Economics Ch- 2 Class 12th (Some Basic Concepts of Macroeconomics)

Classification of Goods :-

Types of Goods

>Consumer Goods

>Capital Goods

>Intermediate Goods

>Final Goods

1.Consumer Goods or Consumption Goods - These are those goods which directly satisfy the needs of the consumer and are not used in the production of other goods.

Consumer Goods

a)Durable Goods

b)Semi-Durable Goods

c)Non-Durable Goods

d)Non-Material Goods or Services

A) Durable Consumer Goods - Durable Consumer Goods are those goods which can be used for several years and are for relatively high value.

For Ex. TV , Car , Washing , Machine etc.

B) Semi-Durable Goods - Those goods which can be used for a period of one year.

For Ex. Clothes , Shoes , Crockery etc.

C) Non - Durable or Single Use Consumer Goods - Those goods which can be used only for one time and are of relatively low value.

For Ex.Foods , Vegetables , Ink and Petrol etc.

D) Services - These are intangible good that cannot be seen or touched . But the benefit of which can be enjoyed. We make payment for the services rendered by the person for the satisfaction of our wants.

For Ex.Services of a Doctor , Lawyer etc.

2.Capital Goods - Those goods which are used in the process of production for several years , which are of high value and helps the producers in generating income.

For Ex.Plant & Machinery etc.

*Q-1 All the machines are capital goods?

A-1 No, It is not necessary that all the medicines are capital goods . It depends on the end-user.

3.Intermediate Goods - Intermediate Goods are those goods which are within the boundary time of production value is yet to be added to these goods and these goods are yet not ready for use by their final users.

4.Final Goods - These are those goods which have crossed the boundary line of production value addition has ended and are ready to use by their final users.

Final Goods

a)Final Consumer Goods.

b)Final Producer Goods.

A) Final Consumer Goods - Those goods which are ready to use by their final users and consumers use there as final users to satisfy their needs.

For Ex.Bread , Butter etc.

B) Final Producer Goods - Those goods which are ready to use by their there final users and producers use there goods as final users to generate more income.

For Ex.Plant and Machinery , Tractors etc.

INVESTMENT :-

I = /\ k

Where I = Investment

             K = Capital Stock

          /\ K = Change in capital stock during the year

Investment :-

Fixed Investment - It refers to change to the fixed assets of producers during an accounting year.

Fixed Investment - Stock of Fixed Assets at the end of year - Stock of fixed assets at the beginning of year.

Inventory Stock - 

1.Raw Material.

2.Semi - Finished Goods.

3.Finished Goods.

Inventory Investment - Inventory stock at the end of accounting year - Inventory stock at the beginning of accounting year.

Gross Investment - Fixed Investment + Inventory Investment

Net Investment - Gross Investment - Depriciation

Significance of Investment :-

1.It increases the production capacity of the producers.

2.It increases the employment opportunity is an economy.

3.It helps in growth and development of economy . More investment leads to more growth and more development.

4.It raises the stock of capital in economy.

5.It increases the productivity efficiency of labour .

6.It ensures uninterrupted supply of inputs is the process of production.

Depreciation

Depreciation or Consumption of fixed asset capital refers to the loss of value of fixed assets an account of a)normal wear and tear b)accidental changes and c)expected obsolescence (change in technology) etc.

Expected and Unexpected Obsolescence :-

Expected Obsolescence - Loss of value of fixed assets when these become obsolute / outdated owing to change in demand.

Unexpected Obsolescence - It refers to a fall is the value of fixed assets due to natural calamities or economic recession.

It is also called "Capital Loss".

Depreciation Reserve Fund - It is a provisions of funds to cope with depreciation losses.

It fulfills the need for replacement investment.

Stock and Flows 

Stock - A stock is a quantity measured at a particular point of time.

For Ex. Water present in the tank , bank deposits etc.

Flow - A flow is a quantity measured at a particular period of time.

For Ex. Interest on Capital , Capital Formation etc.

>Difference b/w Stock and Flow ?

Stock

1.Meaning - It refers to the quantity measured at a particular point of time.

2.Time - It is not time dimensional.

3.Impact - Stock impacts the flow. Greater the stock of capital , greater is the flow of goods and services.

For Ex.Wealth , Bank Deposits etc.

Flow

1.It refers to the quantity measured at a particular period of time.

2.Time - It has time dimension as per how per day etc. 

3.Impact - Flow impacts the stock . Greater the flow of income , greater is the stock of wealth with the people.

For Ex. Interest on Capital etc.

Four Sectors of the Economy :-

1.Household Sector - It includes consumer of goods and services . Households are also the owners of the factors of production.

2.Production Sector - It includes all producing units in the economy . For production the producers has factors of production from household.

3.Government Sector - It includes a)Govt. as a welfare agency. b)Govt. as a producer - building of rocks etc.

4.External Sector (Rest of the World) - It It includes all such activities which are related to export and import of goods and the flow of capital b/w the domestic economy and rest of world.

InterSectoral Flow :-

Each Sector of the Economy depends on other in one way or the other. This is called Intersectoral Interdependence . 

Intersectoral Interdependence leads to Intersectoral Flow.

1) Consumer generate income with the help of Factor Services,this Income can be used by Consumer to purchase Goods and Services from Producers.

2) Producers provide Goods and Services to Consumer Sector and generate Income. This Income is Paid to Consumer Sector as Factor Payment such as Rent of Land , Wages for Labour etc.

3) Government depends on Producer and Consumer for its Revenue as Tax and Non Tax. Consumer and Producer depends on government for Security,Law and Orders etc.

4) Rest of the World depends on Producers and Consumer for Export and Import . 

   Thus interdependence of one Sector on another Sector is called Intersectoral Flow.

Real Flow -

Real Flow refers to the Flow of Goods and Services among different Sectors of the Economy.

Money Flow -

Money Flow refers to the Flow of money across Different Sectors of the Economy.

   Circular Flow of Income

It refers to the unending activities of Production, Income Generation and Expenditure again Motivate for Production . These all are unending Activities of of economy . These activities are cause as well as consequence of each other.

  

     Three Phases of Circular Flow -

 

Phase 1 - Production

Phase 2 - Income Generation

Phase 3 - Expenditure

⇒It can be explained by two sector Circular Flow Model.

Assumption:

1.) There is a Close Economy .

2.)All the income are converted into expenditure by Producer.

3.) There is no Interference of Government.

4.) The Households Spend their entire Income so there is no saving .

Consumer provides Factor services to the Producers and Producers provide factor payment to the Consumer.

Producers provides Goods and Services to Consumer and Consumers make payment to producers for the purchase of Goods and Services.

Significance of Circular Flow :

1.) Estimation of National Income - It Facilitates the Estimation of National Income. National Income is the sum total of Factor Income Flowing from the Producers to Households of a country.

2.) Knowledge of Intersectoral Interdependence - A Circular Flow model help to understand Interdependence among different Sectors of the Economy.

3.) Leakages and Injections - It gives the knowledge about Leakages and Injections of the Economy.