MACRO ECONOMICS

So good afternoon everybody one question

the one your question to some extent can we say that quantity demanded is

somewhat at an individual level or a community level and demand is aggregate quantity demanded in an

economy no completely wrong uh actually demand i told you the demand

uh is shows the preference of an individual okay so when we say demand demand means

key what quantity various quantities a person is willing to buy at different prices here qd and here price

so this much qd at this price this much ud at this price this much qd at this price so demand actually shows

preferences of a person at each price how much person want to buy

okay so demand may be individual demand of one person and when we add up demand of all people we get market demand you

know of a particular product market demand and when we add up demand of all people

and for all commodities in the entire economy we get aggregate demand so aggregate demand is actually demand of

all commodities by all people in our country that is aggregate demand we will discuss in macroeconomics and remember this thing

individual demand as well as market demand is a part of microeconomics

because market demand means we are adding demand of particular product

okay your question why rbi sell dollars in foreign

foreign market in order to control rupee depreciation it is not foreign market it is foreign

exchange market and foreign election market by and large within india it should be clear who deal in that foreign

exchange market the authorized dealers of rbi ad of rbi authorized dealer of

rbi so if rupees is depreciating so why rbi uh actually sells sales dollars so this

is actually demanded on a supply of dollar

okay so if rbf won let us suppose actually it is 73

so if rupee depreciates for example how rupee will depreciate let us suppose

demand may increase imports may increase so the amount of dollar may increase

means import may increase or foreigners start withdrawal of money then rupee may depreciate it may be 74 letters suppose

so rupee depreciated here if rbi would rbi would like to check rupee depression will

so what are we will do rbi is holding dollars so rbi should buy dollars in this market or sell dollar in this

market okay this is a market where who are dealing the authorized agents of rb

authorized dealers of rbi okay so rbi what are we will do are based having dollars so rbi should buy or sell

dollars so obviously when rba will buy then demand will further increase rupee will further depreciate

okay so when rb will sell dollars so supply of dollars will increase and when supply of dollars will increase then

rate of dollar will come down so when rba will sell down it will come back to this so if rupees is

depreciating if rba want to check rupee depreciation we start selling dollars it is very common whenever ruby

depreciates more rbi starts selling dollars but problem is that rbi has limited

dollars if rv will sell all dollars then forex uh may not be there okay so this is the limitation rba

cannot sell unlimited dollars so whatever dollars rba has rba cancelled those dollars only

okay so we were taking a paradox of poverty of farmers to a few questions i asked from you

people just okay paradox of poverty of farmers what is meaning of paradox

paradox of poverty of farmers

i told you farmers are bound to lose if if production

if production will decrease farmer will lose if production

will increase farmers will lose and if production is average they are already actually poor so farmers are bound to be

poor okay then i ask you questions from you people okay it should be clear when production will increase it is related

with what bumper crop bumper crop bumper crop means if production of one

farmer will increase that farmer will not lose it should be clear so if production of only one farmer will

increase then that farmer will gain and in this case uh now uh

next question is that okay why farmer lose then production is more this is demand this is supply

so this is price if and what is revenue price into quantity

this area this into this is actually revenue if production will increase in case of

bumper crop what will happen supply will increase much okay because of bumper crop supply will

increase when supply will increase price will reduce much and qd will not increase much so you can

see the new revenue is this price into this quantity this area so revenue or farmer will come down and farmer will

lose this happens now next now one question from you

people that if opposite happens if let us suppose uh crop fail the

farmer should gain theoretically or they should lose

okay the question is that k if let us suppose this bumper crop supply is increasing

now question is that okay if so q1 we can say if a production

will decrease overall so farmer should gain or lose so can you give answering g or l

to gain or lose if production of overall production will actually reduce

then farmers should gain my question is that he should

should gain or lose

so here all of you are wrong here why you are so all of them all of you are wrong not

lose you know this very basic thing any last

demand is inelastic i told you when supply will reduce farmers should gain

okay only kritika is correct only few people are

correct

is correct and hemanth is correct so otherwise all of you are wrong why

you know if production overall will reduce then what will happen supply will reduce and when supply will reduce price

will shoot up what the point if supply will reduce so you know

this sub demand curve is inelastic okay so if supply will actually reduce

so like as truth what will happen price will increase much more

so revenue farmer will increase the reason is that inelastic means whatever is reduction in quantity

quantity will reduce marginally and supplies will shoot up much so revenue will increase and farmers should gain

to got the point inelastic just see the definition of inelastic okay which will change more

when demand of supply will change price will increase much more qd will reduce less so overall revenue farmer will be

more and farmer should gain so this answer is farmers should gain

now the question is that i'm talking about telling about should

now next question from you people the same question question two is that if production reduces

overall production reduces just like the same so farmers actually

gain or lose now give me answer again g or l actually they gain or lose when crop or farmer fail when overall

production reduces in our area then farmers gain or lose so now it is very easy

if uh actually they gain or lose

correct answer okay theoretically again and now uh now you are correct here so

they always lose so farmers always lose when production

fail when crops feel because of any reason like drought disease any problem you know

actually they lose now but why there is a difference they

should gain as per our analysis can anybody tell me reason

they should gain as per analysis or theoretically they should gain but practically they always lose why can

you tell me reason they should gain means this is actually theoretically this is this is theoretical

as per our uh analysis they should gain but practically dual will always lose can anybody tell me reason why

why there's a difference in theory and practice as per our analysis they should gain

but they never gain you have never heard of this thing whenever crossfield and farmer might have been never again why

why actually it is opposite why are analysis wrong here can anybody give me reason

you have given answer middlemen gain but not farmers

supply change supply is not sufficient no no uh supply is not sufficient then

people do not give such high price they are no price shoot up

uh actually it is very difficult question so your answers are not very

means somewhat close some but not exactly correct so none of answer is exactly correct

the answer is is very difficult question anyhow so answer is timing here answer is timing price will shoot

up do you think immediately price will shoot up after harvest the question is that if farmers sell at

what time farmer sells after harvest and after harvest do you think price will immediately shoot up whenever you

know price of onions increased recently earlier also price of some vegetables increased do you think the

price increase immediately after harvest never it should be clear price will never shoot up

immediately after harvest for example a crop is grown and you know if there the production is less

price will be somewhat high slightly higher in initially when they will be shortage after maybe six months eight

months ten months then price will shoot up so by the time farmers have sold the answer

sell immediately after harvest so at that time price can never shoot up very high so farmer will may get somewhat

slightly higher price but since production is lost so less to farmers lose and when

production is less than after some time after a few months you know price will shoot up in market and then by the time

who are holding the goods the traders are holding the good so traders gain this is the reason

what the point so some of you were partially correct yes jaydev has given correct answer it

uh it will take some time yes price will not increase immediately after harvest because supply will be more

even if it is less so overall uh the only jadif has given the correct answer

so i think it should be clear okay what should happen and what actually happens

now one more analysis from you people now one more question in case of bumper crop

farmers lose what happens to traders in this case in this case of bumper crop farmers lose

traders will gain or lose and along with reason can you tell me

reason do you know lose and reason also so trainers gain or lose in this case of

bumper crop actually i'm talking about practically so traders gain or lose

and along with reason to shivam pattak you have given correct

answer again yes so why can anybody give me reason yes

answer is gain in case of bumper crop they always gain

shivam you said k again because of high competition known

yes some of you are here correct or close to correct so traders will gain why because traders

will buy at throw away prices because you know prices are so low in bumper crop k farmers actually sometimes live

in the field or they just throw the output because even transportation cost is not recovered harvesting cost is not

recovered so traders get that commodity at throw away prices in supers are

10 pesos 15 peso per kg even some crops are sold at this this rate and but do you think price will uh be

that low in actually in retail market it can never be so low because you know

key like tomato may be sold sometime in 50 pesos 40 peso per kg in monday but have you ever uh

seen in in market okay tomato may be selling at 50 per kg or 1 rupee per kg

so you know in retail market price is never low so they buy actually from farmers at very low price

and may store and then price will be somewhat low but not low if the price of tomato may be on an average maybe 20

rupees so at the most it may come down to 10 or 5 rupees it will never be hardly you can find before below 5.

so uh i've got the point here price can never

be too low here

so price can never be too low so this is the reason why traders gain

because they will buy at very low price and will uh now some questions are there

you have asked question in case of over production what can government do to save farmers from incurring loss during

bumper crop what government can do i am coming to this i said now there is one problem

uh i'm coming to this problem only pretty why is to uh storing excess crop in fci

go down not enough the problem is that fci don't have enough space for its own crop

how it can allow farmer to keep because fc is holding much more grains as far down fci has limited stocking capacity

this is the problem and apart from that farmers have other problems also they have to a lot of farmers are indebted

they need money so they cannot wait for long this is the problem a lot of problems are there uh

you have asked if production increases supply increases and price decreases but farmer

can sell they produce at normal price to increase their revenue how farmer can set non prices production

will increase supply will increase then price will will shoot down price will be very low

this is the reason and and you know farmers you know supply is elastic or elastic

so farmer supplies inelastic because farmers don't have much choice and traders know

now one more question now on this uh you know farmers actually you know supplies inelastic they don't have much

choice to sell or not to sell they have to sell immediately after harvest so uh why they have to sell immediately

after harvest because they don't have a storage space and even if there are some warehouses are there government warehouses are

there they can keep so they have to pay some rent so farmers cannot afford to pay rent and if they are indebted that

interest is going up price may go up or may not in future additional cost of land transportation etc so not much

farmers in india they can afford to keep the commodity in a stock

now if you know this is the situation of farmers now one very important thing to understand here now just tell me this

question okay if farmers have this situation everybody knows that traders also knows that okay

farmers have to sell if production is more in a given area maybe one thousand farmers are there so maybe five ten

farmers twenty farmers may save but majority of farmers have to sell so what do what will happen will it

increase or decrease bargaining power of farmers because of this fact farmers don't have actually storage space priceable goods

cannot be stored okay cold storages are much lesser in india farmers are indebted they have to sell immediately

after harvest if traders know this thing so do you think farmers trading power farmers bargaining power will increase

or decrease now give me answer again if i increase d4 decrease the farmer's bargaining power because of

this fact in india will increase or decrease okay

give me answer of this question this is very important to understand

so farmers bargaining power will increase or decrease because of this thing traders know okay farmers have to sell they cannot restore otherwise that

will be wasted yes so all of you are correct here farmers bargaining power decrease and

when bargaining probabilities they will pay just nominal price that is why price shoot down i think you must have understood now okay why price will shoot

down now what will happen now one more next point is that k if

this will happen okay let us suppose uh rather i'll make again this is demand curve this is

supply curve if let us suppose production increases this year

okay if let us suppose production increases so what will happen

price will decrease much if production will increase let us

suppose this bumper crop farm price will decrease and farmers will lose

okay lost two farmers try to ride everything

whatever i write on board when farmers will lose what will happen in next year next season they will grow

more or less this crop what do you think so farmers actually will be apprehensive

okay there may be laws so next year what will happen

next next year what will happen to production they will produce more or less

what do you think can you give answer more or less next year if our price fell farmers lose so next year what will

happen to production i4 increased d4 degrees i'll tell you one experience okay the

person who cultivate our field uh to mr nasir uh he told me uh about one

and a half year back he told me you know last year at one and a half year back he told me last year

the price of tomato was so low okay i have to leave tomato in in the field

and this year price is quite good and i have not grown tomato okay so he was repenting okay the means

my luck is bad last year when i grew tomato now you know price was he literally he told me okay i have to

leave tomato in field i said so you should have actually sold you must have got some price so he said

you know i asked the people who plucked tomato okay you don't take labor you can take two thirds of the tomato give me

one third only please plug it harvest it and give me one third only they were not ready he said they were not ready to

take two thirds of the uh tomato as their labor they were demanding labor so and the labor cost he said was higher

than the cost of production what the point to he said i left the tomato in field and why he was telling

me because at that time price of tomato was very very high so about one and a half or maybe or approximately two years

back he told me this thing so why to answer you have given uh decrease yes correct answer so

production will decrease when production will decrease then what will happen

price will be more so next time production will decrease next year so then next year

s2 price will go up so those farmers who have grown potato this tomato or this crop was to some extent they begin

because price will be more okay because not much farmers are growing the farmers which are growing they are getting better price those

farmers may gain so next year what will happen they will produce more or less

they will produce more so got the point here so this is called

uh a phenomena called cobweb phenomena i've this was mentioned economic survey also

phenomena so in this coffee phenomena means k production

of any crop depends on price of previous year okay so let us suppose price of ert

will determine the uh will determine the production of

t plus one okay if price may be high you know then

production next year will be high so there is correlation between price of this year and production of next year

what the point so that is why uh what will happen the production will remain stable or fluctuate production in price

so what it will be implication of this so you can see here production increases

this year price reduces when price reduces farmers lose next year production will decrease so one year

production increase next year production will be less and what will happen here again

when production is less price will shoot up farmers will lose and next year they will produce more or less next day they

will produce less than production will come down so there are fluctuations in production and price will keep on also fluctuating

price decrease here price increase here so there are fluctuations so in that economic survey they have uh shown

cobweb phenomenon pulses so they have mentioned production of pulses is like this

because production depends on previous year's prices i think it should be clear this is called cobweb phenomena this is

mentioned economic survey also i have shared notes you may go through they have given this price of this

this is actually price okay price of the year t

will determine the production of t minus one so because of this price of the ert

will determine production of t plus one next year and production will affect price

okay so it will keep on fluctuating so this is cobweb phenomena so now the question is that is it

desirable this fluctuation in production and fluctuation prices is it desirable

to certainly not desirable for everybody farmers sometimes gain some sometimes they lose so one it increases

vulnerability of farmers one thing second thing you know consumers also suffer when production will be less price will shoot

up to consumer also suffer yes or no it is undesirable thing okay for farmers as well as for consumers so

this coffee phenomena now the question is that what government can do to predict uh car you have us okay in case

of overproduction what can government do to save farmers can anybody give me suggestion to check

this cobweb phenomena this instability what government can do

what government can do the reason is that what government can do governing may fix up price minimum price let us

suppose minimum support price msp so government will fix a msp minimum

support price so what is msp it is the price at which government guarantees to buy unlimited quantity

whatever you want you can sell now the question is that okay let us suppose price used to be 10 rupee and

msp 7 it means that government is ready to buy any quantity you offer at rupees 7 okay

minimum support price so i'm just giving you introduction the reason why msp is needed so if government will announce msp now

my question is that okay market price can be lower than msp yes or no

means ideally uh if government is ready to buy unlimited quantity at rupees seven so price of this product

can uh theoretically i'm talking about actually if government is able to buy at

seven rupee in every monday then actually price can be or theoretically price can be below seven yes or no

please give me answer yes or no if government actually is ready to buy unlimited quantity at this price

uh you know so uh price can at least theoretically be below seven yes or no

so answer is very simple no why no reason is that k if government is

ready to buy seven so why pharma will sell below seven let us suppose if government is ready to

buy at seven rupee unlimited quantity then why farmer will sell below seven

but practically price may be below seven because government has given guarantee on paper but in monday the government

agency may not be there to buy this may be problem so sometime practically price may be below msp but can we say if price

is below msp it is a failure of msp policy yes or no if a farmer is selling below msp is it a

failure of msp policy to answer is obviously yes it is a failure of msp policy it is a kind of that government

is not able to meet its commitment because government said we will buy unlimited quantity at this and certainly

farmer must be selling below this if government is not available in monday to buy so what the point here so

msp will prevent prices from falling now next uh one more question you have to think slightly in this okay

msp will prevent prices from going down because msp is called floor price because price cannot be below msp

now my question second question is that practically i'm talking about practically msp of a crop will prevent

prices from going up also yes or no so i repeat question msp the floor

prices it will directly prevent price from going down now question is that can it also prevent prices from going up

yes or no msp will actually i'm talking about

actually will prevent prices from going up yes or no

so most of you are correct but answers are mixed so answer should

be yes msp will actually prevent prices from going up also

now those of you who fail to understand who gave answer no now you just try to understand if government has announced

msp okay we will buy at seven rupee so do you think farmers uh will be apprehensive of growing this crop

no they will know exactly seven they will get at least some reasonable price they will get okay so the production will not reduce

when production will not reduce so price will not shoot up what the point why msp will prevent

price from going up also i'm saying also because the main objective is to prevent price from

falling okay but it will also prevent price from going up because you know msp will give assurance to farmers they will

not lose if they are growing this crop so they will not be apprehensive of growing this crop so production will not reduce this

will not happen so price will not shoot up that is why msp actually will stabilize price so it will

prevent prices from going down as well as actually it also prevent from going up in this this year's economic survey

uh government mentioned it was mentioned to prevent prices from shooting up what government

did government increase msp what the point government increased msp to control inflation food inflation how

because if msp will be slightly higher msp is usually below market price slightly on lower side so it may be increased to seven to eight

or nine then it will prevent price from going up by because production will be encouraged when production be more price

will never be high so this is the reason so msp stabilizes prices so this is uh

the justification for msp in agriculture sector i will discuss in much detail so here i just give you the reason why

msp is needed i told you why because of inelastic demand and supply why there is

volatility and why there is ups and downs in production like in economic survey they have given actual data on

production of pulse production increases decreases and price also fluctuates in this manner this is called the phenomena

and conveyor phenomena shows that there is very much inherent instability is there in this agriculture sector so

government should intervene so government msp will help in stabilizing prices

now the question is that do you think government announces msp for all crops or is it feasible

for perishable crops so obviously it is not feasible for perishable cross because where

government is giving unlimited getting to dubai unlimited quantity where government will store government will lose heavily so practically msp cannot

be announced for perishable crops practical limitation the government announces msp for those crops which

could be stored and especially which are important for food security i will discuss later like

weed rice pulses various types of pulses various oil seeds cereals and cotton

jute etcetera okay so we will discuss entity later msp so just i give you brief reason okay the

i just gave you the uh idea about the application of this demand and supply

so this is based on demand and sublime is market and this is a kind of limitation of market stability the government intervention can stabilize

market so this is the role of how government intervention can help in reducing volatility so the justification

for msp i have discussed in agriculture in much detail i will discuss this is only basic application of this

i just shivam your question uh is current scenario of farm bills facing by farmers are paradox of poverty or

farmers no no these bills are they are entirely different things there are lot of issues actually you have to know the base of

what is msp first msp will take almost one and half hour this msp price policy this is very long topic some issues some

recommendations of committee what are flaws so what this is very long topic even msp will take one and half hour

then apmc mondays and lot of things then we will come to those bills okay what are issues the main issue is that

government is giving freedom to farmers to sell anywhere but issue is that if they will get more freedom then markets

are not perfect so farmers may be exploited this is issue because in apmc monday everything is standard state

government controls that bidding etc so if they will be selling anywhere uh so problem is that they may be exploited by

big corporates initially corporations may give them better price and then they may if when mundy may become weak then they

will actually may exploit pharma this is one apprehension this is very long topic as i told you so

we cannot say yes or no in simple words so overall intention of these bulls is very good these are much needed reform

and should be implemented but issue is that the way of implementation the issue is that k proper safeguards may not be

considered as per critics safeguards are not there farmers may become more vulnerable because of this so the manner

is not correct like without consultation and without proper safeguards this these things may uh increase the

vulnerability of farmers although as such concept is very important this should be done

okay but vulnerability may increase because of this okay so this is these are some

applications uh actually of this elasticity of demand

to practice where you have asked how in conway phenomena increase in second year price leads to decrease in production

in second year increase in price when price will increase the production will increase because when farmers will

benefit so they will gain they will increase production okay so how increased second year price

leads to decrease in production no no increase in price of second year will increase production of third year

so you have mentioned increase in second year price leads to decrease in production no no you are wrong

increase in price when price will increase then in third year production will increase

so last year decrease next year increase to alternate before that production increase then price reduced

so it is alternate so i have written here price of one year

uh t uh will affect the production of t plus one next year

okay so we have discussed elasticity price elasticity of demand one more concept i will discuss here of

elasticity that is income elasticity of demand

this year's economic survey actually focuses on markets so uh

i have given some illustration from that economic survey like cobweb phenomena was also mentioned and how government

intervention is useful or make idiot problems so this

i am correlating this here theory with the practice

okay so now next one more concept uh that is elasticity of demand earlier we

discussed price elasticity of demand the price elasticity of demand means responsiveness of quantity demanded

to change in price what it should be so simply responsiveness of quantity

demanded to change in what to change in income to just mention it is the responsiveness of

quantity demanded of a commodity responsiveness of quantity demanded of a

commodity to the change in income

of the consumer to the change in income of the consumer

to the change in income of the consumer

okay so how what should be formula but here we will not write e will write

e y because e means price elasticity of demand so i told you when uh price elasticity of demand we may call it only

elasticity of demand so here it is e y y means income elasticity of demand so it

will be what formula will be percentage change in qd divide by percentage change in what

so in the previous formula we have written percentage in qd divided by percentage in price here what we should

write so obviously percentage change in income of the consumer

clear so percentage in quantity demanded divided by percentage change in income

it shows that when income of consumer will increase how much demand from consumer will increase

okay now very simple now you have to give me answers

let us suppose first option if e y is greater than one can you tell me name

give me name of the suggest name for this if e y is greater than one

so what should be name of this so greater than one means this should be

more than this upper one should be more than this it means that if your income will increase by 10 percent you will increase demand by more than 10 percent

so what should be name of this

what should we name of this can you suggest name of this e y greater than one so what should be name

so when earlier e greater than one we said elastic demand

yes you have given correct answer income elastic demand most of you have given uh

uh elastic only no when we say elastic demand we mean price elastic so we have to mention income elastic

so you may you should write down income elastic demand income

elastic demand i think clear

now give me uh option this happens in case of which commodity

eva greater than one in case of necessities or luxuries n for necessity l for luxury just write down quickly n

for necessity l for luxuries give me example this happens in case of necessities or

luxuries n for necessities l for luxuries

so it is called income elastic demand so this happens for necessities or luxuries

okay and then e by e by less than one give me name of this

give me name of this yes all of you are correct here luxury so write down example and give me name

of this

write down on your own if you cannot just see this

so it is actually income inelastic demand very simply here it is income elastic here it is income inelastic

demand clear an example this will happen in case of

necessity or luxuries so obviously this happens in case of

necessities because when your income will increase you will not spend much on necessities okay so income elastic demand happens in

case of necessities yes now most of you are correct here necessities uh this is income inelastic

demand clear now other possibility is uh

you know third possibility uh greater than one less than one e y may be equal equal to one now third is

e y equal to one what should be name of this write down on your own write down the name of this on your own

if you cannot write then see this unitary income elastic demand

okay unity income elastic okay and example is not very important there is no practical practically we

cannot say give income will increase by 10 percent it will increase by exactly 10 percent so practically not important

as i told you already now fourth give me name of this e y

is tending to infinity infinity is very very large give me name

of this e y tending to infinity this is actually

infinity means very very large if e y is very very large so practically is not

possible when your income will increase you will increase demand you know substantially give me name of

this

so perfectly income elastic yes correct uh you gain karthika yes

most of you are correct yes go to perfectly income elastic demand clear

now fifth is e y equal to zero what should be name so i think all of

you can write write on your own write down the name on your own

don't see here write down your own

okay write it then you can check this whether you are correct perfectly income inelastic demand

perfectly income inelastic demand just perfectly income elastic demand perfectly income inelastic demand an

example when your income will increase demand will not change at all

example may be maybe what example can you give me example

salt if your income will increase will you buy more salt no what the point so example may be

solved although perfection is not possible close to this okay now next

one one more important analysis is that if i here five things we have discussed

five possibilities we have discussed but here actually

i will add one more possibility here e y equal to 0

so here e y may be less than 0. okay so is it possible

okay less than zero can any number be less than zero

yes or no and if if yes how it could be less than zero so can i say this is more than zero in all of these

in all of these can we say these numbers are in in this e y

is more than 0 because here actually more than 1 should be more

than zero and less than one here i am assuming it is more than zero less than one but time

is even more than zero here equal to one is certainly more than zero it is also zero so here three possibilities are there

more than zero equal to zero and less than 0

so some of you have given answer yes but how could be less than 0 any number could be less than 0 actually

in maybe third fourth class second class maybe you might have read the number line

zero one two three number increases and left side minus one minus two is less than zero so which is more

bigger number minus one or zero so 0 is bigger than minus 1 i think you must have read so actually

less than 0 means negative negative what the point less than 0 mean negative

and negative means what negative means opposite relation in the variables it means that when income will increase

then demand or qd will decrease

negative relation means what what is this greater than 0 greater than 0 means

positive relation and positive relation means what when income will increase so qd

will increase got the point in all of these cases with

increase in income demand is increasing here demand is increasing more than proportionately like in luxuries here

demand is increasing but less than proportionately demand is increasing when this is increasing qt is increasing

here it is increasing the same proportion here infinitely so in all of these when income will increase people

will buy more okay and here when income will increase or decrease no change and here when income will increase people will buy

less so i think it should be clear so

greater than 0 equal to 0 less than 0. now is it possible practically can you give me possible is it possible

and can you give me any example practically does it happens when income increases people buy less can anybody

give me uh example and can anybody give me name of this such goods

can you give me name of such goods where income increases people buy less what is name technically what is name in

economics of these goods and any example of such good where it may happen or it can never happen please respond to this

question

so these goods are called inferior goods

yes uh one you have given answer inferior goods yes correct

is bad quality products yes those are correct okay okay some of you knew this yes good

some of you knew this these goods are called inferior goods so in case of inferior goods this happens so just write down

what are inferior goods in one line so inferior good just mentioned these are the goods the same definition is this

only i'm dictating this only these are the goods whose demand decreases with fall with increase in income

these are the goods whose demand decreases with increase in income of the consumers

and vice versa

okay so inferior goods are the goods whose demand decreases with increase in income of the consumer and vice versa

same this is the definition only i have nothing put nothing new simply this thing i have put in words so what are inferior goods

i think very simple uh inferior good like k goods actually whose demand decreases with increase in income of the

consumer and vice versa means when income will decrease person will buy more these are inferior courts now any

example of these goods so uh yogendra uh you have mentioned you can

show where you have mentioned luxury items of consumption may reduce if they need no no completely wrong luxury item when your

income will increase you will buy less luxury no you will buy more luxuries no wrong

any example

so because you have asked e y infinity any example

uh no example you you are asking example of this no example uh can you increase demand infinitely there is nothing in

finite in the world got the point no example e y

uh it may be one maybe one uh for you today for one good may not be in this for example if your income will increase

you may spend on clothes maybe by 10 exactly so it will vary so practically it is not useful for example if your

income increased by 10 percent you spend on a particular item maybe on clothes or anything by 10 exactly so this is one

but it may not remain same always so it is practically not useful it it can never happen

practically

so assist you have mentioned one rupee toffee or munch

but i don't think you know my children like munch much they are demanding much

so uh no actually example uh maybe uh frozen foods

so if your income will increase you will not buy frozen food i think rich people buy more frozen food when income

increases people buy more no wrong

okay so cheap products okay for example example may be coarse grain you know if

a poor person is consuming coarse grain because earlier you know wheat and rice was expensive 30 years back in india 30

40 years back so coarse grains poor people used to consume coarse grains because they could not afford to buy wheat or rice so when income of those

people will increase do you think they will buy more coarse grain or less coarse plate so obviously they will not buy coarse

grain then they will switch over to wheat and rice other example could be daldahi like dalda he means upper poor person is

buying dalda he because person cannot afford to buy dchi when income of that person will increase that person will

buy more or less will not buy dollars he will buy less then switch over to this example maybe

dalda he or maybe this coarse grains now can i if i want

to conclude okay like coarse grain or dull laggy could it be

are these inferior goods for everybody yes or no so answer is

obviously yes or no coarse grain or one rupee toffee or

munch is it uh inferior good for everybody to answer is obviously no

the example is that there is no uh there cannot be any general example of inferior goods so

that is why i am not writing an example here okay i am not writing any example uh

like i told you coarse grains may be inferior good for one person not for all for example if a rich person likes joara

person is like johar and you know when income of that person will further increase won't he buy jawahar

he will not reduce consumption but a poor person who is buying you are in compulsion low income may not consume

jar when his income will increase so it will vary same good may be normal good for one person same good may be in fear

father what's the point so it varies from person to person one rupee toffee or

munch may be an inferior good for a upper middle class person or primary class but lower class it may not be

inferior good for lower class you know people it may not be inferior to it will vary for you maybe motorcycle may be

inferior because you want car or for that person who is who has cycle so motorcycle may not be inferior for

that person so there is no general example we cannot have any general example of inferior goods so i think it

is clear so these goods are called inferior goods definition i already give you give when

income increases demand decreases these are inferior goods now uh

on the base of common sense can you suggest name for these goods when this happens because normally what

happens when income increases qd demand demand also increases usually this

happens so what should be the name of these goods can you suggest on the risk of common sense name of these good these

are inferior goods what should be name of these goods just think and

suggest name on your own

so just name of these goods

so actually these are called normal quotes because normally this happens

yes uh karthika prachi a lot of you have given correct answer but some people have

given superior goods no superior they need not be also or may not be superior uh like some may be food necessities so

these are called normal goods like normal goods because normally people buy more than income increases and these are

inferior when income increases people buy less so these goods are called normal goods

okay so most of lot of you have given correct answer

okay now next thing is that k i think it is clear okay here uh means positive relation when income increases people

buy more normal normally this happens so normal good and these words are called inferior goods now you know inferior

goods are very much confused with the another good which is that good i think some of you may have that name in mind

when i ask inferior good that is given good now write down given goods

given goods these are named after sir robert giffen

sir robert

giffen so first write down the definition to mention that sir robert given to mention

that these are inferior goods given goods write down these are inferior goods

whose demand increases with increase in their prices

whose demand increases with increase in their prices and vice versa

so i repeat definition these are inferior goods whose demand increases with increasing

their prices and vice versa you mean when their price increase people buy more when price reduce people buy less

so these are called giffen goods okay so actually there is a much confusion between griffin goods and

infidel goods most of the students who have economics optional they are much confused students who do ma ba in

economics they are much confused even some of you may have in your mind when i has this what is name of this good

usually student give me answer half history and say this half say this almost although in this class have i think

nobody gave me this answer but it is very common answer when i ask what is the name of this good a lot of people say inferior good because they are very

much uh close okay so first of all uh given good so

given good you know uh when price increases people buy more and these actually uh this is very rare

thing uh uh sir robert giffin identified this phenomena uh in uk during second

world war he find out how these goods were identified during second world war in uk the price

of inferior quality of bread was increasing and people were buying more and more quantity its demand was also increasing

so sir robert giffin saw that okay why if price is increasing so why people are buying more people as per law of demand

people should buy less quantity if actually price something we have discussed already as per law of demand

when normally this happens when anything becomes expensive people buy less so here when it was becoming expensive

price was increasing people were buying more so he it he was taunting why this happened so he find out okay what is

reason when he find out the reason okay why people are buying more he find out that bread was an inferior quality of

bread very cheap bread and that was bad bought by poor people and that bread was major

item of consumption let's suppose poor may be in spending almost major part they spent on food so

poor people you know they were spending major part on that bread so when price of that bread will increase so what will

happen words will become better off of ourselves okay just

uh just answer this question on your own don't write here okay if price if i if i

let us suppose poor person is buying some inferior good cheap good and uh maybe half income on this good and half

income may be on other necessities like other food and some other minor essential things so if price of that

bread will increase the main item of consumption then poor will be will be better or worse off so certainly more

worse off now since poor's have become that poor person has become much worse off so person will spend more on normal

good or inferior good so obviously since person has become much worse off so person will buy more

inferior good that is why person will buy more of this because these are inferior goods why the reason is that the poor person

has to meet minimum consumption because the price of this bread may increase but certainly it must be much cheaper than

other normal goods so person will to maintain minimum consumption will buy more of this bread rather than other

better quality of bread or or fruits vegetables and other food items so person will buy more of this to maintain

minimum consumption so that person should not be hungry so these are bought by very poor people

these are inferior goods and only then this can happen so it should be clear these are born by

poor people only because these are inferior goods okay so uh

this uh sir robert giffin observed this phenomenon this may be called given paradox also so

this may be called given paradox

because it's a paradoxical situation okay so sir robert given find this paradox so that is why called giffen

paradox once more i tell you okay why this happened when poor people are buying this so what will happen when the

price of these bread will increase pores will become more worse off and when they have become more worse off they have to buy more of

inferior goods rather than the normal code this is the reason why it increases

now next thing is that now some question from you people if i will make a curve here i will write quantity demanded and

i will write price here so give me answer the shape of the curve will be upward downward please give me answer

quickly its slope will be upward or downward p here qd here

so very easy question write down u for upward and d for downward u or d upward

downward u or d just you have to write u or d

second thing second question is that is it law does it will it be a demand curve to

answer here is upward because relation is positive so i think most of you must be correct here

so all of you are correct here let me see anybody is wrong here nobody is wrong yes good

uh everybody has given correct and now second question is it a demand curve yes or no

why or n just write down y or n yes or no is it a demand curve shall i write b here if i write d here yes or no should i

write d it is a demand curve give me answer yes or no

so is it a demand curve the answer is what is demand demanding first of all

demand curve shows relation between price and qd does it show price relation between

demand and qd yes again answer is slightly it was difficult to mix the answer

but majority of you are correct the answer should be yes it is a demand curve why it is demand curve because

demand curve shows relation between price and qd at each price how much you buy what the point i told you already demand

shows the relation at each price how much you want to buy does not just showing this thing okay at this price this much this price this much so

certainly it is a demand curve the answer is yes majority of you were correct okay those people who were wrong try to

think why you were wrong now next question does it obey law of demand

yes or no law of demand

does it will be law of demand yes or no

so answer obviously is no

so it violates law of demand so just uh you can mention these are these goods violate law of demand

violate law of demand or these goods are exception to law of demand

okay so certainly no i think very easy all all of you can give to answer so this is uh actually violated law of

demand clear

that now what is difference between inferior goods and given good now because i told you

this is a very common very very common confusion so you know majority of

students who have done aman economics they are confused in these words but the very simple thing you should

know just two things you should know okay what is the difference between inferior code and this now you know

this is usual unusual obviously unusual thing

okay because normally price will increase the q degree this is unusual now inferior good is usually unusual

when i ask this question some of the people say usual why because it is unusual it should be usual what is logic of this

this is also unusual the both are unusual make it clear because usually this happens normally when income increases

people buy more so both are unusual but here unusual relation is between what between income

and demand and here between price and demand okay so what you should remember okay in

case of given goods unusual relation is between price and demand

and in inferior good the unusual relation is between income and demand

what the point this is the main point i think in exam they will not ask beyond this so in case of inferior good the unusual

relation is between income and demand okay and in case of given good unusual

relation is between price and demand what's the point here so both are unusual but unusual relation is between

p and q d and here y and q t this is one point you should remember that is enough for example but

although one more point you should remember which i have already told you let us suppose if this circle

shows inferior good this is inferior good this circle so where should be given good what do you think inside this or

outside this or overlapping this three option inside or overlapping or outside

so i have dictated given goods are inferior goods so it should be clear given good must be inferior if a good is

not infinite can never be given so given good must be

inside this because all given goods must be inferior

it should be clear some people give example like gold uh or diamond so gold and diamond is not

an inferior good to be killer cannot be example of given good

to make this diagram clearly this circle shows inferior good and this g should be inside this

but this given goods are very rare

okay so again you have most of you have given correct answer inside this so

i repeat once more okay two things you should remember uh for given goods and

fear code one thing is that k here unusual an unusual relationship is being price and demand and here between

increment demand one point the most important point for examination point of view second thing is that k all given

goods must be inferior this thing inferior and given so it should be clear if a good is not a given inferior good

it can never be given it should be clear a normal good luxury good can never be given good because luxury goods are not

inferior good so i think it should be clear only these two points

now if you have understood uh this now one more question from you people uh

so uh next question is that have you understood the difference now next question is that okay um given

good violated law of demand i told you already given goods now what about these information they violate law of demand

or do not violate yes no or can't say to give me answer they violate law of

demand yes no or can be

so what why yes they violate law of demand question is the void law of demand

inferior good so yes no or can be or maybe so

what do you think yes no or can be can violate

give me answer

so answer is very simple in logical questions never presume anything

are they saying anything about price and qd have we talked about price and duty no

so anything could be there the answer should be can be maybe so as such it should be clear given we

cannot say again if it would violate law of demand may while it may not violate we are not saying anything about price

most of you are correct but still jaydev you have said no a lot of you have given

radhika has given answer no on what basis you are you have said no had i said anything about price

so how you can say no how you are presuming so don't presume anything they we are not saying anything about

price in this when i discuss this inferior good i have not said anything about the relation between price and qd

so we cannot say no these given inferior goods violate law of demand probably these may not violate

they may be opening long law of demand

okay they are you have can you dictate given paradox i have

already dictated given goods and given paradox is same i have dictated uh if you want you can

write again given paradox refers to uh means a situation in which

or in the same thing in which when price increases qd increases this is given paradox

this happens in case of inferior goods when their demand increase price increases demand increases so given

paradox given good the same thing got the point but remember one thing okay

practically it is very difficult you will not find given good those students usually are confused which good is given

good so practically you hardly find any such good practically very very difficult why these are very rare the

reason is that okay these goods must be inferior first of all remember one thing normal goods are not inferior luxury

goods are not inferior inferior it should be clear so can never be given so first of all this would must be what

must be inferior good and must be bought by a poor person it must be related with necessity got the point because person

will buy in compulsion more okay and the most important other thing is that requirement

it should not have a close substitute for example a person is buying bajra okay if price of bajra may increase so

person will not buy much baja why because juwar raghi etc the person may switch over to other substitutes so that

is why substitute should not be there only then person will buy this but that is very rare substitute may not be there so

practically it is very rare so what is important whatever i have dictated is much more than sufficient

don't go beyond that okay because slightly they are difficult to understand so but whatever important

points are there i have already dictated and told you how they were discovered and what is this

now one more good finally one more good that is the

weblin goods

these are named after thonstein weblin or

to write down what is t these webin goods to mention this these goods are associated with social

prestige these goods are associated with social

prestige example expensive rare articles

expensive rare articles common diamonds comma customized aeroplanes

etc to customize aeroplanes etc aeroplanes for maybe customize cars

aeroplane slash cars etc and also mention their demand increases

just like this their demand increases with increase in their prices their demand increases with increase in

their prices their demand increases with increasing

their prices and vice versa their demand increases with increase in

their prices to here just like this

p increases qd also increases okay so if i will make a curve here qd

here tries here so what should be shape of the curve upward downward

obviously when relation is positive curve will be upward now again the same question is it a

demand curve the answer obviously is because it's showing relation between p and q d so it is a demand curve

now again next question from you people does they obey law of demand yes or no

so obviously answer is no because demand covers the word sloping just like this

okay so i repeat what are weblane goods these are named after thonstein webley not simply t weblin

these are relative social prestige like expensive diamonds area articles customized cars customized aeroplanes

etcetera very rare articles very expensive articles so when price increases people buy more

why because these are status symbol because let us suppose when price will increase you know if a rare article

maybe a painting may be sold in maybe uh maybe 10 crore so you know rich people will buy

why and why they buy they will actually you know flounder in parties they will say you know i i just like this painting

so i have paid 10 crore rupees they actually want to show money is nothing for them they have so much money

they are so rich k 10 will be they like something they paid 10 grand for that so it is uh you know uh show off uh and

when price will decrease they will not buy why because they think now anybody can buy so it is no longer a status symbol for

me so they will not buy for example if customized cars let's suppose they will give order of mercedes

so mercedes may be in 5 crore but customize may be of double tank rule so they say you know for customization i

paid double or triple of that because you know mercedes company made a unit for me and they did this thing i told

them to make this thing so they want to show money is nothing for them so if they will become expensive then

uh they will buy but if customized car become minor difference maybe just pay 20 extra and car may be customized as per

your design to know they will not show that they will not flound this thing now anybody can buy anybody can customize car

so this is actually uh bought by very rich people and used for the show off

okay state assemble they want to show their status they want to show okay money is nothing for them

because more money marginal utility of money reduces do they want to shake it say i have so much money okay marginal

utility of money for me is zero almost i can throw crowds of rupees hardly matters for me

so what the point this is very rich people who buy this very very rich people and who bought buy now just see

the comparison of revlon good and giffen good so both are seems to be similar price

increases qd also increases both violated law of demand but who buy this very very rich people and who by giving

good very very poor people and both violate law of demand so very rich people and very poor people both

avoided law of demand so i think clear the difference should be clear weblin given and inferior is related with

income income and qd okay relation between this and this is you should remember this thing

so i think it should be clear

so these terms may be asked in prelims but you should know the basic difference

okay here these both this violate law of demand this here some of you may have doubt i'm

using the word demand and i'm writing qd here in general you know uh

if demand will increase qd will automatically increase so this is also not wrong okay so both word we can use

in books both are used and both are correct the reason is that when demand will increase then qd will automatically

increase what is increase in demand increase demand qd will automatically increase so

both words are used uh and got the point in books because both are correct because when demand will

increase qd must increase you have asked as income is changing uh

that is increase in law of demand uh other things must be constant so increase in inferior

so increase of inferior good uh is law of demand not applicable

as income is changing that is whose income is changing

as income is changing that is increase of law of demand that is in case of law of demand other

thing must be constant so in case of inferior goods is law of demand not applicable

you know in case of inferior goods when income of person demand curve is downward sloping this is price this is

qd when price reduces qd increases

so actually uh in case of normally this happens when price reduces people buy more

okay so income will increase qd will decrease so hemanth what you have mentioned as income is changing now

whose income is changing or not everybody income is changing

that is in case of law of demand other things must be constant yes in law of demand if other things income is fixed

everything is fixed so when price will reduce qd will increase

okay so in case of inferior goods to at one time change one thing if you change two three

things you will not understand anything okay so be focused at one time study one thing only

okay if you if price will reduce qd increases normally this happens so in case of inferior goods in case of

inferior goods is law of demand not applicable may be applicable may not be applicable i told

you in these inferior goods which are called giffen these are inferior goods law of demand does not obey you can see this thing

and in these goods here it is like this to just make this diagram clearly i think you will

understand in these inferior goods which are called given good g the law of demand is like

this a word and in these goods law of demand will be will hold good

so i think it is clear the current beer

your question can we say it is not griffin it is giffin g-i-f-e-n

giffin good is the result of uncontrolled inflation no no no

giffen goods are actually inferior goods in whose case price increases qd

increases okay just uh first understand it will take some time you have to think

but practically different goods are difficult to understand as i told you that is why there is confusion most of

the students i think at least almost half students they of economics optional and who have done many economics they

are confused with these goods why are they confused because most of the students they don't understand basics

so this is the basic clear and beyond this question won't be

asked in exam

so these are uh this is income elasticity or elasticity of demand

okay so now uh some terms we have discussed one uh apart from that you know uh i

repeat once more keep price lasting demand so i have discussed price elasticity of demand

okay now give me one more answer the sign mathematically the sign of price

velocity demand should be positive or negative the price velocity of demand is percentage change in q d divided by

percentage in p2 actually or mathematically the sign should be positive or negative

so p for positive n for negative

just write down sign should be positive or negative

very easy question when price reduces qd increases normally

so price should be pos the sign should be positive or negative

so most of you are wrong all of you are wrong

this was not a difficult question why you were wrong one thing is reduces other increases so

if variables move in opposite direction then sign is always negative i have told

you already so all you all of you are wrong it's very rare uh nobody is correct here

so sine is always negative so sine is negative

until good is uh given in case of given good it will be negative so sorry

positive so in case of given good it could be positive otherwise it is always negative what is the point so sine because one is

increasing other is decreasing so relation is opposite so sine is actually

negative but for uh you know for analysis negative sign is not

but negative sign is ignored you may write down

it is ignored so we take the absolute value or mod value modulus value okay so

we remove minus sign so when i said e greater than one so actually it is e greater than minus one so minus is

ignored to mention this in price velocity of demand as a conventional economics we ignore sign

we interpret absolute value okay so just i've gone in detail because here i have discussed plus sign minus

sign here as a conventional economics it is ignored

a chamansi other you ask how is there an unusual relationship between income and

qd in case of inferior good and you relation is that it feels good

income increases people buy less what the point normally when income

increases people buy more but in inferior goods when income increases people buy less

what's the point so this is a new relation to muncie i think it is clear when income increases

qd decreases this is unusual thing okay so i think it is clear i just have

one more term here that is uh it should be clear price i have put in bracket so when we say elasticity of

demand we mean price elasticity of demand now one more term is there cross elasticity of demand

can you guess what is cross elasticity development we study cross relationship between two products like we have

discussed k uh demand of uh t uh may be affected by price of coffee

yes or no substitute goods and as i told you okay demand of car may

be affected by price of platform complementary goods yes or no so obviously yes i told you

already to crash across elasticity of demand shows relation between a demand of one thing and price of other thing

okay so just mention the formula e c here e for elasticity c for cross to

cross elasticity of demand

percentage in qd

qd of x divided by percentage change in

price of y commodity

okay so means quantity changes of x commodity and price of y

let us suppose this x is t x is t and y is coffee

now so t and coffee are substitutes click on coffee i told you substitutes

means when price of coffee will change demand of t will uh change

now can you give me idea k in this case t and coffee in case of substitutes like

t and coffee the sign of this should be positive or negative write down p for positive and for negative in case of

substitutes t and coffee are substitutes

the sign will be positive ec should be positive or negative p or n

very easy question not difficult sign should be ec should be positive in case

substitutes and in case of

complementary goods easy sign should be

yes most of you are correct here most of you are correct yes good

so positive why positive because the price of coffee will increase

demand of t will also increase so relations both are increasing positive relation positive

and in complementary good like petrol and car if price of petrol will increase demand of car will decrease so it is negative

if ec is negative then goods must be complementary okay and if ec is positive goods must be

substitutes so i think it is clear this is cross

velocity of demand so if the uh i repeat once more k here we'll ignore

sign okay and here we don't ignore sign here if it is positive the goods x and y should be substitute and if it is

negative the goods must be complementary just like petrol and car if you take the demand of car and divide by petrol price

of petrol change in price of petrol so it will be negative

okay so there are three types of elasticities the most important is elasticity is which one price elasticity

of demand if nothing is mentioned we mean this so only just broad idea about this income and cross elasticity of demand

now the last and the most important topic of this chapter is in this chapter i will give you uh

illustration of this the impact actually uh means the most

important concern of economics i will discuss the most important concern do you know what is most important concern

of economics in the beginning of the syllabus when we started i told you what

is economics what is core concern of economics can you guess

core concern of economics is resource allocation okay whatever you know resources we have they are scarce in

relation to our demands so the main focus of economics is to how we shall optimally utilize or allocate our

resources so allocation of resources the core concern of economics so i will discuss how resources are allocated and

how resources are allocated and here i will discuss government versus the markets so with the help of demand and

supply curves i will discuss the core concern of economics and i will give you the rationale of economic reforms

okay so last but i think new topic will take up after

break okay after five minutes will continue okay we'll continue after five minutes

okay the one doubt you have asked what are factors that determine ppp exchange rate of an

economy and how a country or government can increase ppp value so i told you already ppp action rate is

based on relative price levels so our ppp is based on purchasing power of

currency that is a purchasing power of rupee in india and dollar in usa so the

only way to uh means appreciate rupee in terms of ppp is that we have to increase

purchasing power of rupee in india and how perceiving power of rupee will increase by reducing inflation when

inflation rate will remain low uh so then purchasing power of rupee will increase so the only thing is that we

have to uh you know improve the uh rather improved quality of goods we should produce better quality of goods

and price should not increase okay so overall mainly price should not increase relative price level only

uh affects this to charge your question

don't get the meaning unusual relation so unusual is the english word unusual means because normally what happens

usually when price of anything reduces people buy more that is usual relation and if price reduces people buy more and

if price reducing people are not buying much so that is unusual anything which is not usual is unusual

it's an english word okay now next the core concern of

economics is resource allocation

resource allocation so you know resource allocation simply means we have limited resources you know we

have to allocate them properly it means that we shall uh use them properly in the sense

we shall allocate resources for production of various goods and services in such a manner which will maximize

well-being of people as i told you the main focus of economics is to ensure optimal resource allocation and optimal

means care that resource allocation which will maximize well-being of people that is resource allocation meaning or

in and in more simple words if we allocate more resources for something so excuse

me so what does mean keep production of this that thing should be more and if we are allocating less resources

for production something it means that production should be less so in very simple words so resource allocation

means k how much of each good how we should produce if we are we want to produce more of something we have to

allocate more resources okay so in simple words it means what to produce

and in what

quantity this question actually explain the meaning of resource allocation what to produce and in what

quantity if we will uh produce more of something more is also allocated if less of

something less resource allocated if not production no resource allocated for that so what to produce

and in what quantity in very simple one words this is meaning of resource allocation now next thing is that who can decide uh

the uh what to produce in our economy in a country and what not to produce and what's on what quantity so one option is

that government may decide what to produce in what quantity so there are two possibilities

one is that government may decide as a government we may call it

technically economic planning through economic planning

government may decide because overall policies of government uh you know focus

of economics on resource allocation when we see economic planning planning commission or planning authority nithya

yoga anybody when it makes plan that is for development for it deals with allocation of resources

so uh government decide what to produce in what quantity now can you give me the means what are means or measures taken

by government to ensure more of something to produce or less of something to produce means that is too eloquent resources so can you give me

example of any uh government measures to ensure resource allocation like to

ensure that more of something to produce and less or something to produce can you give me examples okay resource

allocation how government allocate resources okay how government ensures give more of something to produce less

or something to produce can you give me any government measure any example

yes radhika bajaj you have given answer correct answer subsidy yes because if government want

to encourage production of something government may give subsidy okay like government

subsidy will give support to producers

other is shivam human resource development is correct uh yes isn't how you will

license yes license a month you have given incentives yes all of you are correct

you have also given license and regulation yes permit msp yes all of you are correct yes good

so uh license like permit

means permit license almost seems permission is needed government may give license only those things which are

provide which government want to allow otherwise government may not give license

other is a minimum support price yes because msp of a crop seeks to encourage

production of that by assuring a minimum price k price will not be below this so msp will encourage production production

means resource allocation other very important thing is taxes

etc so these are the measures which government can use to ensure resource allocation the objective of this subsidy

etc is ensure resource allocation you know why government is giving so much subsidies to agriculture sector

why because reason is that it is important for achieving social objectives because if government will not give subsidy to agriculture let us

suppose if government will remove subsidy on inputs like fertilizers seeds so what will happen to agriculture

production so will obviously will come down if government will not give subsidy on seeds fertilizers etc so production of

agriculture will come down and it will uh worsen the hunger situation in the country what the point food security may

be threatened so it is important actually women want more resources should be allocated for production of

agricultural goods because that is very important to achieve you know to eliminate hunger to

achieve food security and even agriculture sector from business perspective is not a very good business

like it's not a very viable business not a very lucrative business if government will not give subsidy to

farmers so farming may not be viable so production will come down less resource allocation it will uh means affect the

allocation of resources so what the point so similarly uh through licensing government regulate how much of each

commodity to be produced because the license will be given as per the resources are limited so government decides okay how much this thing you

should produce so how much license we should give for production of one thing in which area so this is how government

allocate resources and obviously objective to is to enhance well-being of people

okay so there are two options i told you for resource allocation so one is that government may decide and second option

is government may not decide what the point so two possibilities are there okay government decides through

these measures okay what to produce in what quantity second government may not decide then what will happen if government will

not decide government will not intervene then automatic what happens automatically then

automatic process is called market mechanism

market mechanism market mechanisms will allocate

resources okay and i told you already markets work when government will not intervene

okay so lpg policy is has to be adopted to enable markets to operate i told you

already so when government will not intervene then market means demand and supply whatever

people like they would like to buy whatever is more profitable from will produce that so demand and supply simply

and they will be i told you already the market mechanisms work in this way like this is product a so this is demand of a

this is supply of a this will be price of this apa i may write and quantity of a

okay so you know production of everything is based on demand and supply whether curves are constructed or not

similarly for commodity b let us suppose for b this is demand this is supply

this is price of b this is quantity of b just make this diagram and similarly for c d etc for

every commodity how much quantity produced

will be decided and what price sold decided on the base of demand and supply okay so just make the diagram first

and then answer one question can you visualize resource allocation in this diagram

now please answer this question first of all try to understand the question uh how markets allocate resources i want to

ask this thing market mechanism so how market mechanism allocate resources so i told you it allocates resources on the

base of demand and supply the production of each and everything is based on its demand and supply whether curves are

constructed or not now my question is that can you visualize resource allocation in this diagram can you see

resource allocation now give me answer but don't use the technical words don't use the word demand don't use the word

supply don't use the word equilibrium please don't use any technical word in simple words can you explain very short

answer okay where you can visualize resource allocation

okay please now respond can you see resource allocation here in simple words so that all of

your colleagues should understand give me answer of this in simple word

you mentioned raw material supply no raw material supply where rom where resource allocation is

visible can you see resource education in this diagram here to make this diagram and give answer

karthik you have been answered no shivam part of your answer no

just try to see i think you can see you can see

and uh the one ship yes you mentioned prices they were known

i used you have given prohibit yes people buying the product and farm manufacturing products in simple word

no not very clear based on production

clarified more urbit intersecting point is equilibrium so

don't use the word intersecting point that is equilibrium prashanth raj no price you have mentioned no nobody has given correct

answer can you cannot you see resource allocation resource allocation means what to produce and in what quantity is

it visible here or not in this diagram what to produce in what quantity lanka durga should give an answer based

on equilibrium i told you you need not required to use the word technical equilibrium

price includes resource allocation price plus profit no path no

where both consumers and sellers agree to buy and sell certain product third one you have

mentioned nobody is correct here but normally i think few students can give correct answer

cannot you see what to produce and what quantity here in this diagram

yes in figure but what nobody is able to see

what is this o q a quantity of a which is to produce what is this quantity of b to be

produced it is not resource allocation what to produce in what quantity oqa oqb

this is resource allocation didn't cannot you see this is not visible

this much quantity of a to be produced this much quantity of b to be produced so what is meaning of resource allocation you can see what to produce

and what quantity is not visible a this much b this much so why did not you

saw this earlier

okay so um normally students give answer correct answer two three students out of hundred four five or ten students

sometimes give correct answer but nobody of you give correct answer so

this much of quantity a this much quantity of b this much quantity of c is produced so this is a resource

allocation this is how markets allocate resources and allocate resource allocation means what to produce and what quantity is

based on demand and supply okay and it is dynamic it keeps on changing for example this is a a is a

product which is let us suppose marker so is marker and now people's liking for

marker is increasing people's liking in the sense like now schools and educational institutions are shifting from blackboard to whiteboard from chalk

to marker so what will happen when people prefer marker more than chalk then the demand of

marker will increase when demand of marker will increase what will happen price of this marker will go

up when price will go up then profit of firms increasing marker will increase or

decrease when it prices more the profit will increase it will incentivize firm to produce more

market so supply of marker will also quantity supplied will increase so production of marker will increase

so this is how it happens so if people like more of this commodity more will be produced

how when people like more they prefer over other things like people prefer marker

over chocks so what will happen demand of marker will increase okay when demand will increase price will increase it

will give a signal to farms they have to produce more to earn more profit so production will increase

what the point if people don't like this product so demand will come down price will come down the profit of form will

come down they will reduce production so can we say if i say keep production is based on the overall

likings of people wishes of people overall in the country yes or no if i want to infer this thing in this

production it's been on demand and supply and in more simple words whatever people like overall collective wishes of

people production is according to that so if i want to infer this thing is it correct or wrong to give me answer correct or wrong c or w

okay i'm inferring this thing k it is actually production of each thing is based on the overall willingness of

people how much people like that commodity wishes of people collective wishes of people overall demand is more more of this produce less demand less

produce so is it correct or wrong please give me answer

correct or wrong so arshna you have given answer correct and so no this that was earlier previous

question that's a shivam and yogesh yes all of you are correct yes it is correct because if you like more demand because

your preferences are revealed in demand overall and when you like more people like more demand will increase and

obviously production will increase so demand depends on people's preferences people's likings okay and supply is

based on the supply is dependent on the availability of resources what we can produce and technical feasibility is

what we can produce and the main objective of farms is to make profit as we have discussed already

so i think it should be clear how markets allocate resources so this is visible now you all of you can see

resource allocation now i will uh see the what are process cons of resource

allocation by markets so what are positive aspects and what are negative aspects okay so now next topic is resource

allocation by market mechanism so next topic mentioned

resource a location by

can you give me one answer in india in pre-reform era before 1991

to buy and large resource allocation was based was made by government of market mechanism in pre-reform era

so obviously you know in pre-reform era in india resource education

was made by market or government so can you give me answer just write down g n or m in preview formula i'm talking

about in pre-reform era

to answer implement is government because you know license

permit was there for everything common controls were much and it was uh called license permit quota raj was there means

in sarcastic language now in post form era okay i think all of you are correct here

to uh yes so in post reform era

to impose reform era market because reforms in 1991 we adopted which policy

lpg and because until as policies liberal market will not work i told you already liberal policy

because you know if government will regulate then whatever may be demand that cannot be produced if

government will ban something okay or whatever may be the price fixed by government so demand may be more or less the price price cannot change so if

government interviews market won't work so for enabling market to work we have to out of which kind of knowledge is

liberal policy legalization private sector means allow people to do whatever they want and globalization means even

competition from foreign foreign firms should be allowed the overall lpg policy we adopted reforms in 19 sorry 91

in 1991 we adopted reforms uh lpg policy to give market orientation to economy i

have already dictated earlier indian economy to market now we will discuss why we went to market what are

advantages of market uh mechanism or what are dissentations vis-a-vis government

so first of all resource allocation by market mechanism now come to this point write down the advantages

so first advantage is that optimal

resource allocation

so optimal resource allocation on what basis i am saying optimal so resource allocation is optimal because to just

mention okay it is based on those just mentioned resource allocation is based on

based on collective so resource allocation is based on collective wishes

of of people

collective wishes of people in very simple words so resource allocation is based on corrective collective wishes of

people okay so you know i told you if people like more of this thing the production

of this will increase okay so uh production is based on collective wishes of people

so if people like more or something more of that will be produced so when people like this demand will increase then

price will increase that is based on collective wishes of people so overall uh is it desirable thing or not can we

say it or call it optimal or not but it should be clear yes oh certainly it is optimal but it should be clear

optimal word itself is subjective optimal work word is not a very objective term

so this is good to and why it is optimal i am seeing because if you are wish is fulfilled

what you want else beyond that if your wish is fulfilled what you want beyond that got the point

here as per wishes of people production takes place if people like this more of this will produce

although it is not hundred percent i told you subjectivity is there it is not hundred percent perfect like somebody wish to buy alcohol

or cigarette and alcohol or cigarette may not be good for that person's health or for society

but if the person is willing to pay market will produce that so this is one minor limitation of this

okay so optimal word is not 100 perfect it should be clear so here we cannot say perfect resource allocation but optimal

word we can use but although there may be some minor issues like for example your wishes may not be good for yourself

or for society so but still like example i give you tobacco or alcohol if people

like to buy tobacco alcohol they will be willing to pay to market will produce that farms will produce they will earn profit by selling cigarette or alcohol

but that may not be desirable for society overall what the point some issues could be there but by a large optimal because

based on wishes of people perfection is not possible in real world as i told you already

second is efficiency in resource use or every efficiency

or efficient resources efficient resource

use to efficient resource use so resources should are used most

efficiently here under these markets efficient resource use

so efficient resource use means k resources are used efficiently now what is meaning of efficiency

efficiency you know means k with given inputs we can maximize output

what's the point so with given inputs we can maximize output example is like in within maybe two hours you may learn

more then your your learning process more efficient okay let's suppose you are learning one class lecture if you

learn uh in a given you can learn in lesser time okay so you can uh the same lecture so

we can say uh one thing is that k with given input we can maximize output other thing is to produce a given output we

can minimize input like to learn one lecture you can minimize the time needed for that so your system will be

efficient so in least input you can get the same output okay that is meaning of efficiency this

is the english word actually just i have explained the meaning of efficiency now efficiency scene resource use now the question is

that why efficiency okay i have just explained the meaning of word english word efficiency

because there should not be confusion what is meaning of efficiency okay with given input maximize output or to give

got to get a given output minimize input that is meaning of efficiency now how efficiency

will improve there are two reasons uh which i told you briefly earlier also one reason is that you know markets

operate under competitive conditions if government will not grant license if production of anything is profitable

more and more will enter though there is competition will be there and in competition do you think inefficient firms can survive

so obviously no because it create do or die situation either you improve improve efficiency otherwise you will be wiped

out so first reason is that the first point mention this why system will become more efficient to

mention this markets operate in markets operate under competitive

conditions

which compels firms which compels firms to improve

efficiency which compels firms to improve efficiency

to markets operate under competitive conditions which compels firms to improve efficiency

okay the markets operate under competitive conditions which compares firms to improve efficiency

okay so there is a saying you know okay there is a necessity uh mother is necessity of invention so until need

nobody will improve so here uh it will create do or die situation for farms so that is why firms have to become

efficient okay one thing second thing is that if

government is not intervening here so who will do production government or private so obviously private sector and private

sector why private companies are established main objectives profit so self-interest is there so they will

private companies want to reduce cost uh so reduce cost means reducing resources

so that they can earn more profit because more resource more cost needed to mention this next point is

economic activities are undertaken by private sector

economic activities are undertaken by private sector which is motivated by self-interest

which is motivated by self-interest that is production is profit induced

so that is production is profit induced so you know companies firms have interest to improve efficiency to reduce costs so

that they can earn more and more profit because self-interest is there so that is why efficiency is more and normally in government companies you

know in general efficiency is usually low why low because nobody is having self-interest because you know jobs are

permanent whether you work or not you will get fixed salary promotion is usually down time bound so that is why

people don't are they are not very much willing to work and the the you know ceo

of that company the managing director etc they will get fixed lv irrespective of profit or loss in case of private

company if there is loss the the owner will lose everything in case of loss so but in a public sector company even

it is lost under loss the everybody will get fixed salary so personal incentives are missing that is one reason usually

not always uh some usually public sector companies means government companies are not very efficient because of lack of

incentive so here in private sector incentives their self-interest is there that is why private entrepreneurs they

work hard and they think of improving efficiency reducing costs so that they can earn more and more profit so that is

why efficiency improves what's the point here so can we say for enhancing well-being both of these

things are important so efficient system should be efficient because resources are limited so they have to be used

efficiently because if we waste resources then obviously well-being may be compromised

i said now remember one thing both are uh same thing or different thing

so it should be clear both are different resource allocation is entirely different from uh efficiency in your resource use how

they are different i will give you overall picture what is this and what is this simple illustration

okay for example we have these resources we have these resources okay some land

some uh you know labor etcetera we have these resources now what is meaning of resource allocation

resource allocation means out of these resources how much we shall allocate for production of

maybe wheat how much for this uh you know board how much for the table

what the point for everything how much we so let us suppose we have allocated let us suppose these resources few

resources for production of this table okay we have resources for production of this we have elevated these resources

for production or something we will allocate some more resources okay let us suppose for production of table we have

allocated these resources for production of this podium for example now so this

is actually first is resource allocation how much for podium how much for this board and how much for wheat and how

much for different things this is the resource allocation now efficient resource means

for example for this podium i have discussed these resources have been allocated for production of podium

now how to maximize production of podium by using these resources only this is efficiency in the

got solution point okay how efficiency means whatever resources allocated for a given purpose

now how to maximize the output of that by using the given resources that is efficiency

and resource allocation how much resource will be given for this purpose for this thing how much for other things

because resources are limited so we have to make optimal use of resources okay so both are actually different

things okay and for enhancing well-being of people can we say both are important so certainly both are important because

you know if system is highly efficient can it enhance well-being of people if resource allocation is not efficient no

how i'll give you illustration for example if system is very efficient let us suppose we allocated most of the

resources for the production of anything let's suppose this pen and what we are doing we are producing the best quality of pan and we are just

producing pen everything is used we are using our plastic wood and everything i run for making pan we are

making very good pan and people may be hungry because we don't have allocated much resources for food so what will

happen system may be very efficient but if resource allocation is not optimal can wellbeing will improve we are

producing best quality of pan but we don't have food to eat so will it enhance value no so

allocation should uh is also important for well-being and efficiency okay so only efficiency cannot enhance

well-being similarly optimal resource allocation cannot enhance well-being without this for

example we have allocated uh properly resources but production is not in every system is very inefficient leading to

this stage the production will be much lesser so wellbeing will not be increased so for two things are very important

financing wellbeing so one is optimal resource allocation and efficiency in resources to market and show both of

these things and does it actually happens so this is subjective optimal is

somewhat subjective as far as efficiency can be objectively measured had it happened or not

so you can see when we adopted reforms in 1991 lpg policy we give market orientation and i have already told you

we became one of the fastest growing economy in the world the growth rate accelerated efficiency improved i will give you data from some more data

some data i have told you already okay growth rate india became one of the fastest growing economy in the world so earlier in period formula growth was low

and hair growth increased much so this is a fact in this year's economic survey they have also mentioned this aspect

after this topic i will briefly give you idea about that so got the point here so this actually happens

now as far as optimal allocation to optimal i told you there may be issue some issues

like liquor and tobacco i told you a cigarette production of that may be may increase because people may demand if

government will not intervene so this these are advantages now next we

will discuss disadvantages

disadvantages we may say limitations of market mechanisms means these are limitations

limitations of market mechanism or in other words market in

some cases cases fail to allocate resources properly so what are issues to write down first point here

limitations of market mechanism to mention this first point markets cannot ensure social justice

markets cannot ensure social justice that is

markets cannot markets cannot resolve the problem

resolve the problems of poverty unemployment

inequalities etc so when we see social justice

poverty inequality

unemployment these things cannot be resolved there will be a question mark because

why so just mention the reason for this to mention this markets can fill the gap between demand

and supply markets can fill the gap between demand and supply

markets can fill the gap between demand and supply

but not the gap between need and supply

markets can fill the gap between demand and supply but not the gap between need and supply

okay the market can fill this gap demand and supply but for enhancing well-being supply

should be as per demand once per need so it should be as per need this cannot be you can see how for example if price is

low i give you example already p1 so what will happen when price will be low so demand will be more there will be

shortage so i have already told you this thing so what will happen when shortage people will be willing to pay higher price

price will go up and this gap will be automatically filled so demand and supply gap market mechanism automatically fails okay i told you

already how market mechanisms work and if price may be more t2 so ultimately what will happen from won't be able to

sell they will reduce price so demand supply gap is filled but not need and supply now what is

problem in demand and supply i told you if you want to buy aeroplane and you don't have money so will your

desire be called demand the answer is no similarly if a person is hungry and

don't have money do you think that person's desire to buy food will actually will constitute demand

so obviously no just like your desire to buy aeroplane is not demand similarly the person who is hungry the person's

desire to buy food will be desired not demand and that person won't have money nobody will provide food to them this is

the problem it means that okay those people who don't have money will not get even food

and those people who have money will get all sorts of luxuries this is the problem social justice

cannot be inequalities will further increase i told you already when poor people may

not be able to get proper education proper you know health facilities so they may not be

healthy educated so their earning will reduce rich people children will earn more so inequalities will further

increase poverty will increase unemployment could be there this is the most important problem

okay efficiency will be there productivity production but there means social justice will not be insured means

poor people may be deprived so distribution should not be equal that more production will be taken by only

very few people so what the point here so one most important issue is that okay

although efficiency could be there but inequalities may increase poverty may increase unemployment may increase

clear social justice cannot be ensured this is very important limitation now next point

markets cannot resolve macroeconomic

problems markets cannot resolve macroeconomic problems as a macro economic measure

national level problems or socio-economic basically those are social crime problems markets cannot resolve macroeconomic problems like

like long term

long term growth

comma sustainable development sustainable development

sustainable slash conservation of environment conservation of environment

comma price stability

price stability comma poverty alleviation

etc so markets cannot resolve macroeconomic

problems like long-term growth long-term growth sustainable development slash environmental conservation price

stability poverty elevation etc what is macro quantum problem i told you

national level problems or socio-economic problems to poverty elevation i've written here as well as here so actually socioeconomic

means like social justice is also a macroeconomic problem poverty unemployment resolving those is also a microeconomic problem apart from that

other macroeconomic problems are like price stability i already give you data this idea okay if government will not

intervene the prices of agriculture commodities are very volatile so how government is stabilized through msp

got the point so this is a limitation of market or not so one limitation of market i have already told you in

agriculture sector prices are very much volatile the government intervenes in the market to uh stabilize prices

apart from that like if government will not give subsidy to agriculture the production will be less so food security cannot be ensured okay other sustainable

development do you think if government will not make any norm for environmental protection firm will take care of that

obviously no so for sustained development and this and even long term growth do you think

firm will think about what will happen after 50 years or 100 years later so hardly anybody will think farm will keep

on polluting or they will keep on degrading resources depleting resources because hardly farm will think about

this so macroeconomic problems cannot be resolved national level problems cannot be resolved overall

why to mention the reason for this to mention that markets

the reason for this mention okay markets have a very narrow markets have a very

narrow perspective markets have a very narrow perspective

that is they cater they cater cadr they cater only to

they cater only to short-term needs only to short-term needs of well-off

sections short-term needs or well-off sections in

developed areas in developed areas

okay so what i have mentioned here markets have a very narrow perspective

they only caters to what they what they can fulfill they can fulfill only short-term need because they have don't

have a long-term perspective no firm will think of long-term maybe after 50 years hundred years what will happen okay so one thing they have get us to

short-term needs of well-off sections why because those people who have money the related to this point okay

they uh cater to the requirement of those people who are willing to pay who have the money to pay uh

a well of sections and developed areas usually in backward areas people don't have money so that is why markets fail

there so this is the problem market have a very narrow perspective this is one major limitation of market

so i think it is clear okay why this problem now third point

so i told you markets operate efficiently under competitive conditions i told you already now what do you think

if government will not intervene what firm want from want to promote competition or eliminate competition can

you give me answer in general what forms want they want to promote competition just mention p for promote competition

or eliminate competition e4 eliminate among themselves in any business or even you will do business you would like that

there should be competition in the market or they should not be competition what do you want p for promoting competition e for eliminating

competition so very simple if there will be competition you cannot

earn a very high profit so anybody who do does business want to eliminate competition

so just write it down yes you are correct eliminate competition most of you are correct here

i told you earlier also from just like catalyzation is one example of eliminating competition so you may

mention this thing yes all of you are correct here to mention this thing if markets operate

efficiently under competitive conditions

markets operate efficiently under quantitative conditions

comma which seldom exist seldom is rarely which seldom exist

without government intervention

which seldom exist without government intervention okay so i repeat

markets operate efficiently only under competitive condition should be clear okay if there is no competition market

cannot these advantages will not be there if there is no competition so and without government intervention can

there be competitive condition so obviously no so it means that if we think markets are best and if government

will leave it completely so what will happen can system be efficient no even these advantages will not be there

because until there is competition market will not achieve even these objectives how

for example you know how government ensures competitive conditions because then private company may make monopolies they

indulge in anti-competitive practice okay to make more profit they will exploit people consumers so best market

is perfect competition or somewhat competition otherwise there could be monopolies and other exploitation like

in oligopoly also or any other market there may be cartelizations and anti-competitive practice will be there

to make more profit and they will exploit consumers so well-being will be affected how government ensures competitive

conditions government ensures competitive conditions by appropriate legislations like we have passed law various laws

like competition act 2002 earlier we had mrtp act now various laws are there various

regulators are there which ensure competition like we have competition commission of india for banks rbi for

telecom telecom regulatory authority of india though various regulators are have been established to protect to ensure

they should be healthy competition among firms and so that consumer should not be exploited so without actually you know

laws without regulators without rules and regulations can there be competition no so even if markets are best so to

enable them to operate government intervention is needed what the point is this is also a limitation the market cannot work on its

own government has to create enabling condition okay even if markets are best

market cannot be efficient on its own government has to create enabling conditions

and one more point last point in this fourth point just mentioned you know in

some cases market completely failed that is called market failure to uh mention next point

markets fail to allocate resources

markets fail to allocate resources efficiently under certain conditions

under certain conditions like

like in case of like in case of natural monopoly

like in case of natural monopoly

national monopoly comma information asymmetries

information asymmetries information information asymmetry in bracket

lack of information lack of we can say lack of information or proper information

so information asymmetry means lack of information comma externalities

externalities etc okay so i repeat once more so i told you

okay markets failed to allocate resources efficiently under certain conditions the market feel in some

condition like whenever there is natural monopoly market fail whenever information asymmetry means

information proper information not available to market fail other is externalities wherever externalities are

the market will fail so example first one by one i will explain market how market fail

uh first thing is that national monopoly i told you already like delhi agra highway i gave you example so do you

think competition is desirable in that so obviously no the competition is not desirable and if competition is not

desirable competition is not there can market work no i told you market in the previous point without competition

market cannot work and in natural monopoly competition is undesirable thing the company should not be there

and when competition competition is not there market will fail i give you example

the highway like delhi highway is constructed by private company but why government is a partner in that

why government has not left it to private sector so actually government is a partner to

ensure that private sector should not exploit consumers because it is a type of monopoly because if you want to go from delhi to agra you if the if you

take other route that will be you know it may be much longer and

it may not be much longer but at least you know road quality will not be good so it will take much time much patrol

extra so you have to pay means it means that your company is not much if government will not regulate the the

private company which will make a highway may charge very high tariff so this is the reason q wherever

national monopoly is there uh market fail i have told you already this thing

so what the point here uh in case of natural monopoly market fail other information asymmetry

means lack of proper information for example in monopolistic competition i told you there is some scope of exploitation yes or no yes why because

the form will distinguish the product and may charge high price for example like cosmetics uh if there's a cream

normal cream is of 100 rupee and other companies cream may be of 500 rupee but

do you think the cream which is of 500 is better than the cream which is available in 100 rupee

so obviously you cannot see see with the only the packing may be good

okay only packing the shape may be somewhat good packing may be good and the cream may be rather even worse

or just they may put just additional fragrance and may charge maybe three four five times so because of lack of

information because you know in lot of products we cannot distinguish between the products properly is it so expensive

so some people think if it is branded if it is expensive it may be good but this guarantee okay the thing which is

expensive must be good in quality not always so this is here markets fail i've got

the point here like in case of when product people consumers may not have proper idea so farm may show our product

is much better they may charge much higher price they may exploit consumers so market is failing here

so this is very simple and third is externalities so wherever externalities

are the market field so first of all what is meaning of externality so externality write down the definition of

externality so just mention externality means that is the impact of one economic activity

on other activities so impact of one economic activity on

other activities now rather separately i will discuss so externality means impact of an

economic activity on other activities to make this diagram

externalities so externalities the impact should be good or bad or both

so obviously one activity may uh have a positive impact on others or may have a negative impact so there are instances

of both positive externalities and negative externalities so example of positive externality is

like infrastructure infrastructure

illustration like roads schools

okay roads roads uh schools hospitals

okay so energy these are infrastructure an example of negative externality is

pollution okay i'll explain one by one

uh for example pollution like if a firm is producing something and polluting the air or water nearby so

it will have a negative impact on society or not so it is a negative externality very simple and the roads

are positive extent have positive benefit to other things also or not for example the main objective of road is to

facilitate transportation but if roads will be good in a country will it

benefit the economy overall yes or no so there will be obviously yes a lot of benefits will be there like not only

just transportation there will be lot of other benefits the scope of economic activities will increase

goods would be quickly transported to price difference of commodities may decrease labor mobility may improve increase

okay so a lot of benefits will be there specialization is covered specialized will increase the roads will benefit

economy in different ways similarly if there will be good quality of schools

so objective school is to educate children so do you think apart from educating children there will be other benefits to

society so obviously yes because its children will be educated everybody will be educated then some social ills could

be reduced it will increase the growth potential of economy okay lot of benefits are there of people will be

educated so there are a lot of benefits and you know why government is uh uh so much concern

about developing infrastructure sector why it is so important in any country because of this thing because

infrastructure is not just one thing it benefits entire economy because if you produce anything you you do any business

commercial business maybe you start making a marker or you establish a restaurant or any product then you are

doing one business you are producing one product but once you are developing infrastructure anybody government will develop so it will not benefit this

thing but will have lot of benefits to society or economy so infrastructure is important because of this point only

but wherever actually you know externalities are the market will fail

how i will give you an answer so uh although uh means i'll i'm going

in technicalities here okay let us suppose take an example first pollution a farm is producing marker

and it is dumping waste in nearby let's suppose it is along the river and uh it is dumping the waste in river and

government is not intervening at all so do you think farm will take care of this uh waste

yes or no obviously no if there is no no uh you know regulation of environmental

norms may not be there in that country so firm will keep on polluting it hardly will bother to take just uh

make this diagram for pollution let's suppose this is demand this is supply of this marker

okay this is price of this marker this is quantity of this marker sold

okay just make this diagram first and farm is creating pollution no government regulation is there

so this is a marker produced in that area and this is the price of marker

okay have you drawn the diagram now government started intervening

government make pollution norms governments made a norm you have to

treat waste properly you cannot dump waste in the nearby river you have to

waste properly or dump in a proper place so now a firm has to incur additional cost yes or no

so which car will be affected demand or supply increase or decrease

so which current will be affected if one pollution norms then cost of firm will increase

so which car will be affected by this so i told you already when cost of reduction increases

supply reduces from is creating supply so it will reduce supply

so how would you show reduction in supply i think some of you can answer this question

to how you should reduction supply i would use cost will affect supply to supply curve wheel shift

leftward okay so supply will reduce because got the point when supply will

reduce so production quantity will reduce and price will go up

because some will pass on some cost to consumers

okay some of you have given correct answer i think you must have understood this so you know okay uh

supply will reduce and when supply will reduce so uh because of additional quasi

inquired so farm will pass on to consumer even consumers by less when price will go up

now which is better which is socially optimal uh the outcome related with s or s one

which is better actually which is better resource allocation which is shown by s or s one can you give me answer

which shows better resource allocation s or s one which is optimal

so s or this s one so obviously answer is

s one why s one because less production is better here

and higher price is better why it was a resource distortion it was distortion because you know earlier consumer was

not bearing the entire cost partially consumed partially society so that is why it was cheaper so and it was

creating pollution so what happened earlier there was bad things for over production actual production should be

q1 q1 should be better and price should be higher so in case of bad things they will be over production

okay so all of you have given correct answer here so it means that in case of bad things

okay uh for bad you know things which are creating negative and externality there will be

over production over production will be there just like you can see it should be q one i thought

why there was over production because they were not beating the entire cost go to the point they were putting some

cost on society and it is irrational if any consumer is using to that consumer should pay the bill the course why

society should be at the cost why everybody should suffer if a person is using something so person should be at the entire course why

society should suffer so this is actually a example where how resource allocation

could be distorted if government will not intervene

so i think it is very difficult so some of you would have problem in understanding this but don't worry ah

for examination point of view you can just mention in words in case of bad things which have negative externality they will be

just mentioned what in case of bad things means bad things means which have negative externalities they will be over

production because prices will be cheaper than it should be okay inwards but if you have

doubt i think now i'll give you very easy illustration much easier than this now in terms of school now i'll give you

illustration in terms of school this is much easier than even much easier than this so i think almost half of you must have

understood this so half of you who have not understood at least half of that will understand

here okay at least 75 percent of you will understand and rest you can write in words

this thing now just make a curve first

this is demand of school this is supply of school it's very easy just make the curve

along with me this is price this is quantity so quantity means number of schools here

here number of schools in a given area

and price means fee here is school fee so let us suppose it is in private

sector all schools are in private sector so you know when people establish

private school what is main objective to educate society or to unprofit so school is also business so people who

establish a school they uh establish food for earning profit and it is not wrong earning profit is not

wrong what the people establish cool for earning profit now my question is that from you people

case supply of school do you think private sector schools they will confine supplier to the revenue they can collect

from the fee or they will also consider social benefit now the question is that shall they consider social benefit yes or no

although their activity is benefiting society but do they consider social benefit yes or no

in general or they will be confined to the money they can collect from the the students or from the parents of the

students so do they consider social benefit yes or no do they consider their own benefit and

social or own benefit only how much revenue so obviously

yes arsenal you have given earned profit yes certainly their objectives to non-profit they will not consider social benefit

but their activity is benefiting society without any doubt

okay to but anyhow got the point here so they will confine so yes all of you are correct here

they will confine this benefit to this but since the school is beneficial so government

may pass on this benefit to them because of their activity although they have their own interest to

earn profit which is not wrong i told you already earning profit is not wrong so but there when their activity is

benefiting society so should government benefit the pass on this benefit or not to them

so you know if government will provide free land now government may provide let us suppose free land for school

okay or maybe some other tax concession etcetera which is then you might have idea usually land is given for very free

free or very low rate by most of the governments state governments and some taxes are also not imposed on a school

fee so that is exempted in gst also you must have idea if government will provide free land maybe so which car

will be affected to supply increased decrease demand increase decrease please give me answer

when free land will be given by government so supply of school will be affected or demand

supply increase or decrease demand increase or decrease just give me answer

so all of you give correct answer till now now if free land is given so obviously

supply will increase so i think most of you must have given correct answer

supply will increase supply will increase means more schools will be established yes or no

and average fee will come down so supply increase all of you are correct here again so it means that supply will increase

more schools will be established and average fee will come down so which is socially desirable earlier or now

earlier or no so certainly now so it means that if government will not intervene in

infrastructure if government will leave it to private sector then it will remain deficient and its user charges will be higher fee

should be high so which is better government intervention or non-intervention so obviously government intervention why

because market fail here so what okay so what you should mention

too i think i think most of you must have understood here because all of you have given correct answer

so uh in case of good things what will happen supply willing uh means uh if if

government will not intervene then school will not be oq1 oq only school so less schools will be there so there will

be shortage deficiency infrastructure and the charges for infrastructure will be high so which is better government

intervention without government intervention so obviously government intervention so here actually government

should intervene to got the point here i just remember one thing for examination point of view

never make curve curve is not needed because i'm just linking the uh theory with the

the practice here so you need not require to make curves because even for examiner it will be difficult to

understand because examiner may not have economics background so may not understand curve to remember one thing you need not required to make her but i

think now since i think most of you have understood now so you can put inwards okay in case of

infrastructure externalities in case of positive externalities there will be shortage of infrastructure

and infrastructure will be available at higher price higher user charges okay so in infrastructure sector market

field because infrastructure sector externalities are the market field and that is the reason government intervention is needed so this is

justification for public private partnership so i will uh repeat these points i will uh

this i will uh you know means revisit these points when i will take a public private partnership so i

told you okay you know in most of the infrastructure like schools hospitals etc roads airports are

established by private sector along with government public private partnership reason is that can market fail in that

area government cannot leave it to private sector okay and why in infrastructure market field the two reasons are there in all

infrastructure externalities are there that is the reason they are beneficial that is why and second most of the

infrastructure sector are natural monopoly like national monopoly i told you highway example airport in a city

there cannot be 10 airports in a city okay so this is the reason in infrastructure sector government

intervention is needed but why if government intervention is needed why not government is developing infrastructure

the reason is that huge funds are needed government don't have so much funds so that is why a government actually uh

attract private sectors investment because investment could be made by private sector and government remain partners so that market distortion may

be created so this is important all of these points are important for public private

partnerships so i will discuss in detail there okay why there is a need for a

public private partnership why government is not leaving this to private sector completely

so what the point here so this is the meaning of externalities and you have to write only in words in case of bad

things they will be over production in case of good thing they will be under production simple thing infrastructure will remain deficient this is the only

you should remember got the point here but uh my con objective is to unders make you

understand how what are failures of market how market actually feel so i have gone in some technicalities okay how exactly

market fail but you have to put in words only okay now i'll come back to this

to resource allocation by market mechanism so i told you failures four point i have dictated here so uh fourth

point first of all i told you okay uh in certain cases market fail like wherever

national monopoly is there because there is no competition and without competition market cannot work if people don't have proper information about the

products again consumers could be cheated that is technically called information asymmetry other is

externalities which i give you example so in these cases market completely sale the government dimension is needed third

point i told you okay uh market uh actually work only under competitive condition and

if government will not intervene there can never be competition so government actually even if markets are efficient

so still government has to create enabling conditions for market otherwise market cannot work on their own

so here i want to show how government why government intervention is needed

third point second point i told you macroeconomic problems cannot be solved like i give you example long term growth

environmental conservation price stability i give you already practical example of in agriculture sector okay

how actually this msp resolve this problem of fluctuation or cobweb problem

could be resolved by government intervention through msp so these are all limitations of market and this

social justice cannot be ensured by because market can provide supply according to demand those people

who have money it does not see what is need it see who is creating demand so that is why poor people inequality

poverty may further increase so these are limitations of market okay and the advantages are that k the

most important thing is that for enhancing well-being resource allocation should be optimal this is the core concern this is very important and

systems has to be efficient so these are the two very important things which are needed for enhancing well-being these

are the advantages but these are disadvantages what's the point so advantage disadvantages one more thing in

capitalist economy uh markets work so these are advantages and disadvantages of capitalist economy also

why i have discussed this in uh so much detail uh because i have discussed this in

detail because you know there could be a question what kind of

question could we ask question could be on capitalist economy

capitalist economy versus socialist economy

for example so these are pros and cons of capitalist economy okay an opposite will be for socialist

economy so these are advantages socialist economy and these are disadvantages as i told you already one question was

asked in uh means do you suggest adoption of capitalist

system in india because capitalist system has guided the world economy to unprecedented prosperity so do you suggest adoption of capitalist system

so what should be your answer so answer should be clear cut no why no because of disadvantages

so i told you you all you can put in that question all these percentages in this uh capitalist system and i give you

two reasons i have already discussed that question okay in that question why we should not adopt capitalist system

there one reason is that lot of limitations of market mechanism are there these things like social justice etc and in developing countries you know

like the areas where markets fail they are quite like poverty is usually more inequalities are more unemployment is

more okay these things are much more so that is why in developing countries it is not desirable one thing second thing

one more thing all of these points one more reason which we can give uh that reason is that okay

do you remember i told you earlier okay one reason is the limitations of market these four points you can mention other

reason is that k you know uh we need not require to adopt capitalist

system because we can achieve these advantages even in a mixed economy

so these advantages of capitalist system of market economy can be achieved within a mixed economic system as i told you

already we are going at very fast pace why we are going at fast pace by adopting policies which are similar to capitalist

economy we have enabled markets to operate what the point but markets fail in selected areas only so government should

intervene more in that area so i have already told you okay regarding this so two reasons i repeat

once more on what basis you should say okay we should not adopt capitalist system in india one point is that all of

these limitations four points you can mention and second point is that there is no need to adopt calculate system for these

advantages because we can achieve these advantages within a mixed economic system example is that we are adopting

achieving these advantages and i think you can recollect i told you okay i gave you uh means analysis of

indian economy like in pre-reform era government regulation so efficiency productivity was very low without

productivity efficiency we cannot achieve social objectives so that was the worst policy then in 90s after reforms in first phase

i told you a and imposed brief from 1991 to 2004 government liberalized economy

to efficiency growth increase but inequalities started increasing at very fast pace poverty reduced at very slow pace so

social objectives were compromised there was pure jobless growth i have already given you data then government realized that okay

market cannot ensure social justice these are the limitations then government started focusing more on social sector like monreal started

national food security act passed and government started focusing on more and more social sector uh

expenditure on education health increase so after that uh i told you government further liberalized also

and government intervention increased in selected areas where market failed so which policy is best i told you that

that policy is best that is why even after change of government policy has not by large change

because the previous government congress government and this government both are promoting lpg policy and both are

focusing more on role social sector what the point because without any doubt

the outcomes are available so they are this is the best outcome okay more liberalization because there is no

substitute for market it should be very clear okay government cannot ensure these objectives government intervention can never achieve these objectives

efficiency etc and it is also true market can never achieve this social justice automatically it may happen but

in very long term when trickle down will happen just like would happen in developed countries so if we rely

completely on market just like the developed countries or capitalist countries were there then process of

development will become very unjust like it was there in america and europe so as i told you already so this question may

be asked other question

you know means need for government intervention

why government intervention is needed so can we say government intervention is indispensable in an economy even in

capitalist economy so i have already discussed the obviously answer is yes why because of these limitations and even markets are

good still government has to create enabling condition okay apart from that you know

government is reducing intervention and liberalization means government is reducing intervention it benefited us so

this question may be as do you think uh okay now government damage should be eliminated or and you know just

government intervention is done through planning so this question may be uh do you think economic planning is still

relevant in the context of reforms so the next question may be relevance of planning

of economic planning

in the context of economic reforms

in the context of economic reforms so do you think planning is relevant

so answer should be yes why because only these limitations if the question may be in this way because you know reforms

have uh means reduce government intervention so shall we eliminate shall we eliminate economic planning the

answer is no and rather now planning has become more challenging earlier it was

much easier for government to regulate production government may not give license but now liberal policy is that

government has to achieve social objectives government has to give incentives to private sectors so that

private sector shall help in achieving objectives so rather planning has become more challenging now because earlier it

was much easier there were physical controls were there government could have restrained production of this thing but now government is not restraining

government has to create disincentive for that like higher taxes and want to encourage something then subsidies etc

so now we have fiscal uh you know incentives earlier there was physical controls fiscal means uh taxes and exp

government expenditure fiscal means budgetary policy so uh relevance of planning do you think

planning is still relevant in the context reform to answer is certainly yes and will always remain rather it has become more challenging

so this kind of questions may be asked on this topic that is why i have discussed in detail like one question was already asked

on this capitalist system and shall we adopt this system in india okay now i'll briefly show you this uh

uh just give you brief idea about the uh in economic survey of this year there is a actually the theme of this

year's economic surveys on markets on invisible hand so some uh summary of that some points

from chapter one and three uh i will show you i have shared the uh matter with you okay so i'll just give

you brief idea uh through this ppt okay uh this one can

to occur singh you have asked how equilibrium market is achieved by market mechanism

so what is your question equilibrium market so your question is not very clear

equilibrium market is achieved by marketing mechanism okay i'll i'll explain the basics

uh

so uh you know mark this is demand this is supply

this is equilibrium when demand is equal to supply and market mechanism means it is an

automatic process which determines equilibrium the process which establishes this point we decide p and q that is market

mechanism and this situation is market equilibrium

so actually your language is not very clear okay how equilibrium market is achieved by market mechanism not equivalent how

it is achieved because if price will be low then automatically price will increase if this is how equilibrium

achieved by market mechanism i have told you already if price is low then shortage then buyers will be willing to

pay more price consumers will be willing to pay more price

okay so this is from economic survey 1920 means it was published in 2020

okay and you know now economic service published in on last day of january because on 31st

january now this month uh economics are will be presented and from on first

february there is budget is presented so economic survey is presented before you know uh

one day before budget okay and this year's economic survey will be of which year it will be 2020 21 okay now it is 2021

january so it will be 2021. and till now the current economic survey is this which was presented on january 20 and it

is for 1920. why it is 1920 because in economic survey there is information

about the last year and some previous years also it gives data okay what happened what was the trend of economy in the 2000 in

the previous financial year now the chapter one actually is

wealth creation so wealth creation means increasing production production means well creation means in simple words here

invisible hand supported by the hand of trust the focus actually of this chapter is that

invisible hand is very important because markets can ensure efficiency can help

in achieving social objectives they the focus of this chapter is on this and the theme of this economic survey was on

markets okay government should intervene more or less if we have to provide invisible hand

functioning invisible hand means market mechanism i have told you already so it means that government should intervene less and supported by hands of trust

hand of trust means there should not be anti-competitive practice there should be actually fair competition only then mark hand invisible hand should be

supported by the hand of trust means quantitative conditions less you know kind of corruption and in line like

there should not be any anti-complete practice should not be there in simple word only then market will work and that can enhance actually wealth generation

and enhance welfare this is the theme

so for more than uh this

one diagram is missing here that will be there in your nodes so they have mentioned you know

india was actually a dominant economy in the world for three-fourth of the known world

history so india has been a major actually economy in the world uh for

more than three-fourths known economic history india has been the dominant economic power globally

so they have quoted one study of medicine medicine so this uh they have shown india right

now we are accounting for about eight percent of all gdp but if you see before arrival of british

you know indian economy was accounted uh was contributing to about 25 percent of

the world gdp before british although after british situation worsened in india

and then our share reduced to quite low means all almost about two three percent

in the world and after reforms it has increased to about eight percent okay so and before that means you know in

medieval times ancient times india was accounting for twenty to thirty percent of all gdp so india has been a major

global economy in the world they have mentioned this so diagram you can see that they have shown share of india in

the world economy over time clear now the question is that why india

became india became by chance no they have mentioned no india became

world's largest economy one major economy of the world because you know this market mechanism is new or uh to

india or not so it should be clear they said key economic reforms were operated 91 now we

are focusing on more on invisible hand so they have mentioned kate is not new for india in uh only after independence

uh actually independence from 1947 till 91 we govern intervention more is more in

india and that hurted that hurt economy you know our economy was adversely affected by that and before independence

you know india and from ancient medieval times still independence india was a open economy means invisible hand was

functioning and that was the main reason why we became developed now just read out few things wealth creation and economic development

in several advanced countries has been guided by adam smith's philosophy of new zealand as we just discussed

in the capitalist economies uh capitalist economy based on invisible hand they have

developed india has uh embraced the market model that represented our traditional legacy

they have used the word traditional legacy it is not that we adopted reforms now

india was always open economy got the point in ancient times medieval times because trading was much situ

policy was more liberal so that is why due to invisible hand in india india was a major dominant economy in the world

despite such a rich tradition of embracing wealth creation india deviated from this model for

several decades from 47 till 90. i told you it means that for only these about

40 years 40 45 years we actually were not a market oriented economy because

after reforms and even before independence we were open economy and we were we provided larger role to

invisible hand that is why we were a dominant economy in the world so as i told you the theme is that key invisible

hand is very useful markets are best they want to focus on this markets are very important

they have given data however india returned back to its roots post liberalization because we were open

economy lpg was there earlier also so we run back to our routes means our routes

are open economy okay somewhat somewhat close to capitalist economy

but not exactly capitalistic on me india's gdp you can see after economic

reforms of 19 earlier growth was gdp actually was growing at slow pace and after this accelerated pace you can see

the pace of gdp growth accelerated similarly per capita income to gni per

capita after reforms after 90s growth accelerated somewhat excited 90s

especially after 2000 so after reforms you can see growth of gdp accelerated even i give you data

earlier also now another thing is that wealth

creation you know benefits everybody

so well created by an entrepreneur correlates strongly with benefits that accrue to several other stakeholders including

employees suppliers government etc so they have shown increase in wealth

and employment of salaries they have taken in log but the concept is that wealth

creation and employment salary so when wealth creation will increasing growth will increase so then salary will also

increase okay so wealth creation when productivity production will increase everybody will

benefit like workers will benefit suppliers will benefit government will benefit how because people will pay more

taxes to everybody benefit so it means that government should focus on enhancing growth rate of economy so when

growth will be there then everybody will benefit

the invisible hand of market a key contributed contributor to ancient

india's prosperity was internal external trade because we were open economy in ancient times even in medieval times a

stakeholders model exists in india as is discernible in shastra which of which entrepreneurs workers and

consumers share prosperity so actually they have given uh you know

this uh illustration from the some literary works to our shastra of quartalia but remember one thing our

stars was not an economics it should be clear uh arshas was on polity but in actually polity also economic

things are there what should be the policy of king the focus was on polity it was not on economics it should be clear but

polity also is linked with the economy what kind of policy government is implementing so the you know in

quarterly suggested there should be liberal policy and india policy was liberal okay the evidence since 1991 shows that

embracing the invisible hand of markets increasing economic openness has a huge

impact on enhancing wealth means after reform the benefits we have discussed the sectors that were liberalized

grew significantly faster than those that remain closed so they have given one more thing a sector wise analysis

also like those sectors which were open for private sector so they grew at much faster pace and those sectors which were

remain under government they remain weak so this is not surprising as the market

economy is based on the principle that optimal allocation of resources occurs when citizens are able to exercise free

choice of products or services they want

now you can see k credit in banking sector expanded at much higher rate after sector was open

for competition through licenses granted for private banks i will discuss

rbi granted license to few new private banks foreign banks in 94. so you can see 94. before this credit

bank loans for increasing this space then bank credit increases at very fast pace

okay so after banking sector was open to private sector and foreign banks then

growth of credit increased much so they have given a lot of other illustrations

so you can see growth in passenger traffic across open sector that is road means

which is open for private sector and close sector railway so you can see growth in railway is shown by this blue

and growth in this roadway traffic is this because it is open for private sector so it means that

whichever sector is open for private sector grew at much faster pace

now they have given some suggestions instruments for wealth creation okay what are the instruments what we should do so fair competition should be there

that is very important second is because market will work only under free competition competition other equal

opportunity for new entrants in entrepreneurship because you know opportunity should be there for new

entrepreneurs because you know if there will be you know competition will be restricted

then entry of new forms will become difficult because more and more firm will enter then it will increase competition

because you know new companies they bring new ideas and this lead to creative destruction which i told you investment so

government should promote investment entry of new firms new ideas creative destruction so that is important for

development other is pro business policies so pro business means simply economy that enables fair competition for every

economic participant there should be free competition healthy competition that is uh pro-business policy and they

have use of what proof business and opposite of this is pro crony pro cloning means case situation in which government favors few big corporates

so crony is not good for society because then those big corporates they actually

uh exploit people business policy should be there rather

than grow uh pro crown employees policies otherwise undermine undermining markets

so you know they have mentioned when government intervention hurts more than it helps so you know i told you markets

fail and when markets fail the government should intervene yes or no so certainly

government interventions must but sometimes government intervention may may aggravate the problem may worsen the

problem so they have mentioned government should not intervene much in the economy because sometime government

intervention may be counter productive like some examples i will show you they have mentioned other is trade for job

creation so they have said trade is very important government should promote import exports and it will create jobs

okay especially of labor intensive things in which we have some comparative advantage other is ease of doing business should

be improved so that investment should increase more investment more firms more production more employment

otherwise banking sector is very important i told you capital is formation bank

play a important role capital is mobilized for investment and they have mentioned in the last 50 years the top

five economies have always been ably supported by their banks so in whichever country which grew at very fast pace

that was based on the strong banks in india banks are relatively not very

strong in top 100 banks we have only one bank so top fifth top 100 we have only one bank that is sbi

even after merger so uh but although uh in top 100 china

is having 18 banks so we have only one bank so banks are important especially big banks and apart from that

privatization so pse means public sector enterprises means government companies

after privatization to show the significant efficiency gain so they have mentioned privatization is important

because psus which were privatized performed better than the which were not privatized

okay this is actually the uh me some some points from the economic survey volume one so it shows markets are

better okay just advantage i've told you already to try to correlate the whatever we have discussed in class understand

this and try to correlate with the uh points they have also given reasons why it is better and some data how economy

perform better after private after lpg policy now this is uh from volume one chapter

four in chapter four they have mentioned undermining markets

the name of the chapter is undermining markets when government intervention hurts more than it helps so they have mentioned sometime you know government

intervention is needed but sometimes government intervention may be more than needed and it may create more

distortions

they have mentioned k benefits of economic freedom so you can see in this diagram first per capita income and

index of economic freedom there will be more economic freedom means less government intervention more liberal policy so higher per capita income and

they have mentioned economic freedom is correlated with a lot of variables like uh for development of actually r and d

for actually you know for other things also okay like you can see here the indices of economic freedom positively

correlate with per capita gdp registration of new business because if more freedom more business will be

registered uh ease of doing business indicators number of patents applied in a country etc so it means that economic

freedom liberal policy is very important so again same theme here also

liberalization is much more important then impact of anachronistic government

uh intervention like if government intervention may be excessive it may create problem so they have mentioned

government intervention may create demand and supply may be affected and it may create some problem okay so it is

same thing which i have told you so for example i give you example from here when the price is too high there is an

excess amount of product for sale compared to what people want like when there is uh you know

this should be price so what they mean when the price is too high if the price will be too high means

you can see here let's suppose this price may be p2 what will happen then supply will be more demand will be less

so they have mentioned there is an excess amount of product for sale compared to what people want those excess amount of sale i have told you

already and when price is low they will be shortage okay

in both the cases you know they will be lost or not if price may be p1 the production actually will be this much so

production will reduce waste your resources will be there or not and here also people buy this so farm will not produce this production will reduce in

both cases and the net loss of welfare is technically called deadweight loss so

they have used a word it leads to deadweight loss okay so the wasted chance to create both

producer and consumer welfare from such sales lead to deadweight loss income that is lost forever so it means

that if government will intervene may fix a low price on may fix may lead to higher price so then what

will happen it will lead to welfare loss of either consumers or producers so it's actually i have already

discussed just go through this thing and try to correlate what we have discussed

so government intervention in grain market so in agriculture sector i will discuss in much detail but in simple

words i'll give you brief idea in case of grain market the price of wheat and rice sorry msp of wheat and

rice has been increased by government too much so what will happen if msp of wheat and rice will be much more so

farmers will grow more wheat and rice obviously and when they will grow more and msp is the price at which government

has to buy unlimited quantity government cannot say no so ultimately what is happening a high msp of wheat and rice

so farmers are growing much more wheat and right rice and when they are growing much more wheat and rice so what was happening government has to buy all and

fci is storing huge quantity beyond the capacity to store it is leading to wastage also financial burden on

government other problem if farmers will grow more wheat and rice so production of other crops will reduce

so it will affect diversity in agriculture sector so these are the problems so you can go through briefly

uh this thing so i just show you with the help of diagram only and they have mentioned government

actually is buying too much wheat and rice why to government single largest procure of

rice and wheat the government is buying major part of wreath and rice government procures around 40 to 50 percent of the

total market surplus of eaten rice so you can see uh this is wheat this one dash dash this one wheat and

this one rice so almost 40 to 50 percent government is buying so whatever wheat and rice is produced almost half is

bought by government so government is intervening too much here one thing in punjab and haryana this share of

purchase by government reaches 80 to 90 percent so of the marketable surplus 80 to 90 percent is bought by a government

hardly 10 20 percent sold to private sector government is bank the government is intervening too much they have

mentioned and another thing is that increasing msp

uh leading to higher procurement this higher msp and more procurement of this

is for msp and this is procurement of uh one is wheat other is

rice so more msp higher than msp higher the procurement so because when msp will be more more

production and more government has to purchase and when government will purchase more

government has to store so you can see the actual stock of rice is this much need is this much

so how much stock we had 74 how much required about this much

required so whatever is the buffer stock norm this line shows requirement and actual

storage is almost double and you can see from 2008 to 19 for in the last 10 11 years on an average this

is needed and this is actual to almost double is capped whatever is needed so

if this is talking is done by food corporation of india fci so fca is keeping much more stock and because it

is keeping much more it will lead to this stage so this is one distortion created by the government intervention by increasing

msp of v10 rise much

so increasing efficiency of a stock to more the stock more inefficiency just

you can go through the this it is almost based on this what we have discussed already

as a distortions in grain market they have mentioned k in grain market you can see this uh

share of cereals in consumption expenditures sharing consumption is reducing and you can see this one this blue is

share of cereals in consumption expenditure share of series and consumption expenditure rural urban actually they

have shown and you can see production is increasing so consumption is declining

this thing rural and urban consumption is declining and production is increasing so this has created a disconnect between demand and supply

because demand is reducing in general of grains and production is increasing and

the result is that government is overstocking and leading to wastage so this is how market

is leading to this is leading to this problems so they have

mentioned the water strength and weaknesses process constant market which i have this already dictated

now conclusion what they have mentioned so they have mentioned now conclusion in this chapter competitive markets are

effective in allocating resources in an economy so yes certainly they are better while the idea of completely efficient

market is rare the cost of government intervention may outweigh the benefits when market failures are severe so you

know government ideally the com this completely efficient market is rare

the cost of government intervention may be may outweigh the benefits when market failures are not severe so they mean to

say if market failure is not very severe then government should not intervene because the government will intervene the cost will be much more it may create

more distortion rather but i don't agree with this view in general government intervention is uh

useful and and must be there in some cases there are issues but they have focus on only those cases so in

general the impression from this chapter seems to be government should not intervene at all so i don't think it is

desirable so they have slightly over stretched those things where government intervention is creating some

distortions there are some distortions they have just over stress those things focus on these areas only

because the focus is too that markets are best invisible and is best

now the they have mentioned this point they have clarified this thing in the last the now the conclusion is that the

chapter does not argue that there should be no government intervention

but eliminating need instances of needless government intervention will enable competitive markets and thereby

spur investment and economic growth okay so they have now clarified here okay the

chapter does not argue that there should be no common intervention but eliminating instance of needless

government intervention should be eliminated okay this is conclusion

as a cover phenomena in pulses i told you already production of pulses this is based on actual data so you can see

the cobweb theory is the idea that price fluctuations can lead to fluctuations in supply

which cause a cycle of rising and falling prices rising on falling prices and production both

okay so which i have told you already here when price of uh this is you can

see uh wholesale prices in rupees and this is a area

in million how much is area covered to higher the prices i said this is uh t time and this is t minus one last year's

price production of this year okay so price last year when low production was more

so low and when product price higher production more so there is a you know price production depends on the price of

last year okay last year price t minus one and production this year are highly correlated which i have told you already

okay so i have uh uh i gave you some data of gdp okay uh in terms of market

exchange so i our gdp we are sixth largest economy and two point six percent two point six

trillion dollar is our gdp last year we were fifth largest economy

and our gdp was 2.9 trillion we slipped uh actually two from uh fifth

to sixth but before that in 2018 we were the seventh largest in 2019 we take over two

countries france uk we take over but this year in 2020 okay uh uk has again

taken over india because gdp of uk india and france is very close

okay so you should have broad idea i have already discussed ppp this market exchange and then ppp

in ppp we are third largest in ppp you can our gdp is 8.7 now last year it was 9.6

actually why it has reduced you know there is negative growth in india

just like in a lot of countries so because of that our gdp has somewhat decrease so this is 19 this is 20.

lastly it was slightly more now it is somewhat less so gdp just i have already discussed

this okay so this is uh

just for reference just try to learn class notes and then try to compare correlate with this if you have any

doubt you may earn us in the next lecture okay the next lecture we will this is all in this module in next

lecture we will discuss national income gdp gnp nash income ok we will continue in next lecture