Important Economics Terms For SSC CGL EXAM

1. GIFFEN GOOD
The good for which the demand increases as its price increases, rather than falls (opposite to the general theory of demand)-named after Robert Giffen (1837-1910). It applies to the large proportion of the goods belonging to the household budget (as flour, rice, pulses, salt, onion, potato etc. in India)-an increase in their prices produces a large negative income effect completely overcoming the normal substitution effect with, people buying more of the goods.

2. GINI COEFFICIENT
An inequality indicator in an economy. The coefficient varies from ‘zero’ to ‘one’. A ‘zero’ Gini coefficient indicates a situation of perfect equality (i.e. every household earning the same level of income) while a ‘one’ signifies a situation of absolute inequality (i.e. a single household earning the entire income in an economy).

3. GOLDEN HANDSHAKE
A payment (usually generous) made by a company to its employees for quitting the job prior to their service.

4. GOLDEN HANDCUFF
A royalty/bonus payment by a company to its staff (usually top ranking) to keep them with the company or to save them from poaching by the other companies.
5. GOODHART’S LAW
The idea of Goodhart which suggests that attempts by a central bank (as RBI in India) to regulate the level of lending by banks imposing certain controls can be circumvented by the banks searching the alternatives out of the regulatory preview.

6. GRESHAM’S Law
The economic idea that ‘bad’ money forces ‘good’ money out of circulation, named after Sir Thomas Gresham, an adviser to Queen Elizabeth I of England. This law does not apply to the economies where paper currencies are in circulation. The economies which circulate metallic coins (gold, silver, copper, etc.) of proportional intrinsic values face such situations when people start hoarding such coins.

7. GREY MARKET
The ‘unofficial’ market of the newly issued shares before their formal listing and trading on the stock exchange.

8. HISTORIC COST
The original cost of purchasing an asset such as land, machine etc., which is shown in the balance sheet of a firm under this title with an adjustment for the replacement cost of the asset.

9. INDIFFERENCE CURVE
A curve on the graph showing the alternative combinations of two products, each giving the same utility/satisfaction.

10.INDUCED INVESTMENT
The part of investment (increase or decrease) which takes place due to a change in the level of national income.

11. IPO
An IPO or initial public offering refers to the issue of shares to the public by the promoters of a company for the first time. The shares may be made available to the investors at face value of the share or with a premium as per the perceived market value of the share by promoters. The IPO can be in the form of a fixed price portion or book building portion. Some companies offer only demat form of shares, other offers both demat and physical shares.
     The performance of an IPO depends on many factors such as the promoter’s track record, experience in running the business, risk factors listed in the offer document, nature of industry, government policies associated with the industry performance of that sector in the previous years, and also any available forecasts for the industry for the near future.   

GATEWAY TO CGL : ECONOMICS NOTES

DEMAND
Demand:- Quantity of the commodity that a consumer is able and willing to purchase in a given period and at a given price.

Demand Schedule:- It is a tabular representation which shows the relationship between price of the commodity and quantity purchased.
Demand Curve:- It is a graphical representation of demand schedule.
Individual Demand:- Demand by an individual consumer.

Factors Affecting Individual Demand For a Commodity/Determinants of Demand:-
1. Price of the commodity itself
2. Income of the consumer
3. Price of related goods
4. Taste and Preference
5. Expectations of future price change

Law of Demand:- Other things remains constant, demand of a good falls with rise in price and vice versa .

Changes in Demand:-
They are of two types:
1) Change in Quantity Demanded (Movement along the same demand curve)
2) Change in Demand (Shifts in demand)

1) Change in Quantity Demanded: -
Demand changes due to change in price of the commodity alone, other factors remain constant; are of two types;
A) Expansion of demand : More demand at a lower price
B) Contraction of demand : Less demand at a higher price
2) Change in demand:-
Demand changes due to change in factors other than price of the commodity, are of two types:
A) Increase in demand:- more demand due to change in other factors, price remaining constant.
B) Decrease in demand:- less demand due to change in other factors, price remaining constant.

Causes of Increase in Demand:-
1. Increase in Income.
2. Increase/ favorable change in taste and preference.
3. Rise in price of substitute good.
4. Fall in price of complementary good.
Note: Increase in income causes increase in demand for normal good

Causes of Decrease in Demand:
1. Decrease in Income.
2. Unfavorable/Decrease in taste and preference
3. Decrease in price of substitute good.
4. Rise in price of complementary good.
Note: Decrease in income causes Decrease in demand for normal good

Type of Goods

Substitute Goods:- Increase in the price of one good causes increase in demand for other good. E.g., tea and Coffee
Complementary Goods:- Increase in the price of one good causes decrease in demand for other good. E.g:- Petrol and Car
Normal Good:- Goods which are having positive relation with income. It means when income rises, demand for normal goods also rises.
Inferior Goods:- Goods which are having negative relation with income. It means less demand at higher income and vice versa.
Normal goods - the quantity demanded of such commodities increases as the consumer’s income increases and decreases as the consumer’s income decreases. Such goods are called normal goods.
Giffen goods - a Giffen good is an inferior good which people consume more of as price rises, violating the law of demand.. In the Giffen good situation, cheaper close substitutes are not available. Because of the lack of substitutes, the income effect dominates, leading people to buy more of the good, even as its price rises.
Veblen good : Often confused with Giffen goods, Veblen goods are goods for which increased prices will increase quantity demanded. However, this is not because the consumers are forced into buying more of the good due to budgetary constraints (as in Giffen goods). Rather, Veblen goods are high-status goods such as expensive wines, automobiles, watches, or perfumes. The utility of such goods is associated with their ability to denote status. Decreasing their price decreases the quantity demanded because their status- denoting utility becomes compromised.

Important Notes Of "Finance Commission of India"

FINANCE COMMISSION OF INDIA
A finance commission is set up every five years by the President under Article 280 of the Constitution. Finance Commission of India came into existence in 1951.It was formed to define the financial relations between the centre and the state. These recommendations cover a period of five years. The commission also lays down rules by which the centre should provide grants-in-aid to states out of the Consolidated Fund of India. It is also required to suggest measures to augment the resources of states and ways to supplement the resources of panchayats and municipalities.

Composition of the Fourteenth Finance Commission
The Fourteenth Finance Commission has been set up under the Chairmanship of Dr.Y.V.Reddy
[Former Governor Reserve Bank of India].
Other Members of the Commission are:

Ms. SushmaNath [Former Union Finance Secretary],
Dr.M.Govinda Rao [Director, National Institute for Public Finance and Policy, New Delhi].
Dr.SudiptoMundle, Former Acting Chairman, National Statistical Commission.
Prof Abhijit Sen (Member, Planning Commission) is the part timeMember of the Fourteenth Finance.
Commission. Shri Ajay Narayan Jha is the Secretary, Fourteenth Finance Commission.

Qualifications of the Members
The Chairman of the Finance Commission is selected among people who have had the experience of public affairs. The other four members are selected from people who:

Are, or have been, or are qualified, as judges of High Court, or
Have knowledge of Government finances or accounts, or
Have had experience in administration and financial expertise;
Have special knowledge of economics
Procedure and Powers of the Commission:
The Commission has the power determine their own procedure and:

Has all powers of the civil court as per the Court of Civil Procedure, 1908.
Can summon and enforce the attendance of any witness or ask any person to deliver information or produce a document, which it deems relevant.
Can ask for the production of any public record or document from any court or office.
Shall be deemed to be a civil court for purposes of Sections 480 and 482 of the Code of Criminal Procedure, 1898.

Tenure of the 14th Finance Commission:
The Finance Commission is required to give its report by 31st October, 2014.Its recommendations will cover the five year period commencing from 1st April, 2015.

Among the major recommendation

It includes the centre to share 42% of the divisible pool of tax to the states which is 10% more than the present share.
It recommended doing away with the distinction between unconditional and conditional transfers.
Previously the transfers were a mix of conditional and unconditional funds, where the conditional transfers is given for serving some specific purpose. Here the state having the flexibility to utilize the conditional transfers as per the needs.
The commission, on deciding the share of states has done away with the component of previous commission namely, fiscal discipline. Instead it introduced two new components that are changes in population between 1971 and 2011 and giving credit to the success in retaining forest cover.
The commission along with recommended on implementation of Goods and Services Tax and laid out a fiscal road map for the economy.

GATEWAY TO CGL MAINS: ECONOMICS NOTES 2

DEMAND
Demand:- Quantity of the commodity that a consumer is able and willing to purchase in a given period and at a given price.

Demand Schedule:- It is a tabular representation which shows the relationship between price of the commodity and quantity purchased.
Demand Curve:- It is a graphical representation of demand schedule.
Individual Demand:- Demand by an individual consumer.

Factors Affecting Individual Demand For a Commodity/Determinants of Demand:-
1. Price of the commodity itself 
2. Income of the consumer
3. Price of related goods
4. Taste and Preference
5. Expectations of future price change

Law of Demand:- Other things remains constant, demand of a good falls with rise in price and vice versa .

Changes in Demand:-
They are of two types:
1) Change in Quantity Demanded (Movement along the same demand curve)
2) Change in Demand (Shifts in demand)

1) Change in Quantity Demanded: -
Demand changes due to change in price of the commodity alone, other factors remain constant; are of two types;
A) Expansion of demand : More demand at a lower price
B) Contraction of demand : Less demand at a higher price
2) Change in demand:-
Demand changes due to change in factors other than price of the commodity, are of two types:
A) Increase in demand:- more demand due to change in other factors, price remaining constant.
B) Decrease in demand:- less demand due to change in other factors, price remaining constant.

Causes of Increase in Demand:-
1. Increase in Income.
2. Increase/ favorable change in taste and preference.
3. Rise in price of substitute good.
4. Fall in price of complementary good.
Note: Increase in income causes increase in demand for normal good

Causes of Decrease in Demand:
1. Decrease in Income.
2. Unfavorable/Decrease in taste and preference
3. Decrease in price of substitute good.
4. Rise in price of complementary good.
Note: Decrease in income causes Decrease in demand for normal good

Type of Goods

Substitute Goods:- Increase in the price of one good causes increase in demand for other good. E.g., tea and Coffee
Complementary Goods:- Increase in the price of one good causes decrease in demand for other good. E.g:- Petrol and Car
Normal Good:- Goods which are having positive relation with income. It means when income rises, demand for normal goods also rises.
Inferior Goods:- Goods which are having negative relation with income. It means less demand at higher income and vice versa.
Normal goods - the quantity demanded of such commodities increases as the consumer’s income increases and decreases as the consumer’s income decreases. Such goods are called normal goods.
Giffen goods - a Giffen good is an inferior good which people consume more of as price rises, violating the law of demand.. In the Giffen good situation, cheaper close substitutes are not available. Because of the lack of substitutes, the income effect dominates, leading people to buy more of the good, even as its price rises.
Veblen good : Often confused with Giffen goods, Veblen goods are goods for which increased prices will increase quantity demanded. However, this is not because the consumers are forced into buying more of the good due to budgetary constraints (as in Giffen goods). Rather, Veblen goods are high-status goods such as expensive wines, automobiles, watches, or perfumes. The utility of such goods is associated with their ability to denote status. Decreasing their price decreases the quantity demanded because their status- denoting utility becomes compromised.

Types of Goods : Economics

A) Macroeconomics
Final good Goods used for final consumption.
Used by the end-consumers/users. It satisfies customer’s wants directly
Known as final goods because once it has been sold it passes out of the active economic flow.
No further transformation is made by any producer.
May undergo transformation process by purchaser but that is not come under economic activity as it doesn’t yield anything.
E.g.: tea leaves used at home to make drinkable tea, milk etc.

Consumption goods
Consumed by ultimate consumers
Non-durable: perishable in nature, e.g. food, clothing etc.
Consumer-Durable: car, furniture, television etc.

Capital goods
machines, implements, tools
E.g. Printer
Make the production of other commodity feasible.
Durable in nature

Intermediate good
Goods that are used for further production is called intermediate goods also called inputs.
It is further goes into transformation process.
It adds earning in active economic activity.
Tea leaves used by restaurant to make drinkable tea
Therefore, Types of goods is not depending on nature of goods but it depends on economic nature of its use.
Goods used for the production of other goods
Goods used by producers as material inputs
Plants, machinery, factory
E.g. cotton yarn used to make cloth,
Wood used to make furniture etc.

B) Micro economics
Inferior good
Inferior goods are goods whose demand decreases as income increases.
Increase in income causes a fall in demand.
E.g. When income of an individual increases, spends less on cheap cloth.
Goods are cheap in nature.
Potatoes, baked beans etc.

Superior good/ normal goods
Demand increases as income
increases increase in income cause to increase in demand
expensive in nature
e.g. vacation trips

Luxury goods
Demand increases more than proportionally as income rises.
Goods has good quality, durability and remarkably superior in nature.
E.g. Gold ornaments

Prestige goods
Goods which give high prestige, status and value these goods are limited in nature
e.g. antique collections

Giffen goods
Increase in price causes increase in demand.
E.g. Wheat

Complementary goods
Goods which are used together.
E.g. Pencil and sharpener

Substitute goods
Goods which can used in place of other.
E.g. Pepsi and coke