Rural

Development
(RD 423)
Economics and Development
 1.1 Concept and Meaning of Economics

1.2 Central Economic Problems

1.2.1 Scarcity and Choice

1.2.2 Allocation of Resources

Unit-1
Basic Concept 1.2.3 Production Possibility Curve

of Economics 1.3 Micro and Macro Economics: Meaning, Application

and Differences
1.4 Basic Concept of GDP and GNP

1.5 Demand and Supply: Meaning and Law

1.6 Determination of Market Price

 • As we know that among various
dimensions of Development, Economic
dimension is one of most important.
• Hence we need to know overall aspect
of economy and for that
Economics can help us to provide
1.1 Concept appropriate information regarding
and meaning economy.
of Economics • Economics is a science which
studies overall economic activities.
• The English word economics is derived
from the ancient Greek word
Oikonomia which means the
management of a family or a
household.
 • Philosopher Xenophon of Greek had
described economics as the science of
household management.
• But after that Aristotle gave new concept
that Economics is not only the science of
household management but also the
science of exchange.
Conti... • With these concept economics is
becoming broad and multi dimensional
in present days.
• In present context economics is
described as social science. which is
very popular as well as practical.
• Various activities we have done in our
daily life is directly or indirectly
 • Economics is the social and practical
science which is concerned with livelihood
of people.
• By changing the human activities with
development process of society and
according to circumstances different
Conti... economists had defined economics in
different way and who represents certain
ages or periods.
• An economist Adam Smith of classical
period (1776-1890) Economics is the
science of wealth of a nation.
• Likewise, with representing Neo-classical
period(1890-1932), an economist Alfred
Marshall had defined Economics as the
 • From 1932 as modern period, an economist
Robbins described Economics is the science of
scarcity and choice. Robbins has represented of
modern period.
• Economics as a social science studies how
people perform economic activities and how
they try to satisfy unlimited wants by the proper
use of limited resources.
Conti...
• Though the definition of Robbins got popularity
in long term but this is also can not free from
criticisms by scholars like Keynes, Benham,
Barbara etc.
• Although different definitions by different
scholars, economics is the social and practical
science which studies economic behavior of
people of society.
 • Economics is a social science concerned
with the production, distribution, and
consumption of goods and services.
• It studies how individuals, businesses,
Conti... governments, and nations make choices
about how to allocate resources .
• Economics is the study of human
behavior that how people get or earn
their livings.
• Economics studies how people engage in
economic activities like production,
consumption and distribution for their
growth and development.
 • Central problems of an
economy are the problems faced by
and common to all kinds
of economic systems (capitalism,
socialism and mixed economy).
• Basically, there are lots of problems in
economy but here mainly 3 central
1.2 Central problems are going to discuss. They
Economic are:
Problems 1. Scarcity and Choice
2. Allocation of Resources
3. Production possibility curve
 Scarcity
• Scarcity is a fundamental economic problem.
• The economic analysis always starts with human
wants
• First fundamental fact is Human wants are
unlimited & they want to use the goods and
1.2.1 Scarcity services to the fullest which will satisfy their needs
and Choice • Second fundamental fact is Economic resources are
limited relative to wants.
• We live in a world of scarcity. People want and
need variety of goods and services.
• This applies equally to the poor and the rich
people.
• It implies that human wants are unlimited but the
means to fulfil them are limited.
• And this limited and crucial condition is known as
 • scarcity refers to unavailability in the
market of a certain commodity.
• Scarcity refers to the limited availability of a
resource in comparison to the limitless wants.
• In market, if there is more demand than
supply this condition is known as Scarcity.
• Because of scarcity of means it will
create economic problems in market.
• If Scarcity did not exist there would be
Conti... no economic system and no economics.
• Our resources are limited by the 4 factors of
production :Land, Labour, Capital &
Enterprise
• According to Lionel Robbins, “Economics is
the science which studies human behavior as a
relationship between ends and scarce means
which have alternative uses.” •
 Human needs are never ending....

Needs

Conti...

Satisfaction Try
 Choice
• Scarcity invites choice
• scarcity of resources gives rise to the
fundamental economic problem of
choice.
• Unlimited wants and limited means this
Conti... condition creates choice.
• Because of Scarcity to choose the best
or to give priority for needy things.
• The choice is the process of selecting a
few goods or wants from the bundles
of goods or wants.
 • The allocation of resources means use of the
resources dividing them for the production of
the combination of goods that gives the
maximum social benefit or utility to the
nation.

1.2.2 Allocation • The allocation of the resources is necessary

because of insufficiency of limited resources
of Resources for the fulfillment of unlimited human wants.
• Allocation is usually made to the basis of
market demand or people’s preference on the
goods.
• The resources have alternative uses. One use
can be chosen and all others have to be
satisfied.
• Allocation is related to the choice of how
much of resource to be allocated in what
 • Resource allocation occupies central
position in economics
• Resource allocation arises as an issue
because the resources of a society are in
limited supply, whereas human wants are
Conti... usually unlimited, and because any given
resource can have many alternative uses.
• The following points highlight the
five major problems of resource
allocation in an economy.
• The problems are: What and how to
Produce, How to Produce, To
Determine Income Distribution,
To Utilize Resources Fully and To
 • A production possibility curve refers to the
graphical representation of possible
combination of two goods that can be produced
with given resources and technology.
• It shows all possible combinations of two goods
that a society can produce within a specified
time period whose resources are fully and
1.2.3 Production efficiently employed.
Possibility Curve • It shows the various alternative production
possibilities of two goods that can be produced
(PPC) with given resources and techniques of
production.
• It measures the maximum output of two goods
using a fixed amount of input.
• Here output means production and input
means combination of factors of
production(land, labor, capital,
organization)
• which shows the problem of choice between
 It is based upon two commodities or
two goods model
 There is no change in technology and
production technique
 All the resources are fully and
efficiently utilized
Assumption or The amount of resources an economy is
Features of PPC fixed but these resources can be
transferred from one use to another.
PPC is downward sloped concave
curve.
PPC shifts upward if the new
resources are explored or technology is
advanced
 Table of PPC

Production possibilities Camera (in 000) Laptop (in 000)

A 0 15

B 1 14

C 2 12

D 3 9

E 4 5

F 5 0
Curve of
PPC
 Micro Economics
Meaning:
üMicro is a Greek word meaning ‘small’. Thus, micro
economics means economics of small.
1.3 Micro and üMicro economics is a branch of economics that
studies the behavior of individuals and businesses
Macro and how decisions are made based on the allocation
Economics: of limited resources.
Meaning, üIt focuses on the actions of individual agents within
the economy, like households, workers, and
Application and businesses;
Differences üIt is the study of individuals, households and firms'
behavior in decision making and allocation of
resources. It generally applies to markets of goods
and services and deals with individual and
economic issues.
üIt is that part of economic theory which deals with
the behaviour of individual units of an economy
such as a household, a firm, etc
 Macro Economics
Meaning:
Macro is a Greek word meaning ‘big’. Thus,
macro economics means economics of big.
The macro economic perspective looks at
the economy as a whole, focusing on goals
like growth in the standard of
Conti... living, unemployment, and inflation.
Macroeconomics has two types of policies
for pursuing these goals: monetary policy
and fiscal policy.
It is a branch of economics that studies how
an overall economy—the market systems
that operate on a large scale—behaves
It looks at the overall, big-picture scenario
of the economy.
Conti...
Features:

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 • Helpful to optimal production decision
• To understand the operation of free
economy
• To formulate public policies
• To understand the problem of taxation
Application of • For prediction of economic activities
Micro • Pricing policy
Economics • To provide tools for economic policies
• Efficient allocation of resources
• Welfare economics
• Practical importance
 • Helpful to optimal production decision
• To reduce unemployment
• To study the economy in totality
• To formulate the economic policies of
government
Application of • To develop and expand the micro
Macro economics
Economics • To know the situation of the economy
• To formulate monetary policy.
 On the basis On the basis
Difference of definition of objective
between
micro and On the basis On the basis
of base of concern
macro
economics
On the basis On the basis
of Assumption of Limitation
 GDP
• Gross domestic product (GDP) is the monetary
value of all finished goods and services made
within a country during a specific period.
• GDP provides an economic snapshot of a country,
used to estimate the size of an economy and
growth rate.
• GDP can be calculated in three ways, using
1.4 Basic expenditures, production, or incomes. It can be
adjusted for inflation and population to provide
concept of deeper insights.
GDP and GNP • Though it has limitations, GDP is a key tool to
guide policy-makers, investors, and businesses in
strategic decision-making.
• The calculation of a country’s GDP encompasses
all private and public consumption, government
outlays, investments, additions to private
inventories, paid-in construction costs.
• Gross Domestic Product or the GDP is the value
of finished goods and services of the nation at the
 GNP
 GNP is known as gross national product and represents
the total value of goods and services produced by the
residents of a country during a financial year.
 Gross national product which is to say GNP is the total
1.4 Basic value of all the finished goods and the services
concept of produced by the citizens of the country.
 It takes the income earned by the citizens of the
GDP and GNP country present within or outside the country into
consideration. It excludes the income generated by the
foreign nationals who are residing in the country.
 GDP GNP

Definition

The value of goods and services produced within the geographical boundaries of a nation in a The value of goods and services produced by the citizens of a nation irrespective of the
financial year is termed as GDP. geographical limits in a financial year is known as GNP.

What Does It Measure?

It measures only the domestic production. It measures only the national production.

Emphasis

It emphasises on the production that is obtained domestically. It emphasises on the production that is achieved by the citizens living in different nations.

Highlights

It highlights the strength of the country’s economy. It highlights the contribution of the residents to the development of the economy

Scale of Operations

Local scale International scale

Excludes

The goods and services that are being produced outside the economy are excluded. The goods and services that are produced by the foreigners living in the country are excluded.
 Meaning of Demand
 Simply the desire or wants something is known
as Demand.​
 But in economics, it is not only limit in desire
or want. But in that want or desire, He or she
should be ability to pay, willingness to pay and
effective desire. Then it is called demand.​
 Demand is the quantity of consumers who are
1.5 Demand willing and able to buy products at various
and Supply: prices during a given period of time. Demand
for any commodity implies the consumers'
Meaning and desire to acquire the good, the willingness and
ability to pay for it.
Law  These following five key factors should have
to be effective demand:​
• Effective desire​
• Ability to pay​
• Willingness to pay​
• Time​
• Price
 Law of Demand
• The law of demand is one of the most
fundamental concepts in economics.
• In the market, there is relationship
between the price of commodity and
the demand of consumers.​
• The price determines the demand
of consumers.​
Conti…
• Definitely price and demand
have relationship but there
have opposite relationship.​
• The inverse or opposite relationship
between price and demand is called law
of demand.​
Conti…
 Assumptions of Law of Demand:
• It should not be changed in income of
consumers​
• It should not be changed in interest and
taste of consumers​
• It should not increase and decrease of
number of consumers​
Conti… • The price of complementary goods
should not be changed​
• The price of substitute goods should
not be changed​
• It should not be changed in technology
Conti…
S . No. Price of Wheat (in kg) Demand of Wheat(in kg)

1 15 2

2 14 3

3 13 4

4 12 5

5 11 6

6 10 7

7 9 8
Conti…
 Inferior goods
Valuable goods
Goods of basic needs
Exception or Ignorance of consumers
Limitations of Fear of rise of the price in future
Law of Fear of shortage
Demand Prestigious goods
Income effect
Change in fashion
 1. Price demand
Types of 2. Income demand
Demand 3. Cross demand
  Price demand is that demand where
consumers demand goods on the basis
of the price in the market.
 Price demand refers to the quantity of a
particular product or service demanded
at a given price.
 Price demand relates to the amount a
1. Price consumer is willing to spend on a
demand product at a given price.
 Price elasticity of demand measures the
relationship between the proportionate
change in demand and the
proportionate change in price.​
  Income demand refers to the quantity of a
particular product or service demanded at
a given level of income of a consumer or
households.
 Income demand which indicates the
relationship between income and the
quantity of commodity demanded. It
relates to the various quantities of a
2. Income commodity or service that will be bought
demand by the consumer at various levels of
income in a given period of timeIn other
words, it measures by how much the
quantity demanded changes with respect
to the change in income.
 Income demand can be varied in terms of
two good ;
a. Superior goods
  Cross demand refers to the quantity
demanded for a particular product or
service, given the price of a related good.
The related good may be complementary or
a substitute.
 The cross demand is an economic concept
that measures the responsiveness in the
quantity demanded of one good when the
3. Cross price for another good changes.
 It is the ratio of proportionate change in the
demand quantity demanded of Y to a
given proportionate change in the price of
the related commodity X.
• The cross elasticity of demand for substitute
goods is always positive because the
demand for one good increases when the
price for the substitute good increases.
• Alternatively, the cross elasticity of demand
 1. Positive:​
When goods are substitute of each
other then cross elasticity of demand is
positive. In other words, when an
increase in the price of Y leads to an
increase in the demand of X. For
instance, with the increase in price of
tea, demand of coffee will increase.​
Conti… 2. Negative:​
In case of complementary goods, cross
elasticity of demand is negative.
A proportionate increase in price of one
commodity leads to a proportionate fall
in the demand of another commodity
because both are demanded jointly. For
instance, ​Bike and petrol.
 Meaning of Supply
 In simple words, Supply indicates the
selling of goods
 Supply is a that concept which is
related with seller or suppliers.
 The amount of a commodity that the
Supply and firms are able and willing to offer sales
Law of Supply is called quantity supply.
 Supply is an economic term that refers
to the amount of a given product or
service that suppliers are willing to
offer to consumers at a given price
level at a given period.
 The factors of supply for a given product
or service is related to:
• the price of the product or service
• the price of related goods or services
• the prices of production factors
• the price of inputs
Conti… • the number of production units
• production technology
• expectations of producers
• government policies
• random, natural or other factors
 • The supply of goods and the price have
strong interrelationship.
• When the price of a product is low, the
supply is low. When the price of a
product is high, the supply is high. This
types of relation is called law of supply.
• This makes sense because companies
are seeking profits in the market place.
Law of Supply They are more likely to produce
products with a higher price.
• Law of supply states that other factors
remaining constant, price and quantity
supplied of a good are directly related
to each other. In other words, when
the price paid by buyers for a good
rises, then suppliers increase the
 • No change in the state of technology.
• No change in the price of factors of
production.
• No change in the number of firms in
the market.
• No change in the goals of the firm.
Assumptions • No change in the seller’s expectations
Law of Supply regarding future prices.
• No change in the tax and subsidy
policy of Government.
• No change in the price of other goods.
• No change in season.
The given schedule shows positive relationship between price and quantity supplied of
a commodity. In the beginning, when the price is Rs.10 per kg, quantity supplied by the
seller is 1kg. As the price increases from Rs.10 per kg to Rs.20 per kg and then to Rs.30
per kg, the quantity supplied by the seller also increases from 1 kg to 2 kg and then to
3 kg respectively.
Further rise in price to Rs.40 and then to Rs.50 per kg results in increase in quantity
supplied by the seller to 4kg and then to 5kg. Thus, the above schedule shows that
there is positive relationship in between price and quantity supplied of a commodity.
In the given figure, price and quantity supplied are measured along the Y-axis and the X-
axis respectively. By plotting various combinations of price and quantity supplied we
derived points A, B, C, D, E curve and joining these points we find an upward sloping
i.e. SS1. The positive slope of the supply curve SS1 establishes the law of supply and shows
the positive relationship in between price and quantity supplied.
 Auction Sale
Perishable goods
Exception or Stock clearance sale
Limitations of Fear of being out of fashion
Law of Supply Ignorance
Agricultural products
  Pricing is one of the most important factors in
the field of Trade.
 Price is dependent on the interaction between
demand and supply components of a market.
 Demand and supply represent the willingness
of consumers and producers to engage in
buying and selling.
Determination  An exchange of a product takes place when
buyers and sellers can agree upon a price.
of Market  In order to determine price in a market,
Price demand and supply play a vital role.
 Consumers have a desire to acquire a product,
and producers manufacture a supply to meet
this demand.
 The equilibrium market price of a good is the
price at which quantity supplied equals
quantity demanded.
  The objective of any producers or seller is to
earn maximum profit and supplying
maximum commodities.
 Similarly the objective of buyer or consumer
is to buy and get maximum commodities in
low cost.
 Thus at the same points at of time, both buyer
Conti… and seller have to keep balance.
 Every firm and industries determine the price
and production quantity shown by the point of
balance.
 An industry reaches the state of balance when
the aggregate demand equals with aggregate
supply.
 The main determinants that affect the price are:
• Product Cost
• The Utility and Demand
• Extent of Competition in the market
Conti… • Government and Legal Regulations
• Pricing Objectives
• Marketing Methods used
Market price determination can be briefly explained in a table given
below.
Price of Orange Demand quantity Supply quantity

100 40 20

200 35 25

300 30 30

400 25 35

500 20 40

Fro the above table clearly show s the determining factor of price in market. Here, we can see
that when price of orange is Rs. 100, its demand is 40 and supply is 20. similarly, with every
increase in price, demand falls and supply rises. With the falls and rises, in one point the
consumer and supplier come for agree and that point is called equilibrium point.
In given table in Rs. 300 both demand and supply came to equal with 30.so in 30 kg market
price is determined with Rs.300.