Economic Structure

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Textbook

1. Karnataka Text Book Class IX - Chapter 1 Economic Structure ಆರ್ಥಿಕ ರಚನೆ => NCERT Text Book - Class 10th - GLOBALISATION AND THE INDIAN ECONOMY

Additional References

Useful websites

Wikipedia 'Economics' gives an introduction to the social science of Economics.

Wikipedia 'Economic System' article has a good description of the nature of economic system and its structures. It says "An economic system is the system of producing and distributing of goods and services and allocating resources in a society. It includes the combination of the various institutions, agencies, entities (or even sectors as described by some authors) and consumers that comprise the economic structure of a given community...The study of economic systems includes how these various agencies and institutions are linked to one another, how information flows between them, and the social relations within the system (including property rights and the structure of management).

Wikipedia 'Globalisation' discusses the changes in economic structures over the last 20-25 years globally and how these changes are impacting all economies. Must read, since this part is dealt in one line in the text book, while it is most important change happening in economic structures at present

Teaching Outlines

Please describe the key ideas to be conveyed in this section. Also broken down in details by each idea

Key Idea 1- Introduction to Economics

What are the key ideas to be covered

What is economics? Origin - greek word 'oikou + nomos' Think of the monthly income that your parents earn. Using this money, they have to cover many expenses such as food, clothing, rent, various bills and even save some money for future occasions. Your parents have to thus take care of your needs and wants from the limited income they earn. Similarly, a society needs to fulfill unlimited wants of people using limited resources. Economics in turn studies how efficiently society uses these scarce resources to produce goods and services that people need. Thus, the two important themes of economics are scarcity (of resources) and multiplicity (of wants).

What are the questions that economics tries to answer?

Every country has limited resources with which it has to decide what goods to produce, how to produce these goods and for whom to produce these goods. For example, each country has limited supplies of land, labour, technical knowledge, factories and money. When trying to satisfy its people's wants, the economy has to decide how to allocate these resources to various activities. How much land to allocate to agriculture? How many textile factories to set up? Should the government build houses for its people? These are some questions that economics tries to answer.

Learning objectives

To understand the static and dynamic economic structures

Notes for teachers

Economists generally use two main types of theoretical models – a static economy and a dynamic economy.

Static economy: is one in which normal economic activities (production, consumption, etc.) take place but there is no change in the size of the economy or in the level of national output, stock of capital, prices and employment. Such an economy is not realistic but is useful for theoretical analysis. Another feature is that the variables used in this analysis are in the same point of time. A static economy is therefore a timeless economy. The purpose of using such a model is to understand relationships between related variables under static conditions.

Dynamic economy: is one in which economic forces and factors are constantly changing. Such a model takes time into account and is therefore useful to predict the future course of an economy.

Some differences between the two are outlined below:

Static analysis is an abstraction from reality, and dynamic analysis is the study of the real world. In static analysis, the variables are taken at a single point in time, whereas in dynamic analysis their movement across different time periods is known. Static analysis is timeless, whereas in dynamic analysis, time is one of the variables considered. In static analysis, basic economic conditions are known and taken as given, but in dynamic analysis they change over time. Dynamic analysis is useful in making predictions (for e.g., about economic output), which static analysis does not allow.

Activity No 1 household economic decisions

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• Estimated Time

1 hour

• Materials/ Resources needed - Pen and paper
• Prerequisites/Instructions, if any

Ask the students about the questions that their parents try to answer when making household decisions relating to purchasing goods for the family

• Multimedia resources

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• Process

• What questions can you ask

• Assessments - incorporating elements of CCE - Assessing application of economics to daily life
• Question Corner -

What are the three fundamental questions that economics tries to answer? Are different household expenditure items different? What are the reasons for the differences

Activity No #

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• Assessments - incorporating elements of CCE
• Question Corner

Key Idea 2 - 3.3 Circular flow of Income

What are the key ideas to be covered

Learning objectives

To understand about the different sources of income To understand the interaction of the three important entities – households, firms and government To understand the theme of interdependence in an economy

Notes for teachers

How do economies answer the three fundamental questions?

Markets: Think of the word 'market'. You may immediately think of a vegetable market or a arts-and-crafts market. These are good examples, but in economics, the term market refers to a system where several buyers and sellers interact to determine prices to exchange goods and services, just like in a real market. In economics, however, the term market does not necessarily refer to an actual, physical place. It is merely a concept. The section below will make things clearer.

Buyers and sellers interact in a market and their interaction helps answer the three fundamental questions raised above. For example, when many consumers go to the supermarket and buy coffee instead of tea, they are expressing their desire for coffee and thus implicitly help producers decide that more coffee should be produced instead of tea. This answers the question of what to produce.

Now that producers are going to produce more coffee, they will determine the technique of production based on their profit goals and budget constraints. They can hire labourers to handpick the coffee beans and dry them by hand, or buy a machine to do this. They may find that a machine is faster and more efficient, so they invest in some machinery, thus deciding how to produce.

The coffee producers have bags of coffee powder lying in their godowns. Who will consume this coffee? Again, the answer is in the market mechanism. It may be the case that Bangaloreans drink more coffee than Delhites. So, the producers are selling coffee to consumers in Bangalore. The quantity bought will depend upon the consumer's income and desire for coffee.

Interaction of firms, households and government in the market1:

When the three principal actors in the market – firms (producers), households (consumers) and the government interact, we can observe a circular flow of income as pictured here.

Households (consumers) buy goods and services from firms (producers), in turn for selling factors of production; firms sell goods and services to households in turn for buying factors of production. Consumers offer factors of production such as land and labour, and receive rent and wages as payment. They use their income to buy goods and services produced by firms. Both, firms and households pay taxes to the government, and in turn receive basic goods such as roads, schools, hospitals and safety services. Thus, the above figure neatly summarizes the roles of the three fundamental players in an economy.

Activity No 1- Discuss video on circular flow of Income

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video on circular flow of Income

Image of circular flow of Income

• Relevant local connections - people, places and materials

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• Process
• What questions can you ask
• Assessments - incorporating elements of CCE

Application of economics to daily life

• Question Corner

Within your own village or town, can you identify how incomes moves in circular ways across economic actors?

Activity No #

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Key Idea 3 - Different Economic Systems

What are the key ideas to be covered

Learning objectives

To understand about the different types of economic systems To be able to identify pros and cons of each type of system

Notes for teachers

What are some economic systems? Free Market economy: this is a system where there is minimum to no interference from the government and economic decisions are made by buyers and sellers. This was popular in most parts of Europe and North America in the nineteenth century.

Command economy: in such an economy, the government plays a prominent role, and there is centralized control of the economy by the government. The most popular example used to the erstwhile Soviet Union, before it gave way to a market economy around 1990. China is a modern day example of a command economy.

Mixed economy: Today, there are few economies that are strictly one or the other but most are different combinations of both. Markets direct day-to-day economic life (as shown in the previous section) and the government acts a regulator and also collects taxes to provide basic services such as education and healthcare.

Most economies have elements of market as well as centralized control/planning, hence are mixed economies. Read a blog on this

Activity No 1 - Debate on which economic system is better

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Division into two sides (market vs. command); students should be prepared with their research and arguments

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• Assessments - incorporating elements of CCE

Successful understanding of the pros and cons of each type of economic system

• Question Corner

India has adopted the mixed economy model. How well has it worked for her development and growth? Identify the market and command elements in India's economy

Activity No #

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• Prerequisites/Instructions, if any
• Multimedia resources
• Relevant local connections - people, places and materials
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• Process
• What questions can you ask
• Assessments - incorporating elements of CCE
• Question Corner

Project Ideas

Find out about some of the taxes that the government collects from individuals and other entities. Collect secondary data (including from the Internet) to draw a simple picture of the Karanataka Government Tax collections across different taxes. Identify key sources as well as key expenditure items for 2011-12 and check the trend over the last 10-15 years

Community Based Project

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