and unemployment is so
large that “Herculean” efforts shall have to be made to surmount this
degree.
Various economists and social thinkers have suggested various ways for
it. Many
of these ways have also been incorporated in the Five-Year Plans. In the
coming days, our employment position is expected to be better.
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