ECONOMICS

1. Explain the subject matter of economics.

Introduction

Economics is a social science concerned with the administration of scarce resources. Resources
are objects and services that are capable of satisfying human wants either directly or indirectly
by helping to produce other objects and services whose use satisfies human wants. The
administration of resources does not always create economic problems. Some resources are so
plentiful that they are more than sufficient to satisfy completely all the human wants which
depend on them. Air, for example, is such a resource. These resources are called free resources;
and there is no need for organizing their use, because any waste or inefficiency in their
utilization can be made good from their excess supply and need not abridge the satisfaction of
human wants.

By contrast, scarce resources are those that are insufficient to fill completely all the wants they
cater to; these wants therefore can only be satisfied partially. This raises problems of
administration which are the subject matter of economics.1 To begin with, one problem of
administration is to insure the full utilization of scarce resources, because their incomplete
utilization would result in a loss of human satisfaction. Second, when scarce resources are fully
utilized, there is the further administrative problem of properly allocating these resources among
their different uses and to the satisfaction of different wants. For when scarce resources are fully
utilized, the fuller satisfaction of any one want can only be achieved at the cost of the lesser
satisfaction of some alternative want or wants. Third, yet another problem of administration is
the proper distribution among consumers of these resources or of the goods and services
produced with their aid.

Most of these problems would present themselves even to an isolated and completely self
sufficient person. Such a person, to fill his needs, would have to rely on his limited capacity to
work and would face the problem of how best to husband his energy and divide his time between
leisure and different types of work. This is a problem of administering the scarce resources of
his time and energy; but it is his private problem, which he may be left to solve as best he can,
because its solution has no repercius.

Subject matter of economics

Economics has subject matter of its own. Economics tells how a man utilises his limited
resources for the satisfaction of unlimited wants. Man has limited amount of time and money. He
should spend time and money in such a way that he derives maximum satisfaction. A man wants
food, clothing and shelter. To get these things he must have money. For getting money he must
make an effort. Effort leads to satisfaction. Thus, wants- efforts- satisfaction sums up the subject
matter of economics initially in a primitive society where the connection between wants efforts
and satisfaction is direct.

Division of Economics

The subject matter of economics can be explained under two approaches viz., Traditional
approach and Modern approach.

Traditional approach: Economics is studied under five major divisions namely consumption,
production, exchange, distribution and public finance.

1.Consumption: The satisfaction of human wants through the use of goods and services is called
consumption.

2.Production: Goods that satisfy human wants are viewed as “bundles of utility”. Hence
production would mean creation of utility or producing (or creating) things for satisfying human
wants. For production, the resources like land, labour, capital and organization are needed.

3. Exchange: Goods are produced not only for self-consumption, but also for sales. They are
sold to buyers in markets. The process of buying and selling constitutes exchange.

4. Distribution: The production of any agricultural commodity requires four factors, viz., land,
labour, capital and organization. These four factors of production are to be rewarded for their
services rendered in the process of production. The land owner gets rent, the labourer earns
wage, the capitalist is given with interest and the entrepreneur is rewarded with profit. The
process of determining rent, wage, interest and profit is called distribution.
5. Public finance: It studies how the government gets money and how it spends it. Thus, in
public finance, we study about public revenue and public expenditure.

Modern approach

This approach divides subject matter of economics into two divisions i.e., micro economics and
macro economics. The terms „micro-„ and „macro-„ economics were first coined and used by
Ragnar Frisch in 1933.

Micro-Economics or Price Theory

The term „micro-economics‟ is derived from the Greek word „micro‟, which means small or a
millionth part. It is also known as „price theory‟. It is an analysis of the behaviour of small
decision-making unit, such as a firm, or an industry, or a consumer, etc. It studies only the
employment in a firm or in an industry. It also studies the flow of economic resources or factors
of production from the resource owners to business firms and the flow of goods and services
from the business firms to households. It studies the composition of such flows and how the
prices of goods and services in the flow are determined.

A noteworthy feature of micro-approach is that, while conducting economic analysis on a micro

basis, generally an assumption of „full employment‟ in the economy as a whole is made. On that
assumption, the economic problem is mainly that of resource allocation or of theory of price.

Importance of Micro-Economics: Micro-economics occupies a very important place in the study

of economic theory.

Functioning of free enterprise economy: It explains the functioning of a free enterprise economy.
It tells us how millions of consumers and producers in an economy take decisions about the
allocation of productive resources among millions of goods and services.

Distribution of goods and services: It also explains how through market mechanism goods and
services produced in the economy are distributed.

Determination of prices: It also explains the determination of the relative prices of various
products and productive services.
Efficiency in consumption and production: It explains the conditions of efficiency both in
consumption and production. Formulation of economic policies: It helps in the formulation of
economic policies calculated to promote efficiency in production and the welfare of the masses.

Limitations of Micro-Economics: Micro-economic analysis suffers from certain limitations:

It does not give an idea of the functioning of the economy as a whole. It fails to analyse the
aggregate employment level of the economy, aggregate demand, inflation, gross domestic
product, etc.

It assumes the existence of full employment in the whole economy, which is practically
impossible.
2. What is the meaning of economic offences and its impact on economic
development?

Introduction

Economic offences form a separate category of crimes under criminal offences. Economic
crimes refer to illegal acts committed by an individual or a group of individuals to obtain a
financial or professional advantage. In such crimes, the offender’s principal motive is economic
gain. Cyber crimes, tax evasion, robbery, selling of controlled substances, and abuses of
economic aid are all examples of economic crimes.

Meaning

Economic crime is usually confused with another term, corruption. There are different
definitions of what is corruption. Each definition illuminates different dimensions of the
phenomenon to be studied, influencing the analysis and prosecution tasks to be implemented. A
first definition focuses on public ethics. Here, corruption is defined as an ethical confusion
between public and private space. A second vision relates the problem of corruption to the lack
of transparency of the state, may that be it in the form of barriers to access public information or
the pinpoint hiring opportunities to certain companies in the area of goods and services.
However, there is a third definition, which is the one that we as an organization
promote: corruption is one of the many parts of a more complex and more comprehensive
criminal phenomenon, which is economic crime. Therefore, our vision is not limited to crimes
committed in the public sector, but also extends to those perpetrated by economic actors in the
private sector.
Thus, economic crime covers a wide range of offenses, from financial crimes committed by
banks, tax evasion, illicit capital heavens, money laundering, crimes committed by public
officials (like bribery, embezzlement, traffic of influences, etc.) among many others.

Economic crime is regarded to generate a considerable social damage. That’s because it doesn’t
only affect democratic institutions but also undermines the state treasure by cutting available
resources for the implementation of public policies. Those who are more vulnerable are those
who need these policies the most that is way they become one of the main victims of corruption
and economic crime. At the same time, the social damage generated by this criminal activities is
usually invisible: apart from the general indignation, is rather complex to have a precise
awareness about the true effects of these crimes.

Moreover, selective and inefficient prosecution of this type of crimes and those responsible,
evidence the structural impunity in our judicial system towards this criminal activity. Of
course, this is linked to the fact that economic crimes are often carried put by powerful actors
linked to political and economical power.

Economic crime is generated from a hidden power that defines the relationships between
economics and politics. Financial liberalization and market reforms undertaken in Argentina in
recent decades, left as a result a gradual process of institutional state capture by major
economic groups. This capture is now expressed in a powerful influence of these economic
actors in the decision making processes, the implementation of public policies and distribution of
economic and social resources.

Impact on economy

Economic Development as a process has socially estabilising effects especially in the initial
phases. This causes weakening of social controls over deviant behaviour. This could contribute
to an increase in economic offences.

The history of white-collar crime in the U.S.A. reflects that a number of activities were termed as
crimes only on account of maturing of democratic processes, wherein wealthy and influential
people were brought to the book. A parallel example in India is awareness about irregularities in
banking and securities transactions leading to changes in institutions and the Laws governing
these activities.

The Researcher also feels that the registration of a crime partly depends on the availability of the
resources with enforcement agencies. Enforcement agencies in developed countries have better
resources and as such they can freely register and pursue the investigation of a higher number of
offences.

Economic Offences are not only harmful in terms of losses caused to the victims, but also as they
affect social institutions such as Democracy and the Rule of Law. Civil societies all over the
world aspire for egalitarian society based on the 'Rule of Law' and governed by democratic
institutions. The basic principles of Equality and Justice constitute the foundation of a civil
society. Occurrences of Economic Offences and a failure of the Criminal Justice System to
contain them disturb the faith of people in the efficacy and existence of the Rule of Law. The
examples of Economic Offenders prospering in spite of the Law proscribing such criminal
activities raises a serious doubt about the whole system of Democratic Governance. Such a doubt
and the resultant cynicism affect the quality of social life and is a potential threat to the
functioning of democracy.

Trust is a key ingredient of Economic Gro'Al:h, as the structure of Economic System is based on
the ability to execute contracts and agreements. Economic Offences basically involve breach of
trust, deception or cheating. Therefore, Economic Offences pose a serious threat to the Economic
growlli and Development.

Activities such as drug trafficking, exploitation of natural resources, corruption and

misappropriation of funds from banks affected the economic well-being of the people. The
consequences of undesirable activities went well beyond financial loss and the economic well-
being of society. More important was the feeling among the people that they were living in a fair
and just society. When economic financial crimes were committed, prompt action against the
perpetrators was needed. If left unchecked, people’s feelings of resentment would accumulate.
They would feel alienated and resent their governments. The feeling that one lived in a fair
society was even more important than economic well-being. The question was how to prevent
feelings of resentment from deepening.
The harmful consequences of normal crime were easily felt and observed, he said. Common
crimes were also less likely to be compromised in the law enforcement process. Economic
crimes did not have direct and immediate impact due to their non-violent nature. Hence, such
crimes did not receive public attention. People who were behind financial crimes were usually
smart and sophisticated, making use of financial resources to build extensive connections with
law enforcement officials. Authorities had to fight interference from influential powers, and that
was often more difficult than the investigation itself. Strong political will and government
commitment was needed to fight such crime. Economic and financial crimes were destructive
enemies of nations. Governments needed to fight against financial crimes in every shape and
form. Stock price manipulation, insider trading, while not directly harming people’s lives, made
people feel slighted. If the perpetrators were members of the government, decisive and swift
action would restore society’s confidence in government policy on the issue.

A look at the 2015 National Crime Records Bureau data shows a marginal increase in the
number of economic offences from those reported in the previous year. But if one goes back a
decade, the numbers stand in stark contrast.

In the last 10 years, the reporting of economic crimes such as cheating and criminal breach of
trust, has doubled.

Crime rate, or the incidence of crime per 100,000 people, also shows a similar trend. For
economic offences, the crime rate was 6.6 in 2006. That increased to 11.9 in 2015.

Rajasthan had the worst record in terms of economic offences in 2006 and things haven’t got
any better in 2015.

The other states with the highest incidence of economic offences in 2015 are Telangana, Assam,
Haryana and Kerala. In 2006, Punjab, Andhra Pradesh and Kerala topped the list.

Among Union territories, Chandigarh occupied the top position in terms of the crime rate
followed by Delhi in 2006. In 2015, their positions are reversed.
A survey conducted by PricewaterhouseCoopers released in April said that 31% of the
respondents were affected by economic offences in the last two years, and 56% had an increased
perception of threat of cyber crimes.

The rising incidence of economic crimes can potentially undermine India’s efforts to attract
foreign investment and improve its ease of doing business ranking.

To be sure, the rise in crime rate has also to do with the increase in the volume of transactions in
India.

The volume and value of contracts, whether public or private, are much higher now than before,
leading to more availability of money at every level, according to Shankh Sengupta, a partner at
law firm Trilegal.

There is also greater awareness and activism around issues of bribery and corruption in public
office, he added.

NCRB data shows a greater number of public officials being caught under the law during the last
10 years. In cases probed by Central Bureau of Investigation, the number of cases reported for
regular department action has increased 15% to 272 in 2015 from 237 in 2006. Since 2012, these
cases have gone down.

The biggest economic frauds in India in the past decade include the Satyam Computer Services
Ltd case in 2009, a Rs7,314 crore accounting fraud, and irregularities in the allotment of 204
coal blocks that were cancelled by the Supreme Court in 2014. The case of Ricoh India’s
falsified accounts leading to a loss of nearly Rs1,123 crore in 2016 is a recent example.

The NCRB data for 2015 shows that cases of cheating and criminal breach of trust that involve
loss of property of more than Rs10 crore have increased from 5 and 4, respectively, in 2006 to 49
and 27 in 2015. India has enough laws to tackle economic offences, experts say.

“I think our laws are fairly strict, a fraud is a fraud anywhere in the world – whether you have the
UK Law or Indian law or the Japanese law. If you embezzle money, it’s cheating, it’s fraud, it’s
a criminal breach of trust,” said Pallavi Shroff, managing partner of law firm Shardul Amarchand
Mangaldas & Co. “We have very strict laws, it’s just the enforcement of the laws that becomes a
bit of a challenge.”
Conclusion

On the basis of research, we are driven to the conclusion that economic crime is, from an
empirical viewpoint, quite normal and perhaps even showing a tendency to spread. Whereas the
risk can be reduced, it cannot be eliminated entirely.

To establish the relationship between crime and economic growth in India we apply bivariate and
multivariate methods. We take a reduced form approach to estimate the effects of crime,
especially intentional homicide and robbery rates. To account for reverse causality between
crime and economic growth and inertia in growth rates and crime rates, we use instrumental
variable dynamic penal data approach. To test for the stationarity properties of the data we apply
first and second generation panel unit root tests. To test the robustness of estimated parameters
and validity of chosen instruments we use Sargan-type and serial correlation tests.

We find a negative and statistically significant relationship between the violent crimes and
growth rate of per capita income. Intentional homicide rates affect both the level of per capita
income and its growth rate in Indian states. However, the robbery rates affect only the growth
rate. Reducing homicide rate from 5.93 (first quartile) to 4.59 (median) is supposed to enhance
the annual growth rate of per capita net state domestic product by about 11 percentage points,
and a reduction in robbery rate to 1.1 from 2.09 increases growth by 3.72 percentage points. If
the states keep controlled the rates of homicide and robbery rates at the minimum level they
observed during the liberalization era, the corresponding gain in the growth rate could be about
1.57 and 1.2 percentage points, respectively. It is worth to note that the states prone to the
problem of insurgency are most affected due to violent crimes.
3. Explain the meaning and importance of free enterprise, capitalism,
socialism, mixed economy.

Introduction

Things that are free are unconstrained, and a business is an enterprise. So, free enterprise refers
to an economy where businesses are free from government control. In a free enterprise, prices go
up and down because of supply and demand. If there's high demand, prices go up. If there's low
demand, prices go down. Free enterprise is when private companies compete for profit without
government interference.

Capital is usually understood to be money that is put into a business, accumulated by a business,
or used in some way to produce more money. In a capitalist economy, the capital is owned by
private individuals, as opposed to the government or state (as in socialism or communism).
Another important aspect of capitalism is the "free market," where in theory natural competition
always leads to innovation and price controls.

Because the Soviet state eventually strayed far from Marx's idea of socialism towards Lenin's
totalitarian communism, socialism is now often used to mean everything from "fascism" to
"progressivism." But in its purest form, socialism was a political, social, and economic system
meant to empower the working class. In the U.S. today, though, it's often used as shorthand for
"the services that government provides and which are paid for by taxes." Depending on who's
talking, that idea is either a goal or a target.

Mixed economy is that economy in which both government and private individuals exercise
economic control.

Meaning

A free enterprise system is an economic system where a government places very few
restrictions on the types of business activities or ownership in which citizens participate. This
type of system is often referred to by others as a free market, or capitalism. In a free enterprise
system, you are allowed to spend your money in the way you want. You often have several
different companies competing for your business, which often leads to lower prices and better-
quality products. You are also free to pursue any type of job or work that you enjoy.

There are countries around the world that do not have a free enterprise system. Socialist
governments, those that directly manage their nation's social and economic affairs, often direct
what kind of work people have to do and also limit the opportunity for many people to own
businesses. As a result, these countries also limit what you can purchase. Can you imagine only
having one phone carrier to purchase plans or phones from? How about having only one cable
television provider that told you what channels you could watch? Part of the reason those in the
U.S. do not face this situation is because of the free enterprise system.

It is important to note that free enterprise systems can vary and differ in how 'free' they actually
are. The United States and Singapore are two examples of countries that reflect the most free
enterprise systems. Many European countries are also considered free enterprise markets, but
often have more government regulations and involvement in business transactions when
considered necessary.

An economic, political and social system in which property, business, and industry are privately
owned, directed towards making the greatest possible profits for successful organizations and
people.
Capitalism,” a term of disparagement coined by socialists in the mid-nineteenth century, is a
misnomer for “economic individualism,” which ADAM SMITH earlier called “the obvious and
simple system of natural liberty” (Wealth of Nations). Economic individualism’s basic premise is
that the pursuit of self-interest and the right to own private property are morally defensible and
legally legitimate. Its major corollary is that the state exists to protect individual rights. Subject
to certain restrictions, individuals (alone or with others) are free to decide where to invest, what
to produce or sell, and what prices to charge. There is no natural limit to the range of their efforts
in terms of assets, sales, and PROFITS; or the number of customers, employees, and investors; or
whether they operate in local, regional, national, or international markets. Capitalism is an
economic system where private entities own the factors of production. The four factors
are entrepreneurship, capital goods, natural resources, and labor. The owners of capital goods,
natural resources, and entrepreneurship exercise control through companies. The individual owns
his or her labor. The only exception is slavery, where someone else owns a person's labor.
Although illegal throughout the entire world, slavery is still widely practiced.

Socialism relies on governmental planning, rather than the marketplace, to distribute resources.
While it is usually possible for individuals living in a socialist country to own businesses or offer
professional services directly to consumers, they are usually taxed heavily on their profits. Public
services are typically numerous and funded by taxpayer money. Citizens are expected to work,
but the government provides services such as education, healthcare, and public transportation for
free or at very low cost. Socialist countries also often have extensive social welfare systems to
aid the unemployed, disabled, and elderly.

In addition to paying higher taxes, business owners in socialist countries are often expected to
comply with very strict labor laws designed to protect workers against exploitation. These laws
include restrictions on work hours and mandate regular vacations, sick time, and leave for
numerous reasons, such as the birth or adoption of a baby. Employers are typically not expected
to provide health insurance coverage, however, as medical care is usually provided through
national health care systems.

A mixed economy is a system that combines characteristic of market, command andtraditional

economies. It benefits from the advantages of all three while suffering from few of the
disadvantages.

A mixed economy has three of the following characteristics of a market economy. First, it
protects private property. Second, it allows the free market and the laws of supply and demand to
determine prices. Third, it is driven by the motivation of the self-interest of individuals.

The government’s role in other areas depends upon the priorities of the citizens. In some,
the government creates a central plan that guides the economy. Other mixed economies
allow the government to own key industries. These include aerospace, energy production,
and even banking. The government may also manage health care, welfare, and retirement
programs.
 A mixed economy has some characteristics of a command economy in strategic areas. It
allows the federal government to safeguard its people and its market. The government has
a large role in the military, international trade and national transportation.

Most mixed economies retain characteristics of a traditional economy. But those

traditions don't guide how the economy functions. The traditions are so ingrained that the
people aren’t even aware of them. For example, they still fund royal families. Others
invest in hunting and fishing.

Importance of free enterprise

There is no doing without human enterprise, for without it we would all be impoverished and our
survival in doubt. The main question we have in regard to it is whether it shall be free or
hampered. Reformist and revolutionary intellectuals have launched a massive assault over the
past century against the market, private property, the profit motive, and other facets of free
enterprise

The thrust of their efforts has been to discover fatal flaws in the system, which they usually
describe as capitalist, and to propose that government either supervise or take over the operation
of the economy. They can be classified in one of two broad categories: meliorism or socialism.

Meliorism is the view that what is wrong with free enterprise can be corrected by government
intervention. It holds that government can control, restrict, limit, regulate, tax, and redistribute so
as to better the lot of the people and avoid the worst difficulties which they believe are inherent
in free enterprise. Meliorists are hardly enthusiastic about private property and individual
enterprise, but they do not usually attack them head on.

Socialists do directly attack property, private enterprise, the profit system, and what they call
capitalism. They propose to abolish them with governmental (or collective or public) ownership
of the means of production of goods. Socialism divides roughly into two camps: democratic
socialism and communism. Democratic socialists are distinguished by a gradual approach to
socialism because they are tied to popular elections and must move as the electorate will.
Communists are revolutionaries who move toward socialism swiftly and by drastic measures
once they come to power. They are characterized by one-party rule, and by totalitarian control
over the lives of the people. While socialists and meliorists have a barrage of objections to free
enterprise, the following points are central to their argument.

A related objection to free enterprise is that competition amounts to industrial warfare, that it pits
men against one another in the quest for material possessions. Those who advance this notion say
that free enterprise depends upon and calls forth the baser human motives, that it is materialistic,
that it makes selfishness into a virtue, and that it fosters competition rather than leading men to
cooperate with one another. This conception of competition war has served over the years as the
major propellant of government intervention by way of antitrust legislation, fair trade laws, and
other regulatory measures.

Probably, the most devastating charge against the free enterprise system is that it is responsible
for the business cycle. Business activity does apparently go in cycles, with periods of prosperity
alternating with recessions and depressions. The most common claim of reformists is that
businessmen claim too large a share of the proceeds from their products, that there is a resulting
decline in consumer demand, leading to recession or depression. The way to prevent this, they
say, is for government to soak up the excess in taxes and distribute the wealth more or less
directly to those who will spend it for consumer goods.

Importance of capitalism
The most important aspects of a capitalist system are private property, private control of the
factors of production, accumulation of capital and competition. The starkest counterpoint to
capitalism is communism; in a communist system, there is no private property, a central
government controls the means of production, capital is not accumulated by individuals or
private businesses, and competition is nonexistent. Put simply, a capitalist system is controlled
by market forces, while a communist system is controlled by the government.
Private Property
The right to private property is a central tenet of capitalism,. Citizens cannot accumulate capital
if they are not allowed to own anything, nor can they buy or sell things. As long as the owner
stays within the parameters of the law, which generally are broad in capitalist systems, he may
do what he wants with the property he owns.

A private citizen may purchase property from another private citizen at a price that is mutually
agreed upon and not dictated by a government. In a capitalist system, the free market forces
of supply and demand, rather than a central governing body, set the prices at which property is
bought and sold.

Factors of production

In capitalism, private enterprise controls the factors of production, which include land, labor and
capital. In contrast to a communist system where the government owns and controls these factors
and thereby sets production levels and prices, private companies control them in a capitalist
system and set prices and production at levels that maximize profit and efficiency.

A common indicator of whether the factors of production are privately or publicly controlled is
what happens to surplus product. In a communist system, surplus product is distributed to society
at large, while in a capitalist system, it is held by the producer and used to achieve
additionalprofit.
Accumulation of Capital
The centerpiece of a capitalist system is the accumulation of capital. In a capitalist system, the
driving force behind economic activity is to make a profit. Devotees of communist
and socialist systems consider this greedy and selfish. Capitalists, however, see amassing profits
as a way to provide a powerful incentive to work harder, innovate more and produce things more
efficiently than if the government had sole control over citizens' net worth. This financial
incentive is the reason capitalist economies see innovation as going hand-in-hand with their
market system.
Competition

Competition is the other vital attribute of a capitalist system. Private businesses compete to
provide consumers with goods and services that are better, faster and cheaper. The principle of
competition forces businesses to maximize efficiency and offer their products at the lowest
prices the market will bear, lest they get put out of business by more efficient and better-priced
competitors.

While doing business with a particular company in a capitalist system is voluntary, in contrast,
the central government in a communist system has effective monopolies in all industries. This
means it has no incentive to operate efficiently or provide low prices because its customers do
not have the option of looking elsewhere.

Importance of socialism

Socialism is Social or Collective Ownership of Resourcs

In such an economy, all the means of production are owned and operated by the state in the
interest of society as a whole. This is to ensure equality of opportunity to all the citizens with
regard to earning of income. This is also aimed at full and efficient utilisation of the country’s
resources.
It is a Fully Planned Economy
A socialist economy is necessarily a fully planned economy otherwise the economic system
cannot run. There is a choice between centralised and decentralised planning. All socialist
economics were fully planned economics.

It is the Responsibility of the Central Planning Authority

Planning is the responsibility of an authority at the centre. It may be known as the Planning
Commission in India or the Gos plan in the U.S.S.R. The main task given to this body is to
formulate long-term and short-term plans for the economy.

It has Definite Aims and Objectives

Socialist economy has specified aims or objectives. Generally, they are included in the
constitution itself but these are given specific shape by the planners. As far as possible the
objectives are clearly and quantitatively defined. The competitiveness on complementary among
these objectives is explicitly noted. This is meant to bring planning nearer to reality.

People’s Co-operation is Essential

A socialist economy is run with the active co-operation of the people in the fulfillment of plan
targets. No plan can possibly succeed without people’s participation. The plan is prepared and
implemented by the Government but the main target’s of the different activities in the plan are
fixed by taking into account the resources which people will be able to mobilise. To encourage
the people to participate in plan implementation, the Government may provide special incentives.

There is no Wastage of Competitive Advertisement

A capitalist economy is not always able to achieve productive efficiency through competition.
There is a good deal of wastage through competitive advertisement of different varieties. The
consumer has to pay the price of the useless advertising. Prof. Chamberlin has tried “to show that
capitalism leads to excess capacity when there is differentiation of the products. No Exploitation
and Class Struggle.
Social Welfare Activities
A Socialist Economy is oriented to the social needs. The government provides for full security.
There is automatic care for the children of those who meet accidents while performing their
duties. There is provision for old age pension for all. The slogan is “to each according to his
needs, from each according to his capacity.”

Importance of mixed economy

It promotes a quick economic development:

In this type of economic system, both the public and private sectors can operate equally, which
means that economic development will be quicker. This is especially true considering that economic
resources will be utilized efficiently. Also, depletion of resources will be slowed down.

It creates a balance in regional developments:

The planning commission of a country will be able to create policies for the improvement of every
region. In addition, the government would also try to develop each sector of the population.

It encourages lesser income inequality;

With a mixed economy, there will be lesser inequality when it comes to income, where the
inheritance law is applied to enable members of society to become richer. As for the public sector, it
would try to provide economic utility to the general public, leading to further reduction of inequality in
income.

It provides the freedom to own a private property

People are free to obtain property in a mixed economy, which means that the idea to work even
more will be encouraged. Again, this will help in the fast economic development, especially in the
areas of industries and agriculture. The advantage of this type of market is that it allows
competition between producers with regulations in place to protect society as a whole. With the
government being present in the economy it brings a sense of security to sellers and buyers. This
security helps maintain a stable economy. Overall, businesses, as well as consumers, in mixed
economies have freedoms that are important to both. And while government is actively involved
and provides support, its control is limited, which is good for structure
Conclusion

Whatever the difficulties of running a socialist economy, the appeal for socialism was great
especially, in less developed countries. For over populated countries having national problems,
socialism seemed to be the only hope of the masses. Free market economy in its pure form is a
thing of the past. Mixed Capitalist Economy is already the order in all the western countries. In
the Less Developed Asian Countries Government has not only to regulate economic activity but
positively direct it by active participation for the fast development of the country. As for the
difficulties, they exist and can be eliminated through co-operation between the administration
and the people. As the country develops economic planning gets a stronghold and difficulties
wear away.

4. Explain the human wants and what do you mean by necessary, comforts and luxurious?

Introduction

All economic activities are directed to the satisfaction of human wants. In this way wants has
significance in the study of economics. Generally want is related to desire. But all desires are not
want. Want is those desire for which the man has capacity and also willingness to fulfill those
desire.

In other words want is the effective desire for the satisfaction of which man has both capacity
and willingness.
According to Penson—”Wants are defined as effective desire for particular things, which
expresses itself in the effort or sacrifice necessary to obtain them.” Regarding wants eminent
economist Erich Roll has said—”Want is the expression of lack of satisfaction which leads to
action designed to provide that satisfaction.”

Human wants

In economics desires are of two types:

Effective desire

Effective desires are those in which man must have sufficient means to spend and there must be
willingness in the man to spend; while Ineffective wants are those which cannot be satisfied. For
Example—To bring sun and moon in the room.

Therefore, only effective desire are said to be want. For example—suppose, a poor man has
desire to purchase a car but his desire cannot be called wants because he has not got means to
purchase the car. But suppose a miser has a desire to pin-chase a car but his this desire cannot be
called wants because the miser has not got the willingness to purchase it.

Therefore, in economics wants is that effective desire for particular things which expresses itself
in the effort or sacrifice necessary to obtain them.

(i) There must be desire for a commodity.

(ii) For fulfillment of desire there should be means or ability to purchase.

(iii) There must be willingness to purchase the article.

Importance of Human Wants

Want is the Starting Point of Economic Efforts:
Want is the mother of invention and is the root of all economic activities. It is the human wants
that compels a man to do economic activities in order to earn wealth to meet the various wants.
To earn wealth a person does service, work as labourer or he goes to business. If there would not
have been wants, then man would have been inactive.

All Economic Activities are done to Satisfy Wants:

Economics is the study of human wants and is the means to satisfy wants. The main object of all
economic activities of a man is the satisfaction of wants. If there will be no wants, then no one
will perform economic activities.

Determination of Living Standard:

Human wants has got direct relationship with the standard of living of a man. If more human
wants are fulfilled, then standard of living will be high and if human wants are not met, then
standard of living will be low.

Index of Economic Progress:

Human wants have been considered as an index of economic progress. Any man or his country is
considered as economically advanced or modern if he is in a position to meet his wants
satisfactorily.

Rapid Industrialisation:

Rapid industrialisation of a country is possible only when the people of that country are in a
position to meet their various wants. Rapid industrialisation will reduce unemployment, will
increase income and this will help in increasing the standard of living.

It is very difficult to define human wants within few words. All of us want to live. For this
reason, we need food, clothing and shelter.

Human desire for better and ever better living, the desire for change, increasing knowledge,
human progress etc. have led to emergence and growth of more and newer wants.
Thus wants have been increasing because of the addition of more and more wants as also
because of rise in population and new inventions and discoveries. Therefore, human wants are
‘ever growing and never ending’.

Human wants have grown for two basic reasons

(i) Desire for better living due to introduction of new things;

(ii) Rise in population growth.

These are two main factors responsible for the growth of human want

Characteristics of Human Wants

Man has Several wants. He has to work and produce goods and services to satisfy his wants. In
fact no single person is free from wants. Wants are the starting point of all economic activities.
Individuals can’t live and lead happy life when their wants are not satisfied. All persons do not
have the same wants. Wants differ from individual to individual. They multiply with civilization.
But there are certain characteristics of human wants in economics. They are endless and ever
growing in nature. That is why economists like Lionel Robbins described Economics as the
subject dealing with the affairs of wants, efforts and satisfaction of individuals. There are several
characteristics of human wants.
Wants are repeated

Several human wants occur again and again during the same day. We want food during
breakfast, lunch, dinner etc. However, we want medicine at the time we feel sick. Therefore,
some of our wants are reoccurred many times during a day, while some human wants only
repeated after a long time. In some cases, human wants are only occasional.

Wants may differ with gender

Wants of a boy and a girl are different. A girl wants to dance, whereas a boy wants to play. A
gentleman wants shirts, pants, ties etc. However, a lady wants sarees and salwar suits. Thus, both
men and women want different goods according to their needs.
Wants may differ with age

Human wants are changing according to the age. A child wants toys, whereas an adult wants a
motorbike. A student wants to go to school. A grown-up wants a job and a secured life.

Wants may differ with preferences

Human wants are also changing according to tastes and preferences A twin sisters may wants
different types of foods and dresses. Some persons want spicy foods while some others want
very simple non-spicy foods. Wants may also change according to the habits of the people.

Wants may differ with climate

A same person wants woolen clothes during winter, cotton clothes in summer and raincoats at
the time of rainy season. People from mountain or hilly areas want room-heater, but plain- land
people demand for AC machine.

Wants may differ with culture

A Bengali wants rice and fish, a Punjabi wants roti and dal, a Tamil wants idli and dosa etc. in
their food. An European wants ‘coat, pant & tie’, whereas an Indian wants ‘kurta and pajama’.
Thus, human wants are varying with culture.

Wants Are Unlimited

It is the experience of everybody that there is no limit to what he wants to have. They are
unlimited in number. When he gets a thing desired, he wants something else, then another and
this process continues like this for indefinite period. Man is never satisfied as new wants appear
one after another in quick succession.

When the want for basic needs like food, clothing and housing are satisfied, he wants to have
rich food, fashionable clothes, well furnished buildings and so many enjoyable things. Man’s life
is a bundle of wants which can never be satisfied always.

Human wants become unlimited because he finds new ways of making life comfortable and
enjoyable. So it is a never ending process. But he has limited resources in relation to unlimited
wants; as a result all wants together are insatiable. Man always tries to satisfy as many wants as
possible. But he is able to satisfy few wants with his limited resources.

Wants are complementary

Some wants are complementary and are felt together. Some commodities are wanted jointly and
single article of the group is unable to satisfy the whole want. Simultaneous consumption of
different goods increases the satisfaction of each other. They complement one another.
Sometimes a thing by itself is useless without the presence of some other things.

For example, ink and pen, camera and film reels, lamp and oil, motor car and petrol are
complementary to each other. When there is want for tea, there is want for sugar, milk and tea
leaves. Any one article of the group can not satisfy the whole want of respective groups and
becomes useless. The want for them is felt in a group.

Wants vary in urgency:

All wants are not equally urgent or important. Some wants are more urgent than others. The most
urgent wants should be given a priority to be satisfied. For example, the want for food is more
important than visiting a film. As our resources are limited we have to satisfy the urgent wants
first.

Wants may differ with health

A healthy person wants sufficient good food. However, a sick or ill person wants proper
medicines.

A particular want is satiable

Though human wants are unlimited and all cannot be satisfied at a time, but one particular want
is satiable. It can be satisfied sooner or later, if one tries for it and he has the resources to satisfy
it. For example, a person may feel hungry or thirsty. This want may be satisfied by taking some
food or water. If he feels the want for shoes, he can purchase it and be satisfied because they
want for a particular thing diminishes as we have more and more of it. This is the basis of the
Law of Diminishing Marginal utility.

Classification of Wants
Economic and non economic wants

The wants which cannot be satisfied by such goods and services that can be bought are known as
economic wants. For example, want for food, want for book, want for dress etc. To satisfy these
wants, a consumer has to spend money.

The wants which cannot be satisfied by making monetary payment for them, are known as non-
economic want. We want love and affection of our parents, relatives, neighbours etc. We want
stable government. We also wants international peace and amity. We want universal
brotherhood.

Individual want and collective want

Personal or individual wants refer to those wants which are only demanded by a single person or
an individual. For example, Sachin wants a cricket bat, Baichug Bhutia wants a football, Leander
Paes wants tennis-racket etc. These are the personal wants. ‘On the other hand’ all the things are
wanted by us collectively. For example, good government, roads, hospitals, schools etc. are
collective wants or social wants. Again, we all want India’s win either in a football match or in a
cricket match.

Necessity, Comfort and Luxury

Human wants are varying in nature. Want for food, clothing, shelter are the basic necessities of
human beings. We want books, pens, pencils, medicines, fuel and cooking gas etc. Ail these are
basic necessities of human life.

On several occasions, we want to make our life comfortable. We want washing machine, AC-
machine, pressure cooker, mixer, geyser, motor cycle, mobile phone etc. for our little comfort.
These wants are classified as comforts.
There are other wants which are meant for pleasure. Wants for Plasma-TV, AC-car, well
furnished house, computers to play games, travel by air etc. All these wants are called luxuries.
However, what are considered as comforts today may become necessities in near future

Necessaries
Necessaries include all the things required to meet the wants which must be satisfied. Without
satisfying these wants, man will not be able to live. Necessaries are further sub-divided into
three classes,

(a) Necessaries for life or existence

(b) Necessaries for efficiency

(c) Conventional necessaries

Necessaries for life:

Necessaries for life means the things necessary to meet the minimum physiological needs for the
maintenance of life. A minimum amount of food, clothing and shelter constitutes the necessaries
for life. Without these things, the very existence of man will be impossible.

Necessaries for efficiency

Man requires something more than the necessities of life to maintain strength, vigour and
efficiency of work. Nutritious food, sufficient clothing, pure water, comfortable house,
recreational and educational facilities, security for sickness and old age are all the necessaries to
maintain and improve efficiency of a worker.

For example, a motor car for a doctor, a chair and a table for a student, a library for a teacher can
improve the efficiency of the person concerned. These are required to maintain a healthy and
vigorous life. These are known as the necessaries for efficiency.

Conventional necessaries
There are certain wants which arise either due to pressure of habit or due to compelling social
customs and conventions. These are considered more important and urgent than necessaries for
life or efficiency. Some people are habituated with betel, tobacco, tea, wine etc. These things are
not necessary either for existence or for efficiency. But as these become habits of particular
person they cannot be avoided.

The things needed by man merely to satisfy his habit are called conventional necessaries. Many
wants are satisfied due to the force of social customs and conventions. They cannot be avoided.
For example, expenditure on marriage ceremonies, religious functions, funeral ceremonies,
shradha ceremonies etc. These are conventional necessaries.

Comforts
Comfort refers towards a better, happier easy and pleasant life. Necessaries make life possible,
but comforts make life easy and pleasant. Comforts are less urgent than necessaries. Tasteful and
nutritious foods, a well finished house, clothing to suit various occasions, some modem time and
labour saving equipment, recreational facilities, radio, television, magazines etc. make life
comfortable and pleasant. Such things belong to the category of comfort.

Luxuries
Luxuries are super-flow things that men need merely for vanity or show. Costly dress and
ornaments, very rich foods, air-conditioned motor cars, big bungalows and many domestic
servants etc. are examples of luxuries. Expenditure incurred for the sake of love of literature,
music, dance and drama is one of luxuries. Luxuries may give some extra enjoyment but without
them, life can be easy, comfortable and pleasant.

The classification of goods into necessaries, comforts and luxuries is not absolute and rigid and
fixed. It depends upon habits, taste, income, climate, social environment etc. We cannot fix
certain things penitently as necessaries, comforts or luxuries. According to Silverman, “The
luxury of today becomes comfort of tomorrow and the conventional necessary clay after.” A
century ago, tea was considered as a luxury but now-a-days it becomes necessary. Similarly,
what is necessary in cold climate may become luxury in hot climate.

For example, Room heaters warm clothes etc. Woollen suits are luxuries in the month of
September but may be necessary in December. Again what is luxury to one particular class of
people may be necessary to another. For example, a car is necessary for efficiency for a doctor,
but it is luxury to a farmer in the village. Nothing is luxury or a necessary for all time to come.
Necessaries, comforts and luxuries are relative to time, place, class of people, climate and
income etc.

Want is the desire to have a commodity. Wants and their satisfaction have major roles in all
economic activities. According to Seligman, “The starting point of all economic activities is the
existence of human wants. This process extends from birth to death. Life is impossible without
some basic wants like food, shelter and clothing. With the advancement of civilization wants are
rapidly increased in variety and numbers. The physical and mental constitution of man, his habits
and social environments determine the limit of his wants.

Conclusion

5.Write meaning and types of market and explain the price determination in
the market.

Introduction

In simple terms, market refers to a physical place where goods and services are exchanged
between buyers and sellers at a particular price.
However, in economic sense, market does not require a physical location or personal contact
between buyers and sellers for the transaction of a product.

“Economists understand the term market not any particular marketplace in which things are
bought and sold but the whole of any region in which buyers and sellers are in such free
intercourse with one another that the price of the same goods tends to equality easily and
quickly” – Cournot.

In economics, market is defined as a set of buyers and sellers who are geographically separated
from each other, but are still able to communicate to finalize the transaction of a product. The
market for a product can be local, regional, national, or international.

Meaning

In general terms, the word market is associated with a place where transaction occurs between
sellers and buyers. It is defined as an area where a large number of shops sell a particular
product. For example, Mahatma Phule market in Pune is a retail market of vegetables and Dalai
Street in Mumbai is the stock exchange market.

Apart from this, there are certain cities that specialize in the manufacturing of a particular
product and become national markets. For example, Ahmedabad is known for textiles, Banaras
for silk, Kashmir for shawls, and Darjeeling for tea. Similarly, there are certain countries that
specialize in a particular product, which are termed as international markets. For example, China
is known for electronic products.

However, in economics, the meaning of market is different from the general meaning of market.
In economic terms, market is defined as a system under which buyers and sellers negotiate the
price of a product, settle the price, and transact their business.

Moreover, it is not necessary that sellers need to sell their products at a particular place; they can
distribute the products round the world. In economic sense, personal or physical contact between
buyers and sellers is also not necessary.
They can perform transaction through various modes of communication, such as telephone,
Internet, or video conferencing. According to Cournot, “Economists understand the term market
not any particular marketplace in which things are bought and sold but the whole of any region
in which buyers and sellers are in such free intercourse with one another that the price of the
same goods tends to equality easily and quickly.” Thus, market does not imply a particular place,
but comprises local, regional, national and international market.

Essential of market
(1) An Area
In economics, a market does not mean a particular place but the whole region where sellers and
buyers of a product ate spread. Modem modes of communication and transport have made the
market area for a product very wide.

(2) One Commodity

In economics, a market is not related to a place but to a particular product.

Hence, there are separate markets for various commodities. For example, there are separate
markets for clothes, grains, jewellery, etc.

(3) Buyers and Sellers

The presence of buyers and sellers is necessary for the sale and purchase of a product in the
market. In the modem age, the presence of buyers and sellers is not necessary in the market
because they can do transactions of goods through letters, telephones, business representatives,
internet, etc.

(4) Free Competition

There should be free competition among buyers and sellers in the market. This competition is in
relation to the price determination of a product among buyers and sellers.

(5) One Price

The price of a product is the same in the market because of free competition among buyers and
sellers.
Types of market

(1)Size

Type of Product

Helps in determining the size of a market. A product that has high portability’ and durability and
whose supply varies with time, then the market size of that product would be large. For example,
market size of wheat, petroleum, and coal. On the other hand, perishable products, such as fruits
and vegetables, have narrow markets.

Demand:
Constitutes a significant factor for determining market size. A product whose demand is high
would have a large market size due to a large number of buyers. On the other hand, a product
that has less demand would have a small market size, as only few buyers are willing to buy it.

Mobility of Products:
Affects the market size to a large extent. Generally, a product that can be easily transported to
different regions has a large market size. For example, products, such as food grains and clothes,
are easily transportable. On the contrary, fast moving consumer goods (FMCG), such as eatables
and flowers, are difficult to be transferred due to short life span. Therefore, these products have a
small market size.

Peace and Security:

Refers to the type of political, social and economic environment of a country or region. The
regions or countries that are not considered as peaceful places do not attract organizations to
establish or market their products. Therefore, the market size of products is restricted in the
regions where security is limited.

Currency and Credit System:

Influences the size of a market to a greater extent. A well-developed currency and credit system
of a country helps organizations to flourish and expand more, which plays a very important role
in increasing the market size of a product.
State Policy
Plays an important role in increasing or decreasing the market size of a product. If the state
policy supports and encourage the expansion of a product, it would result in increase in the size
of the market. For example, eco-friendly products are encouraged by government. On the other
hand, products that are restricted according to the state policy would lose the market size, such as
tobacco and alcohol.

(2)Competition

Refers to the most important basis of classification of market. On the basis of competition,
markets are classified as perfect market and imperfect market. In a perfect market, buyers and
sellers are fully aware about the prices of products prevailing in the market.

Therefore, the price of a product is same all over the market. On the other hand, in an imperfect
market, the price of a product is different all over the market as buyers and sellers do not have
any information regarding prices of products.

Perfectly Competitive Market

In a purely competitive market, there are a large number of buyers and sellers dealing in
homogenous products. A perfectly competitive market is a wider term than a purely competitive
market. A perfectly competitive market is characterized by a situation when there is perfect
competition in the market.

According to Robinson perfect competition can be defined as, “When the number of firms being
large, so that a change in the output of any of them has a negligible effect upon the total output
of the commodity, the commodity is perfectly homogeneous in the sense that the buyers are alike
in respect of their preferences (or indifference) between one firm and its rivals, then competition
is perfect, and its rivals, then competition is perfect, and the elasticity of demand for the
individual firm is infinite.”

According to Bilas, “The perfect competition is characterized by the presence of many firms.
The all sell identical products. The seller is a price taker, not price maker.”
Purely Competitive Market
A purely competitive market is one in which there are a large number of independent buyers and
sellers dealing in standardized products. In pure competition, the products are standardized
because they are either identical to each other or homogenous. Moreover, the price of products is
same in the entire market.

Therefore, buyers can purchase products from any seller as there is no difference in the price and
quality of products of different sellers. Under pure competition, sellers cannot influence the
market price of products. This is because if a seller increases the prices of its products, customers
may switch to other sellers for getting products at lower price with the same quality.

On the other hand, if a seller decreases the prices of its products, then customers may become
doubtful about the quality of products. Therefore, in pure competition, sellers act as price takers.
In addition, in a purely competitive market, there are no legal, technological, financial, or other
barriers for the entry and exit for organizations.

In pure competition, the average revenue curve or demand curve is represented by a horizontal
straight line. This implies the homogeneity of products with fixed market price.

Figure-2 shows the average revenue curve under pure competition curve
Imperfectly Competitive Market
In economic terms, imperfect competition is a market situation under which the conditions
necessary for perfect competition are not satisfied. In other words, imperfect competition can be
defined as a type of market that is free from the stringent rules of perfect competition.

Unlike perfect competition, imperfect competition is characterized by differentiated products.

The concept of imperfect competition was firstly explained by an English economist, Joan
Robinson.

In addition, under imperfect competition, buyers and sellers do not have any information related
to the market as well as prices of goods and services. In imperfect competition, organizations
dealing in products or services can influence the market prices of their output.

Monopoly
The term monopoly has been derived from a Greek word Monopolian, which signifies a single
structure
seller. Monopoly refers to a market in which there is a single producer or seller that has a
control on the entire market. This single seller deals in the products that have no close
substitutes.

According to Prof. Chamberlain, “Monopoly refers to the control over supply.”

According to Robert Triffin, “Monopoly is a market situation in which the firm is independent of
price changes in the product of each and every other firm.”

Oligopoly
The term oligopoly has been derived from two Greek words, oligoi means few and poly means
control. Therefore, oligopoly refers to a market form in which there are few sellers dealing either
in homogenous or differentiated products. In India, the aviation and telecommunication
industries are the perfect example of oligopoly market form.

The aviation industry has only few airlines, such as Kingfisher, Air India, Spice Jet, and Indigo.
On the other hand, there are few telecommunication services providers, including Airtel,
Vodafone, MTS, Dolphin, and Idea. These sellers are closely interdependent to each other. This
is because each seller formulates its own pricing policy by taking into account the pricing
policies of other competitors existing in the market.

According to Prof. Stoneur and Hague, “Oligopoly is different from monopoly on one hand in
which there is a single seller. On the other hand, it differs from perfect competition and
monopolistic competition also in which there is a large number of sellers. In other words, while
describing the concept of oligopoly, we include the concept of a small group of firms.”

Monopolistic Competition
Monopolistic competition is a type of market system combining elements of a monopoly and
perfect competition. Like a perfectly competitive market system, there are numerous competitors
in the market. The difference is that each competitor is sufficiently differentiated from the others
that some can charge greater prices than a perfectly competitive firm. An example of
monopolistic competition is the market for music. While there are many artists, each artist is
different and is not perfectly substitutible with another artist.

Monopsony
Market systems are not only differentiated according to the number of suppliers in the market.
They may also be differentiated according to the number of buyers. Whereas a perfectly
competitive market theoretically has an infinite number of buyers and sellers, a monopsony has
only one buyer for a particular good or service, giving that buyer significant power in
determining the price of the products produced.

Price determination

Price is determined in a perfectly competitive market through interactions between demand and
supply. That is, demand and supply have an equally important role to play in the process of price
determination. According to the law of demand, as price of the good increases or decreases, the
quantity demanded of it decrease or increases.

Again, because of the law of supply, as price increases or decreases, the quantity supplied also
increases or decreases. We generally assume that if the price of good changes, its buyers may
instantly change the quantity of its purchase. They do not require any time lag to do this.
On the other hand, if the price of a good changes, then, whether quantity produced and supplied
of it would actually change, and by how much, would depend on the length of time given for
adjustment. For example, if the price of a good increases, then its producer will want to supply
more.

But within a short span of time he might not be able to increase supply as such as he wished.
However, if he is allowed a longer span of time, he might be able to produce more. This is
because, as we know, in the short run, he cannot change the quantities of the fixed inputs which
he may do in the long run.

Now, as we have seen above, the length of time obtained for necessary adjustments will
determine the extent of change in quantity supplied and thereby influence the price. That is why
it is said that time plays an important role in price determination in a perfectly competitive
market. We may discuss the process of price determination in this market in three phases,
depending on the length of time given for sion.

Conclusion

The prices are not determined only by the forces of demand and supply. Other factors such as the

price of substitute goods, price of related goods, government policies, competition in the market, etc.
also play an important role in the determination of the prices.
6.What do you mean by wages payment systems and write the meaning of
minimum wages.

Introduction

The system of wage payment is the method adopted by manufacturing concerns to remunerate
workers. It is the way of giving financial compensation of the worker for the time and effort
invested by them in converting materials into finished products. It indicates the basis of making
payment to the workers, which may be either on time basis or output basis. The selection of the
system depends on the type and nature of the concern and its products. The wage payment
systems can be divided into two main systems as follows.

Wage payment system

The amount of wages paid to the workers is one of the major elements of cost. It has a great
bearing on the cost of production and profitability of the concern. Hence, every concern is
required to adopt a fair system of wage payment. The importance of wage payment system can
be summarized as follows:
Wage payment system facilitates the preparation of wage plan for future.
Wage payment system helps to determine the cost of production and the profitability of the
organization.
Wage payment system determines the amount of earning of the workers and their living
standards.
Wage payment system affects the interest and attitude of the workers.

Wage payment system determines the level of satisfaction of worker and affects the rate of
labor turnover.
Wage payment system helps in recruiting skilled, experienced and trained workers.
Wage payment system helps to increase the productivity and goodwill of the organization.

Essential Characteristics Of A Good Wage Payment System

A sound system of wage payment is one that satisfies employer and employee by fulfilling
following criteria.

Wage payment system should be fair and justifiable to the workers and organization.
wage payment system should help in maximizing workers' satisfaction and minimizing labor
turnover.
a) Wage payment system should assure minimum guaranteed wages to all workers.
b) Wage payment system should assure equal pay for equal work.
c) Wage payment system should provide more wages to efficient and skilled workers.
d) Wage payment system should follow government policy and trade union's norms.
e) Wage payment system should be simple and understandable to all the workers.
F) Wage payment system should help in improving performance and productivity of the
workers.
g)Wage payment system should be flexible enough to suit the needs of the organization.

Some of the systems of wage payments commonly used are: 1. Time Rate System 2. Piece Rate
System 3. Combination of Time and Piece Rate System.
Time Rate System:
Time rate system is the simplest and oldest method of wage payment. According to this system,
the workers are paid in accordance with the time spent on the job. The time may be on hourly,
daily, weekly, fortnightly or monthly basis. The work or production done by an employee is not
taken into consideration.

For example,
If the worker is paid at the rate of Rs.20 per hour and he spends 50 hours during a week, the
weekly payment is:

Weekly wages = (Number of hours worked during the week) x (Rate per hours) = 50 x 20 =
Rs.1000 per week.

Advantages

This method of wage payment is very simple. The workers will not find any difficulty in
calculating the wages.

This method is acceptable to trade unions because it does not distinguish between workers on
the basis of their performance.

The quality of goods will be better as workers are assured of wages on time basis.

This system is good for the beginners because they may not be able to reach a particular level of
production in the beginning.

There will be less wastage, as workers will not be in a hurry to push through production.

Wages on Piece Basis

In this method, the time spent by the worker is immaterial and payment is made according to the
quantity of work done. Rate of wages is per unit of work. A worker may be paid Rs. 5.00 per
unit; if his output in a month is 300 units, his wages for the month will be Rs. 1500 i.e., 300 x
5.00.
The wage rate may be expressed even as so much per hour; in that case for computing the wages,
the output will have to be expressed in terms of standard hours. Suppose a worker is paid Rs. 2
per hour. On a day of 9 hours, he produces 36 units, the standard time for each unit being 20
minutes. The output of the worker may be stated also as 12 hours, i.e., 36 x 20/60. His wages on
piece basis will be Rs. 24, i.e., 12 x 2—on time basis it would have been only Rs. 18, i.e., 9 x 2.

The system should mean a good deal of incentive to do the best. Output will thus be maximized
and the cost per unit of output will be lowered. The employer will also exactly know the labour
cost per unit. This helps in making quotations confidently.

Advantages

This system is simple in working and the workers can easily calculate their wages.

This system helps in distinguishing efficient and inefficient workers.

Strict supervision is not required in this system.

This system is fair to employee and employer both.

There will be no dispute for wages, as workers will be rewarded satisfactory for their work.
Disadvantages

1. Production is encouraged at the expense of quality.

2. Having earned a desirable amount which the workers might have fixed in their minds and to
avoid incidence of taxation, they may frequently absent themselves from work, thereby
disturbing the production flow of the factory.

3. Under this system of wage payment only the worker’s output is considered, his other qualities
are ignored.
4. This system tends to develop the tendency of increasing imperfections, defectives and spoiled
work and higher depreciation costs because of considerable wear and tear of plant and
machinery.

Combination of Time and Piece Rate System

In this system, both time and product are taken into consideration. The minimum weekly wages
are fixed for every worker, which are to be paid irrespective of his output during the week,
provided he has worked for full working hours required in a week. The wages for the period of
his absence are deducted from the total amount of his wages. The piece rate system is also
combined with time rate system as follows,

A job card of each worker is maintained which clearly shows the number of jobs completed by
the worker during a week. Payment for each job is fixed in advance. If the piece rate wages
earned by the worker are more than time rate wages, the balance is paid to the worker. On the
other hand, if piece rate wages are less than time rate wages, then the worker will have to
compensate the same by making more pieces during next week.

Advantages

This system provides incentives to workers to produce more,

It is simple in its working and the workers can easily calculate their wages.

Minimum wage payment system

Minimum wages have been defined as “the minimum amount of remuneration that an employer
is required to pay wage earners for the work performed during a given period, which cannot be
reduced by collective agreement or an individual contract”.

This definition refers to the binding nature of minimum wages, regardless of the method of
fixing them. Minimum wages can be set by statute, decision of a competent authority, a wage
board, a wage council, or by industrial or labour courts or tribunals. Minimum wages can also be
set by giving the force of law to provisions of collective agreements.

The purpose of minimum wages is to protect workers against unduly low pay. They help ensure
a just and equitable share of the fruits of progress to all, and a minimum living wage to all who
are employed and in need of such protection. Minimum wages can also be one element of a
policy to overcome poverty and reduce inequality, including those between men and women, by
promoting the right to equal remuneration for work of equal value.

Minimum wage systems should not be seen or used in isolation, but should be designed in a way
to supplement and reinforce other social and employment policies. Several types of measures can
be used to tackle income and labour market inequality, including pro-employment policies,
social transfers, and creating an enabling environment for sustainable enterprises.

The purpose of a minimum wage, which sets a floor, should also be distinguished from collective
bargaining, which can be used to set wages above an existing floor. Figure 1 shows a
hypothetical wage distribution with a "minimum wage zone" and a "collective bargaining zone"
which can be used to establish minimum standards and to set wages above an existing floor.

How to read this figure : Figure 1 shows a hypothetical wage distribution of a population of 56
wage-earners before the introduction of a minimum wage. The level of wages is on the
horizontal axis, and the number of wage earners is on the vertical axis.

We see the full range of market wages, including a relatively small proportion of workers with
extremely low pay on the left end of the wage distribution. For example, 1 employee has a wage
of 1$, 2 employees are paid 3$, while 5 employees receive wages of 8$.

The circle called the “minimum wage zone” shows that a minimum wage should in principle
remain targeted at the lowest-paid employees, to eliminate “unduly low pay”; the big circle is the
“collective bargaining zone” and illustrates the principle that collective bargaining can be used to
set wages above an existing floor.

Conclusion

Minimum wages have been defined as the minimum amount of remuneration that an employer is
required to pay wage earners for the work performed during a given period, which cannot be
reduced by collective agreement or an individual contract. Following this definition, minimum
wages exist in more than 90 per cent of the International Labour Organisation's (ILO) member
States. The purpose of minimum wages is to protect workers against unduly low pay. They help
ensure a just and equitable share of the fruits of progress to all, and a minimum living wage to all
who are employed and in need of such protection. Minimum wages can also be one element of a
policy to overcome poverty and reduce inequality, including those between men and women.
Minimum wage systems should be defined and designed in a way to supplement and reinforce
other social and employment policies, including collective bargaining, which is used to set terms
of employment and working conditions. Historically, the purpose of minimum wages has
evolved from a policy tool to be used selectively in a few low-wage sectors to an instrument of
much broader coverage

The field study also suggests that in order to make the piece-rate effective and popular, the
existing straight piece rate system should be repalced by a differential one which would provide
suffcieient incentives for increased efficiency. In construction industry where collective
bargaining is yet to take its roots, it should be the responsibility of the State to see that
appropriate share of increased productivity . is passed on to the workers. It is in this context that
the feasibility and desirability of a minimum guaranteed time rate Wage should be considered.

7.Explain the types function and importance of money.

Introduction

Money

Functions of Money
In general terms, the main function of money in an economic system
is “to facilitate the exchange of goods and services and help in carrying
out trade smoothly.” Its basic characteristic is general acceptability.
Functions of money are reflected in the following well- known couplet:

“Money is a matter of functions four A medium, a measure, a

standard, a store.”

Thus conventionally money performs the following four main

functions, each of which overcomes one or the other difficulty of
barter. Medium of exchange and measure of value are primary
functions because they are of prime Importance whereas standard of
deferred payment and store of value are called secondary functions
because they are derived from primary functions.

Money as the Medium of Exchange

Money came into use to remove the inconveniences of barter as money

has separated the act of purchase from sale. Medium of exchange is
the basic or primary function of money. People exchange goods and
services through the medium of money. Money acts as a medium of
exchange or as a medium of payments. Money by itself has no utility
(except perhaps to the miser). It is only an intermediary.
The use of money facilitates exchange, exchange promotes
specialisation Increases productivity and efficiency A good monetary
system is, therefore, of immense utility to human society. Money is
also called a bearer of options or generalised purchasing power
because it provides freedom of choice to buy things he wants most
from those who offer best bargain.

Money as a Unit of Account or Measure of Value

Money serves as a unit of account or a measure of value. Money is the

measuring rod, i.e., it is the units in terms of which the values of other
goods and services are measured in money terms and expressed
accordingly Different goods produced in the country are measured in
different units like cloth m metres, milk in litres and sugar in
kilograms.

Without a common unit, exchange of goods becomes very difficult

Values of all goods and services can be expressed easily in a single unit
called money Again without a measure of value, there can be no
pricing process. Without a pricing process organised marketing and
production is not possible. Thus, the use of money as a measure of
value is the basis of specialised production.

The measuring rod of money is also indispensable to all forms of

economic planning. Consumers compare the values of alternative
purchases m terms of money Producers also compare the values of
alternative purchases m terms of money. Producers compare the
relative costliness of the factors of production in terms of money and
also plan their output on the basis of the money yield. It is, therefore,
highly important that the value of money should be stable.

Money as the Standard of Deferred Payments

Deferred payments are payments which are made some time in the
future. Debts are usually expressed in terms of the money of account.
Loans are taken and repaid in terms of money.
The use of money as the standard of deterred or delayed payments
immensely simplifies borrowing and lending operations because
money generally maintains a constant value through time. Thus,
money facilitates the formation of capital markets and the work of
financial intermediaries like Stock Exchange, Investment Trust and
Banks. Money is the link which connects the values of today with those
of the future.