Elements of economic environment

Economics environment refers all economics surroundings that influence organization activities.It consists of economic parameters.It is concerned with the nature and direction of economy in which the organizations
operate.
Important elements of economic development are :

1. Economic systems :Economic system determines the scope of private sec tore ownership of the factors of production and market forces.The model of economic system are:

• A) -Free market economic :This system is based on private ownership of the factors of production. Profit serves as the driver of economic engine.The competitive market mechanism guides business decisions.There is freedom of choice.Individual initiative is encouraged.

• B) -Centrally planned economy :This system is based on police ownership of the factors of production.The economy is centrally planned.Controlled and regulated by the government.There is no consumer sovereignty.Police enterprises play a dominant role.

C) -Mixed economy :This system is a mix of free market and centrally planned economics.Both public and private sectors coexist.The public sector ha ownership and control of basic industries including utilities.The sector owns agriculture and other industries but is regulated by the state.

2. Economic policies :Policies are guidelines for decision making and action.Economic policies of the government significantly influence and guide organizations.

Key economic policies influencing organization are :
A) Monetary policy-It is concerned with money supply,inflation rates,interest rates and credit availability.It influences the level of spending through interest rates.Cheap money reduces cost,dear money increase cost.Interest rates cost of capital.Foreign exchange rates affect imports and exports.

B)Fiscal policy :It is concerned with the use of taxation and government expenditure to regulate economic activity.Tax on income,expenditure and capital influence business decisions.

C)Industrial policy :It is concerned with industrial licencing location,incentives,facilities,foreign investment,technology transfer and nationalization.

3.Economic conditions :They indicate the health of the economy in which the organization operate.The factors affecting economic conditions are :

• State of economic development :An economy can be least developed developing and developed.Organizational activities are influence by the stage of economic development.
• Income :The level of employment affect expenditure,saving and investment.They together influence the economic conditions of organization.
• Employment:The level of employment affects organization.It determines availability and of labour.
• Business cycle :The stages of business cycle can prosperity,rescission and recovery .They affects the health organization.
• Influence :It is rise in price level.influences costs,price and profit of organization.

4. Regional economic groups :They promote cooperation and free trade among members by removing tariff and other restrictions.They provide opportunities to member countries and threats to non-member counties.Example are:

• SA ARC :South Asian Association for Regional Cooperation.
• ASIAN :Association of South East Asian Nations.
• EU :European Union.
  

Role of human resource in development

Human resource is an important factors of economic development.As opined by Adam Smith the prosperity of a country is determined by the skill,efficiency and attitude of the labour used by that country.Many countries have been able to develop themselves due to the will,capacity and skill of their human resources.As for example,the countries like Japan,Singapore,Germany,and Hon Kong have been able to achieve economic miracle by mobilising their human resource.

1. Utilisation of natural resources :The natural resources like mineral,water,oil and forest are utilized by the human resource.The utilisation of natural resources increase the national income.The per capital income and living standards of the people increase.The dearth of proper human resource is one of the causes of non-utilisation of natural resources in world.
2. Compensate the deficiency of natural resources :The utilisation of human resource compensates the deficiency of natural resources.Many countries poor in natural resources have been able to achieve high economic and human development on the basis of the human resources.
3. Utilisation of physical capital :The more existence of physical capital is on guaranteed of development.They should be property utilised.They are utilised by human resource.Human resources is essential to operate machinery and equipment and to run factories and industry.
4. Increase production :The skilled,educated and healthy human resources increase the productivity and production.The production may be done even by the use of unskilled and semiskilled manpower .But the production of goods quality and variety of goods need skilled manpower.
5. Reform in tradition cultural and attitude :The traditional culture,values,intestines and attitude have been inimical to the development of developing countries including world.The educated manpower reforms the traditional cultural and attitude .
6. Increase in managerial capacity and entrepreneurship :Human resources increase the managerial capacity and entrepreneurship.It leads to innovation.The new production technique,new market and new technology are developed.This increase the production and national income.
7. Development of agriculture and industry :The modern and superior technologies should be use for the modernisation of agriculture and rapid industrialisation's.This is made possible only by human resource.Theodore Schultz observes "It is simply not possible to have the fruits of a modern agriculture and the abundance of modern industry without making large investment in human being.
8. Remove economic background :Human resource helps directly to remove the economic backwardness.It increase labour efficiently and specialisation.It increase labour mobility from which the executing resources can be made more productivity.The development of human resources increase the knowledge of natural resources.New production technique,market and opportunities of economic activities.The human resource also help in the proper utilisation of imported capital.These all lead to the increase in production,employment opportunities and levels of living of people.
   

Concept of human resources

In ordinary sense,human resources means simply the pollution of a country.But only the healthy,educated and skilled manpower is known as human capital or human resource.In the words of F.H. Harbinson "Human capital or human resources refers to the process of acquiring and increasing the number of persons who have skills,education and experience which are critical for the economic and the political development of a country."
According to National Planing Commission -"Human resource is the knowledge,skills,efficiency and physical and mental capacity to do work inherent in the people of the country."Human resource is a means of human development and also an aspect of human development.
Human resource has an important role to play in economic development.Mere pollution is not enough for rapid economic development.The pollution should be skilled educated and healthy.The availability of skilled manpower increase the productivity.Besides it also contributes in equality and justice.As stated in the economic survey of Fiscal year 2000 -"Healthy,skilled and educated population is the precondition of economic development."

Problems of natural resources management and remedial measures

The major problems of natural resources management and remedial measure are as follows :

1. Absence of property rights :The absence of well-defined property right to a resources almost inevitably result in its degradation.The lack of property rights result in overgrazing,soil degradation,and over fishing.There should be property rights in the consumption of natural resources.The property rights create incentives for the people to use the resources in a sustainable way.Large-scale land redistribution provides each household a sufficiently large entitlement to the resources to ensure a viable future.
2. Lack of legal provision :Lack of adequate legal provisions cause too much pollution.In urban areas, the general public is compelled to consume polluted air due to vehicle owners.It is having negative effects on health.Hence,personal vehicle may be discouraged by economic and legal policies or the general people may be compensated.
3. Absence of resources management plan :Due to the importance given to intensive agriculture and mono-cropping system in past,the fertility of land is decreasing.It is also affecting bio-diversity.Hence,there should be proper land use plan or there should be proper resources management plan.
4. Use of traditional skill and technology :The use of the traditional skill,knowledge and technology leads to the too much use of natural resources.Hence,the traditional skill,knowledge and technology should be modified.The growing use of science and technology has changed the consumption pattern.The society is becoming consumption oriented.Hence,the emphasis should be placed on the technology using less resources and routinising and recycling technology.
5. Widespread property :The basic challenge of resource preservation is the widespread property and unfulfilled needs of the people.This leads to the overuse of resources.Hence,the programs should be people-based.There should be increasing people's participation in resources management.
6. Lack on consistency between the economics,social and natural human resources :The economic,social and natural and human resources are interrelated.Hence,efforts should be made to bring consistency between them.The technique minimising adverse effects on environment should be adopted in formulation and environment should be taken as inseparable and interdependent components.
7. lack of typing environmental plan and management :There is interrelationship between environment and human being.Hence,different activities and developmental efforts should be carried forward by maintaining environmental balance.For this,environment plan and management should be tied together in the very initial phase of development plan.
8. Rapid pollution growth :Rapid pollution growth directly contributes to environmental degradation.Pollution growth may break down social norms that support efficient resources manage mental degradation.Hence,attempt has to made to control pollution growth.
9. Lack of access to credit markets leads to environmental degradation.The organised credit markets for rural household should be established.This may change the behavior of households that contribute to environmental degradation.The access to credit markets will induce them to change their behavior.Credit markets will allow them to smooth their consumption over time.
   

Consequences of environment mismanagement

The environment mismanagement has serious effects on human and productivity.The evil effects of environment negligence are as follows :

1. Deforestation :There is following deforestation in LDCs.The deforestation creates.Landslide ,floods and increase disease and mortality rate.Similarly,it increase soil-erosion,reduces watershed reserve,changes climate and destroy natural habit.Due to deforestation many species of birds and animals have been extinct.Deforestation can upset the ecological function ,which forest perform.
2. Soil degradation :The environmental negligence leads to soil degradation and reduction of productivity.It reduces the quality of agriculture land.The sol degradation reduces the yields of crops.Due to this the total production of main crops are decreasing these days.
3. Water pollution and water scarcity :Water pollution harms human health and lowers production.There is frequent occurrence of underground water leading to water scarcity.This causes water scarcity for drinking,bathing,irrigation and industrial use.
4. Air pollution :The use of energy,smoke for vehicle and industries are causing air pollution.This is creating breathing related diseases such as hypertension,high blood pressure.
5. Loss of bio-diversity :The environmental degradation reduces bio-diversity.It reduces the adaptability of Eco-system and loss of genetic resources.There is ecosystem overload,which means a state in which natural processes cannot recycle all the waste substance dumped into the environment.It results into the build up of wast.Hence,if unchecked,it leads to ultimate distribution of the environment and its capacity to sustain life.
6. Atmospheric change :There is ozone depletion which causes different disease related to air.There is increase in global warming.The forest,agriculture and ecosystem are affected by atmospheres change.
7. Loss of amenities :The environmental degradation reduces the value natural in respect of its amenities.These are the facilities that nature provides in various forms for sports,recreation and for spiritual advancement.
8. Health hazard :The environment degradation adversely affects human health.Air,water,noise pollution along with atmospheric changes cause many fatal diseases and premature deaths.The loss of biodiversity cause a big potential loss of new drugs .
   

Need for natural resources management

Environment quality is often seen a luxury goods something only wealthy can afford.But environment is largely a necessity for people for developing countries.These people are much These are much dependent on natural resources that people in industrial countries.many ecosystem functions and services are indispensable.Ecosystems provide water,animal and plant food,and other renewable resources.They also recycle nutrients,control foods,filter pollutants,assimilate waste,pollinate crops,maintain a genetic library,preserve and regenerate soil,operate the hydrological cycle,and maintain the gaseous composition of the atmosphere.The world's ecosystem represents a large part of natural capital base,which may also be called environment resource base.The services are essential for our survival.Hence ,the environmental resources based should be monitored in much the same way that we monitor the manufactured capital stocks,such as roads,building,and machinery.
Degradation of the environmental resources base is caused by excessive resources extraction,intensive land use,and so on.This degradation not only affects the quantity and quality of the services produced by ecosystem,it also challenges their resilience."An ecosystem resilience is its capacity to absorb disturbance without undergoing fundamental changes".If a system loses its resilience,even a small perturbation can change into a wholly new state.Thus,the economist,assumption that there are limitless substation possibilities among resources is country to ecological truth.
"An ecosystem's carrying capacity is the maximum stress that it can absorb without changing to a vastly different state".Ecosystems are subject to natural shocks like fires,floods,storms,and so on.Thus,ecosystem is not a fixed stock of capital and cannot provide humans with a steady flow of resources.Biological diversity,or biodiversity,plays two central roles in the evaluation of ecosystems.First,it provide the units through which energy an dematerialise flow,giving the system with resilience.The environmental resources that in regenerative,i.e.,renewable,are in danger of exhaustion from excessive use.Such renewable natural resources are earth's atmosphere ;animal,bird,plant,and fish population,Land and even underground water basins etc.These resources degrade due to pollution and wrong and excessive use.Environmental resources such as forests,the atmosphere,and seas have multiple competing uses.This accentuates management problem.

Concept of natural resource management

Natural resource consist of all that is given by natural on,above and under the surface of the earth.These resources exits in natural world.Man uses them their knowledge and labour.According to United Nations Study,"A natural resources is anything found by man in his natural environment that he may in some way utilize for his own benefit."In this broad sense,the resources provide by natural include :

• The rocks and which are contained mineral-ores,the resources such as oil,coil,gas.
• The soils,which nourish the planets,as well as plant and animal life.
• The elements of the landscape,which provides site for building,roads,railways and other structures.
• Surface and underground waters which are indispensable to human,animals and planet life.Water also provides sources of energy through hydro electricity power.
• The air and everything that constituted the atmosphere,which is essential to life.

The environment is the sum total of the natural resources.These are like the capital that man uses for the production of goods,which he consumes.The environmental also supplies amenities of virus types,which given pleasure.The environment is,thus,many things provided by natural.All these are the basis of man's life.Webster's new word dictionary defines environment as "the conditions,circumstances,and influences surrounding and affecting the development of an organism or group of organisms."Here,organism is primarily human being.The group of other organisms is generally a group of human beings.The group of other organism is called ecological systems or ecosystem.These systems profoundly affect human well-being.
However this environment has been much damaged by the activities of man.The widespread environment degradation has created various problem much as air pollution,water pollution,water scarcity,atmospheres changes,hazordon wastes,soil degradation,defecation and loss of biodiversity.This shows the need of natural resources management,which implies both use,and preservation of the natural resources.
Since,1980 the growing concern for environment has given birth to the concept of sustainable development.The term 'sustainable development' was brought into common use by the world commission on environment and development in its 1987 report in titled 'our common future'.This report defines sustainable development as 'meeting the needs of the present generation without compromising the needs of the future generations.'The concept of sustainable resources management embraces the principle of the carrying capacity of Eco-system .The nature can recreate the resources consumed by human being according to natural life cycle.Similarly,the nature can aboard the wast remained after human consumption.

Indicators of economics development

There is difference of opinion among the economics regarding the indicators of economics development.Normal Hicks and Paul streeten opine -"There is no consciences on only single measure
of development ".The economics development is the result of long-term changes.Due to these changes,it is difficult to prepare the definite criteria of development.The criteria of development changes with the passage of time.The main indicators or criteria of development can be explained as follows :

1. According to the economics like Meier,Paul Baran ,Becanan and Elis the increase in per capital income is the indicator or criterion of economics development.So if the increase in real income is higher then the increase in population growth rate,there is economics development. The regiment given in flavored of this criterion that the main objective of economics development is to raise the standard of living of people.This is possible only by an increase in per capital income of people.Hence,increase in per capital income is the indicators of economic development.
2. Increase in gross national product criteria :The economics development is defined as the increase in production of an economy over a time period.The best measure of production is the real GNP in constant price.The economists such as Simon Kuznets,Meier and Baldwin,Mead so on support this view.According to Meade -"The total income is the best medium of welfare than per,capital income."
3. Physical quality of index criteria :The belief that economic growth does not trickle down to the poor has given birth to the non-income indicator of development.One of them is PQLI,which was presented by Morris D.Morris.The PQLI is the composite of three indexes are ranked from 1 to 100.The zero indicates inferior and 100 indicates superior preference.The averages of three indices gives composite.
4. Basic needs criterion :The basic need criteria development by word bank is a complement to the per capital income criterion.The shorthand description of basic needs was income-public service+participation.According to this criteria,the development is evaluated on the basic of the fulfillment of the basic needs of population and the poor.The significance of this criterion is obvious from the statement made by Mahabub UI Haq -"The growth of GNP is absolutely necessary but that in must be directed intelligantealy toward solving the problems of mass poverty.
5. Human development index criteria (HDI):The HDI is the most recent indicator of development.This criteria was designed by united national development programme (UNDP) as a new way of measuring human progress in 1990.This indicator is related to three aspects of human life-income for decent living,education attainment and life expectancy.Like PQLI,the HDI also ranks each country from 0 scale to 1on the basic of these three objectives of development from 0.0to 0.50,medium human development from 0.51 to 0.79 and high human development from 0.80 to 1.0.
   

Difficulties in measring national income

There are certain difficult in the measurement of national income.Simon kuznet had pointed out four difficulties in the measurement of national income,of which three problems have been resolved.Only the fourth problem has not been satisfactorily resolved.The difficulties pointed by Simon Kuznet on the measurement of national income are explained below :

1. Problem of double counting :The problem of double counting may arise in the measurement of national income.Because,the same commodity may be an intermediate good as well as a final good. If the tobacco is used in making cigarette,it is an intermediate good.The double counting of same good does not provide the accurate picture of national income.Hence,the economics have suggested that only final goods should be included in national income.
2. Transfer payments :The unemployment allowance,pension,interest on public debt provided by government is called transfer payment.Likewise ,the transfer of money between different persons and the taxes paid by people to the government may also be called the transfer payments.The transfer payment must not be included in national income.
3. Income generated by foreign firms :Whether the income generated by foreign firm should be included in the national income of the country in which they are located or in their own country is another problem.The suggestion of IMF,in this regard,is that the income generated by foreign firms should be included in the national income of the country where the production takes place.
4. Public services :Another problem is whether the public services like general administration,public,army services should be included in national income or not.Some countries included them in national income as the final service.Since,these services are not production sector,some countries do not included them in national income.
5. Calculation of depreciation :The depreciation fund should be deducted to find the NNP.Since the depreciation charge differs from commodity to commodity.It is difficult to calculate the total amount.It is also difficult to calculate the present depreciation rate of the capital goods having long life.
6. Inventory revaluation :If the price increase over the year,the profit in inventory increase,but the replacement cost of such inventories also increase.Such benefit are included in business profit.But such increase should be dedicated while calculating national income.Whether the inventory change in negative or positive that is included in GNP.Hence,inventory valuation is necessary to calculated the GNP accurately.
7. Capital gains or looses :When the market price of capital assets changes,the owners make capital gain or loss.Such gains or losses are not included in GNP.Because such changes do not occur from presented economics activities.
8. Change in the value of money :The value of money changes from time to time in accordance with the changes in general price level price level.If the relative value of the purchasing power of money of two years is not known,it is impossible to compose the national income of different years.For example,if the prices are rising ,the national income seems to be increasing even if the production is decreasing.Since index number shown the purchasing power of money in difficult years,the helps of index number taken.

Expenditure method

In this method,national income is measured from the expenditure side.The idea implicit in this method is that the gross domestic expenditure is also the gross domestic product.Since all goods and service product in a country are purchased by the consumers,the money value of GNP equals
national expenditure.
In this method,national is calculated by adding all the expenditure made by individuals,business and the government on goods and services during the year.Because,the goods and services are produced by the consumer and the government.The stock not purchase by the consumer and the government is assumed to be purchase by the producer themselves.Similarly, the saved amount is also invested to get addition income.Hence,if the consumption expenditure and the investment expenditure are added,the national expenditure and national income become equal.
It is now obvious that if all the expenditure made by individuals and t he government on consumption and investment are added,gross domestic expenditure (=GDI) is derived.Total expenditure included the following items:

• Private consumption expenditure(C)
• Gross domestic privet investment(I)
• Government expenditure on goods and service(G)

The addition or subtraction of net foregone export foreign investment (X-M) to gross domestic expenditure gives gross national income (GNI).The subtraction of depreciation fund from GNI gives net national income (NNI).It can be expressed as,
Gross domestic expenditure +net income from abroad =gross national income -depreciation fund =net national income.
According to this method GNP consists of t he following elements:

1. Privet consumption expenditure :The expenditure made by individuals on durable goods like car,washing machine,computer,television set and non-durable goods like cloths,shoes,food,beverage produced in a country during a year are included under this heading.Besides,the expenditures made on services like communication,transport,education are also included .
2. Gross domestic privet investment :The expenditure made by individuals on capital goods like building,machine,equipment are included in this heading.It also included the investment made in new and replacement of old capital.But the expenditure made on the goods and service produced in past and the financials investment made in credit intrustment are not included.
3. Government expenditure on consumption investment :The government (state,local and central ) spends on the goods like paper,pen,cloths and the services like employees,police and army.The capital expenditure made on national security and different are also regarded as the consumption expenditure.The government investment on capital goods like machine,equipment for government enterprises.
4. Net foreign investment :The different between export and import is the net foregin investment.Since the imported goods are not produced in a country,they should not be included in national income.The goods exported are produced in a country.Hence,the value of imports should be deducted from the value of exports.If the result,it should be added to other expenditures and if negative,it should be dedicated from other expenditure.

Now the question crops up which is the best national income measure? As opined by R.g. Lipsey and C.Harbury,"To ask which is the best national income measure is something like asking which is the best carpenter's tool."The answer depends on the job to be done.

Incocme method

In this method,national income measured form the distribution side.The goods and services are produced by the joint efforts of various factors.Hence,national income is calculated by adding the income of all individuals or factors in a country.The adding of salary,wages,allowance of individuals
and households,income earned from self-employment,personal income like rent,interest profit,undistributed corporate profit,corporate tax,depreciation fund gives gross domestic income (GDI or GDP).The addition of net income from abroad (export-imports ) to GDI gives gross nationals income (GNP).The subtract of depreciation fund from GNI gives net national income (NNI). It can be expressed as;
Net national income =gross domestic income+net income from abroad -depreciation fund
These things are no included in income ;

1. The income earned from the sale of car,house ,property produced in the past
   
2. The income earned from the sale of stocks,bonds
3. The income received by individuals as transfer payment from government
   
4. The inter-person transfer payments received from other individuals.

These income are not received from the production of final goods and services of an economics can be accurately measured.
It is obvious that according to this method,GNP aggregated is the following elements :

• Wages and salaries :The wages,salary,allowance received by labourers and employment from production works and t he social security contribution made by employer are included under the heading wages and salaries.
• Rent :The income received as rent from agricultural and non-agricultural property such as land,building,factory are included in this heading.Similarly,the estimated rent of such properties used by owner himself is also included in it.
• Interest :The income earned as interest by national is included in this heading.The estimated interest of the capital used by the owner himself is also included in it.But the interest earned from government debt is not included.Because,the interest earned from government dept is only a transfer of national income.
• Corporates profit :This heading includes the dividend received by the shareholders,profit tax and undistributed profit.
• Income of self-employed person :This heading includes the income of derived by self-employed.
• Indirect taxes :The income generated fro indirect taxes like excise,sales tax is also included is also included in national income.
• Depreciation or capital consumption allowance :The depreciation made by each firm for the repair and maintenance of machines,equipments is also included in national income.
• It income from abroad :The net national income from abroad is the different between the value of the goods and service exported and imported.If this different is positive,it is added in GNP,if negative it is subtracted from GNP,or only net income is added.

Then main advantage of income method is that it shows the distribution of national income among different classes of people like landlord,labour,capitalists,employees etc.Hence,this method is called national income by distributive share.The efforts should be made to avoid double while using this method.

Product method

In this method,national income is measured from product side.This method is also called inventory
method and commodity-service method.This method helps to find out the origin of national income
form different sec tore of the economy.Hence,this method is also known as national income by unsocial or sectoral origin.
To measure the national income from this method,the economy is divided into different sector like agriculture,industry,transport,communication,mineral so on.Then,GDP is calculated by adding the money value of final goods and services product in this sectors.The addition of net income from abroad to GDP gives GNP.The net income from abroad is derived by subs tracing from the income received by national in foreign countries as income for services rendered or from capital investment the income received by foreigners as salaries or capital investment in the country concerned.The deduction of depreciation fund or capital consumption allowance gives net income product(NNP).
According to word bank GDP consists of following four elements:

1. Agriculture :Agriculture includes the value added of the forestry,hunting,fishing including pure agriculture.In developing countries,subsistence agriculture is predominant.Most of the agricultural products are either not exchange the contribution of agriculture to GDP.
2. Industry :This sector consist of the value added of mineral,manufacturing industry,construction,electricity,water and gas.
3. Manufacturing :Manufacturing falls within the industry.Since manufacturing is the most dynamic part of the industry sector,it is shown separately.
4. Service :Value added in all other branches of economic activity including bank service charges,import duties are categorised as service,Here value added is defined as the current cost of(a) materials,fuels,and other supplies consumed; (b) contract and commission work done by other ;(c)repairer and maintenance work done by others;and(d)goods shaped in the same condition as received. There is possibility of double counting while measuring national income by this method.This problem may arise in case of intermediate goods used as row materials.For example,sugarcane,cotton and tobacco of agriculture sector may also be counted as sugar,cloth and cigarettes of industrial product.
   

Different concept of national income.

The main concept of national income can be explained as follows :

1. Gross Domestic products (GDP) :According to word bank (WDR-1995)-"GDP measure the total output of goods and services for final use produced by resident and non-residents.regardless of the allocation of natural resources.The sum of goods and services produced within the boundary of a country during a year is called GDP.Therefor,it consist of the value added from agriculture,forestry,hunting and fishing (A),value added from industry which consist of mineral,construction ,electricity,water,gas and manufacturing industry (I) and value added from services.
2. Gross national production (GNP)-GNP is the most widely used concept,It is broader than GDP.The sum of final goods and service produced during a year is called GNP.The money value of goods and service produced is called gross national income. According to word bank (WDR-1995) -"GNP measure the total domestic and foreign value added cloned by resident.It comprise GDP plus net income form aboard which is the income residents receive from aboard from factor service (labour and capital) less similar payments made to non-resident who contributed to the domestic economy".
   
3. Net national product (NNP) :The net production of goods and services is called net national product (NNP).The capital goods like plant,equipments wear out and their value fall while used in production.This wear-out or fall in value is known as depreciation or capital consumption allowance are experience are subtract from GNP to obtain net national product.
4. National income (NI) :The national income is called national income at factor cost.Hence,national income is called is calculated the basic of the remuneration of factors production.Hence,the sum of the income received by factors of production in the form of rent,interest,wages and profit is called national income.
   
5. Personal income :Growing from NI to personal income (PI) we must subs tract factor incomes that do not get passed on to persons and added items that enter PI but are no in NI.Corporate income taxes are not received by person. Undistributed profits or retained earning kept for future contingencies also do not go to persons.Similarly,social security contribution by both employer and employer such as provident fund.pension fund are also not available to person.Therefor,these items should be subs tract from NI. On the other hand,government transfer payment,such as unemployment allowance,disable allowance,old-agree allowance,window allowance are not payment for current output,but are available to persons without any work.similarly,business transfer payment are also available to person.Therefor,these items should be added to NI.Hence,the personal income is the income actually received by individuals and household during a year.
6. Disposable income :The income left after paying direct taxes from personal income is called disposable income (DI) or (DP) is personal income taxes.Because all the income earned by individuals and household are not available for consumption expenditure.The disposable income is expressed as follows:

=personal income -personal tax payments.
for example,as shown.
DI=Rs.3485 million-Rs.2971.
DI is divided into personal saving (S) and consumer expenditure (C).Generally,people save the amount left after consumption.Hence,the disposable income is also expressed as:
DI=C+I

Meaning and defination of national income.

The national income is an important in economics.The flow of goods and service available to a country during a year is called national product.The money value of the goods and services produced in a country during a year is called national income.A country is high national income is said to be a prosperous country.
There are three popular definition of national income,which have been described below.
According to Alfred Marshall -:The labour and capital a country acting upon natural resources produce annually,a certain net aggregate of commodities material immaterial including service of all kinds.This is the net annual income or revenue of country or the national dividend".
In the world of A.C. Pigou -"The national dividend is that part of the objective income of the community including of course,income dividend from aboard,which can be measured in money.
According to Irving fisher -"The true national income is that part of annual net produce which is directly consumed during that year".
The definition Marshal and Piguo are based on production.On the other hand,the definition of Fisher is based on consumption.It is practically difficult to measure national income on the basic of the definition based on consumption.Hence,the product-based definition of Marshal and Piguo are regarded more acceptable.

Concept of production possibility curve

Human wants unlimited,where the means to satisfy those wants are limited.This creates the fundamental economics problem of choosing and allocating scarce resources among competing uses.The production possibility curve of frontier is a tool used to illustrate and explain the problem of scarcity and choice.This problem of choice was illuminated by Paul.A. Samuelson for the first time in terms of production possibility curve (PPC).
In the words of David Begg and other -"The production possibility curve (PPC) shows the maximum combination of output that the economy can produce using all available resources.
Similarly,according to Richard G.Lipsey and Colin Harbury,"The production possibility curve is a graphic expression of all the combination of goods and service that ca be produced when all resources are fully and efficiently employed.
Assumption
The production possibility curve is based on following assumption :

1. Two goods :Only two goods (food and shoe) are produced in the economy.
2. Full employment :There is full employment of resources.
3. Supply of factor :The supply of factor is fixed,but can be reallocated in the production of two goods within limit.
4. Production technique :The production technique is given and constant in the low of diminishing return operates.
5. Time period :The time period is short.
   

Resources allocation

The allocation of resources to satisfy human wants is often called 'the central economics problem'.The problem of the following three feature of the society.

1. Human wants are unlimited.
2. The resources,land,labour and capital that are available to produce goods and service to satisfy these wants are limited.
3. Most resources have alternative used.For example,land can be used to grow rice,or wheat,or as a site for factory or to build a house or to make a playground.

The first two characterised given rise to the basic economics problem of scarcity.These are not enough resources to satisfy all of human wants.Scarcity together with the third characteristic gives rise to the basic need foe choice. Choice implies how the resources are to be allocated among their competitive uses.For example,how much of labour should go into producing wheat,how much to biscuit,how much to music band and how much to road construction.Hence,as opined by R.G.Lipsey and C.Harbour;"The Central economics problem is often defined as the allocation of scarcity resources among competitive uses foe the satisfaction of consumers' wants."
Tn the most important function of the economics system is resources allocation.According to K.J. Cohen and R.M. Cyert-"An economics resources is ether a goods or services which is valued by by consume rd for its own sake or an element which is used in producing goods or services for consumers." Almost all economics resources are scares.Hence,each society must devise some system for allocated them.
In a free economy,which is called perfectly competitive model,the scare economic resources are allocated in following ways:

1. Determining what will be produced :The first allocated function is to decide what goods and service will be produced.It is because resources are scarce.In perfectly competitive economy,The consumers ultimately decided what will be produced in what quantities.The pricing process helps consumers to indicated their preference for goods and services.The more consumers want some product,the more they will spend on it.The price they will be willing to pay will be high.The price system reflects the consumer preference.It will tell firms which goods and services are more profitable to produce.
2. Determining how it will be produced :The second allocate function.It is to determine how goods and service will be productive.It is because there are several different ways of producing a product.The objective of a firm is to maximise the profits.The profit is the different between total revenue and total cost.Hence,the firms will try to minimise total cost in order to maximise profits.This determine He fact ore of production that each firm will use producing its output.
3. Determines whom to produce :The third function is to decide who will get the goods and services,which are produced.It is because economics resources are scarce.Most consumer earn their income primarily by selling productive resources to businessman.The composition forces the businessman to pay each resources owner about what he contributes to the revenue of the firm.
4. Decided how to provided for the growth of a nation :The fourth function is to decided how much of the resources to devote to future growth and how to satisfy current consumption desired.An economics can grow only by using some of its productive resources to increase its capacity to meet future need.Only by curtailing current consumption,higher standard of living can be provide to future generation.

Interdependence between Micro-economics and macro-economics.

Micro- economics is the study of individuals units.Whereas macro-economics is the study of the economy as a whole.Micro-economics takes a given the total output for the economy as a whole,the distribution of output,employment,total spending among the particular goods and services individual industries and firms,the general price level and the relative price level or exchange ratio among individuals goods and service.On the contrary macro-economics takes these are variable.
These sharp distinctions help to clarify the essential difference between macro-economics and macro-economics.Although these two branches of economics seem to be competitive,in fact,they are complementary.They two interdependent rather than being independent.These two branches are mutually supportive.Most economic problems have both economics system can not be attained without proper integration of them.The modern theory of economics integrated the analysis of the behavior of individuals firm and the behavior of the economics as a whole .
Edward Shapiro observes ,"Strictly speaking,there is only one economics'.Macro-economics theory has a foundation in micro-economics theory ha a foundation in macro-economics theory".Gardner Ackley support this view when he says,"The relationship between macro-economics and micro-economics and theory individuals behavior is a two ways street.On the one hand,micro-economics theory should provide the building blocks for our aggregates theories.But macro-economics may also contribute to micro-economics understanding".
An analysis of the economy is not conducted separately in two watertight comportment.If we analysis macro-economics variable and there relationship,we must also allow for changes in micro-economic variable may that affect the macro-economic variables.For example,if the labour is immobile,total employment or total output may be less than they would be with mobility.
To determine the national material will being,we must considers both macro-economic and micro-economics aspects. From the macro-economics viewpoint,the national material welfare will be greater if the economy comes closer to the full utilisation of its total resources.From the micro-economics point of view material being will be greater if the economy comes to optimum allocation of its resources,taking as given the degree of utilisation.Clearly,the basic goal is same from both viewpoint,the maximum materials will being for the population as a whole.This goal can be attend only with both full utilisation and optimum allocation of available resources.
Micro-economics needs the help of Macro-economics.for example,the sale of a firm not only depends own it price but also the total purchasing power of the commodity.the value of profit or a firm depend on aggregate demand.national income and general price level.Similarly,the help of micro-economics is inevitable for macro-economics.For example,nation output and income are the sum the income of income of millions of individuals and numerous firms respectably.Hence,the theory of the study of individual units and aggregate are both equally important.To conclude in the words of P.A. Samuelson,"There is really no opposition between micro-economics and macro-economics.Both are absolutely vital.You are less than half-educated if you understand the one while being ignorant of the other.

Scope of macro-economics.

A branch of economics theory macro-economics covers the following aspects :

1. Theory of income and employment :Macro-economics studies what factors and how these factors determine the level of income and employment. the level of income and employment is determine by aggregate demand.Aggregate demand is the sum of total consumption demand and total investment demand.Hence,consumption function and investment function are the important components of macro-economics.The theory of trade cycle is also covered by macro-economics.
2. Theory of general prices level :Macro-economics is concerned with how general price level is determined.The main aspect of general prices level is inflation.These are many theories of inflation.Inflation,one of the grave problem of preset world,is also an important component of macro-economics.The theories of money,banking and finance also fall under macro-economics.
3. Theory of economic growth :Growth economics or the theory of economics growth is another important branch of macro-economics.Many theories of economics growth have been developed .These theory suggest the way to accelerate the rate of growth of the economics.It is because economic growth is a prerequisites for the improvement in the levels of living of people and alleviation of poverty.
4. Modern theory of distribution :National income is distributed among different classes of people of a country in different ways.Macro-economics studies what factors and how thees factors determine the relative share of different of people national income .M.Kaleckly and Nicholas Kaldor developed the modern theory of distribution called macro-economics theory distribution.Kalecky believed that the relative share of wages and profit depends on the degree of monopoly in the economy.Similarly,Kaldor believed that the relative share of the wages and profit depend on consumption function and the rate of investment.
   

concept of macro economics.

The term 'macro' denoted 'large'.Macro-economics is not the studies of individuals units,but all the units combined together.It deals with the functioning of the economy as a whole.Since it studies aggregate form of the economy,it is also referred to as 'Aggregate' Economics and income theory'.For example,macro-economics studies the big aggregates like national income,national output,general prices level,total employment,saving and investment,Hence,McConnell observes :Here we study forest,not the trees.It gives us a bird's eye view of the economy."

There are numerous definitions of macro-economics some of them have been presented here.

According to Edwin Mansfield,"Macro-economics deals with behaviour of economics aggregates such as gross national product and level of employment".

In the word of R.G.D. Allen "the term 'macro-economics 'applies to the study of relation between broad economic aggregates."K.E.Bounding defines macro-economics in these words "macro-economics is that part of economics which studies the overall averages and aggregates of the system".He opines that macro-economics deal not with individuals quantities,individual incomes,individuals prices,individuals output but with aggregate of these quantities,national income,price level and national output.

According to Gardner Ackley "Macro-economics deals with the economics affairs in large it concerns the overall dimension of economics life.It studies the character of forest,independently of tree which compose it".

It is now obvious that macro-economics is the study of aggregate or the economy as a whole.For example,macro-economics studies how economy's total output of goods and services and the total employment of resources are determined.Macro-economics studies what cause the magnitude of fluctuation.For example,macro-economics explains why at sometimes as little as 2 percent of labour force is unemployed and at other times as much as 10 percent is unemployed.It explains why at sometimes there is full utilisation of economics productive capacity and why at other times a good part of this capacity goes to waste.It seeks to explain why in sometimes period the prices level rises sharply,whereas others it remains stable or even falls. it also explain why the growth of total goods and services grows at average rate of 2 percent per annul an some period at as the rate of 4 percent in another period.To conclude in the words of Edward Shapiro "In brief economics life-full employment or unemployment capacity or under capacity production,a satisfaction or unsatisfactory rate of growth.inflection or prices level stability."Due to outstanding contribution of Keynes macro-economics is often referred to as 'Keynesian Phenomenon.

Scope of micro economics.

As a branch of economics theory,micro-economics covers the following aspects :

1. allocation of resScope of micro economics.Scope of micro economics.ources :Micro-economics studies the allocation of resources.It assumes full employment of resources.It assumes the total quantity of resources as given being (fixed)and explains how the resources are allocated among production of different goods.It determines what to produce,how to produce.Theory of product pricing :The allocation of resources in production of different goods depends on the prices of goods.It determines what to produced,how to produced.
2. Theory of product pricing :The allocation of resources in production of different goods depends on the prices of goods.The prices of a good is determines by demand for and supply. The demand for a good depends the tastes of the consumer,prices of substitutes,availability of substitutes execution of consumer etc.On the other hand,the supply of a good depends on the behavior of the entrepreneur and the cost condition.Therefor,the theories of demand and product are also studies under product pricing.
3. Theory of factor pricing :The determination of the prices of factors of production is also studied under micro-economics,which is termed as "theory of Distribution".It studies the determines of prices of different factors like land,labour ,capital and organisation .In other words,it studies how rent,wages,interest and profit are determined.
4. Theory of economics welfare :The theory of economic welfare is an important component of micro-economics theory.The theory of economic welfare studies about the economic efficiency.The economic efficiency here refers to the allocation of resources so as to maximise people's welfare.The efficiency in production,distribution,and constipation are needed for overall economic efficiency.The field covered by micro-economic can be shown as blow.
   

Concept of micro economics.

The term 'macro' denoted 'small'.Hence,micro-economics is the study of the behavior of individuals
units.For example,in micro-economics we study how a particular firm maximises profit or how an individuals maximises satisfaction from his purchases.As opined by McConnell "micro-economics is useful in achieving worm's eye view of some very specific components of our economics system".
There are numerous definitions of micro economics.Some of them have been presented here.
According to Edwin Mansfield "micro economics deals with the economics behavior of individuals units such as consumers,firms and resources owners".
K.E.Boulding has given a comprehensive definition in these words "micro economics is the study of particular firms,particulars housholds,individuals prices,wages,incomes,individuals industries,particulars commodities".
In is obvious that in micro economics the unit of study is the part rather than the whole.
It studies the small components of nations economy.The study is focus on particulars unit,not the aggregate of all units.For example,micro economics explains how the single firm determines the price for a particular products.what amount of out put will maximise its profit,how it determines the lowest cost combination of factors like labour,materials,capital equipments.It also seeks to explain how the individuals consumer distributed his total expenditure among and services so as to maximise utility.
Micro economics assume as given the total output,total employment,and total spending for all goods and services.It then examines how output and employment are allocated among various individuals industries a firms within industries.It examines how the prices of various products of the individuals firms are established.Micro-economics asks how shifts in consumer spending from the employment to be related among different goods and services and among different firms and industries .

Concept of micro economics.

Concept of normative economics

According to Davide begg and other -"normative economics offers prescription or recommendation
based on personal value judgements".
Normative economics is based on subjective value judgements.normative economics is not based on the search for any objective truth.Normative economics makes prescription about what should be done.There is no reason why economics should agree about normative judgements.We can make the distinction between positive economics.The second part of the statement in normative economics.
positive economics,as opined by Stonier and
Hague,attempts to describe and analyse the existing situation,rather than suggesting how to change it.A great deal of economics of this kind.Hoverer,economists often make normative statements.They suggest how the economy should actualy operate.They suggest what the government economic policy ought to be,how the government should act to increase level of employment as so on.Hence, what 'ought to be'is a normative statement wheres 'what is'is apositive statement.
The controversy as tom whether economics is a posetive science or normative science seems to have subsided.It is beacouse economics is regard as both normative science is the blending of posetive science and positive science.