Differentiate between relative and absolute poverty

Absolute poverty is when household income is below a certain level. This makes it impossible
for the person or family to meet basic needs of life including food, shelter, safe drinking water,
education, healthcare, etc.

In this state of poverty, even if the country is growing economically it has no effect on people
living below the poverty line. Absolute poverty compares households based on a set income
level. And this level varies from country to country depending on its overall economic
conditions.

Relative poverty is when households receive 60% less than average household incomes. So they
do have some money but still not enough money to afford anything above the basics. This type
of poverty is, on the other hand, changeable depending on the economic growth of the country.

 Relative poverty is sometimes described as “relative deprivation” because the people

falling under this category are not living in total poverty. They are not, however, enjoying
the same standard of life as everyone else in the country. It can be TV, internet, clean
clothes, a safe home (a healthy environment, free from abuse or neglect), or even
education.
 Relative poverty can also be permanent. This means that certain families have absolutely
no chance of enjoying the same standards of living as other people in the same society
currently have access to. They are basically “trapped” in a low relative income box.

What are the different methods of calculating GDP?

The three approaches to determine GDP are as follows:

1. Expenditure approach
2. Income approach
3. Output approach
Let us discuss these in brief in the following lines:

Expenditure approach

The expenditure approach calculates the GDP by calculating the sum of all the services and
goods produced in an economy.

The GDP formula is mathematically represented as:

Y = C + I + G + (X − M)

Where,
Y = Gross domestic product

C = Consumption

I = Investment

G = Government spending

X = Exports

M = Imports

Income approach

The income approach of GDP calculation is based on the total output of a nation with the total
factor of income received by the residents or citizens of a nation.

The formula for calculating GDP by the income approach is:

GDP = Compensation of employees + Rental and royalty income + Business cash flow + Net
interest

Output approach

The output approach emphasises the total output of a nation by finding the value of the total
value of goods and services produced in a country.

The formula for calculating GDP by the output approach is:

GDP = GDPmp of primary sector + GDPmp of secondary sector + GDPmp of tertiary

sector

GDPmp (for all the sectors is calculated as) = Sales + Change in stock – Intermediate
consumption

What are the various stages of demographic transition?

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What Is a Poverty Trap?

A poverty trap is a mechanism that makes it very difficult for people to escape poverty. A
poverty trap is created when an economic system requires a significant amount of capital to
escape poverty. When individuals lack this capital, they may also find it difficult to acquire it,
creating a self-reinforcing cycle of poverty.

Examples of a Poverty Trap

One of the most important considerations in studying the poverty trap is the amount of
government aid necessary to lift a family out of their present conditions.

Consider the case of a family of four, made up of parents and two children who are below legal
working age. The family has an annual income of $24,000, with the parents working in jobs that
pay $10 per hour. According to the latest federal poverty guidelines, a family of four is
considered to be poor if its income is less than $30,000.In a simple case, let us assume that the
government begins handing out aid amounting to $1,000 per month. This raises the family's
annual income to $36,000. While it is capped at $1,000, the government aid decreases in
proportion to increases in the family's income. For example, if the family's earnings increase by
$500 to $2500 per month, government aid reduces by $500. The parents would have to work an
extra 50 hours in order to make up for the shortfall. The increase in working hours comes at an
opportunity and leisure cost to the parents. For example, they might end up spending less time
with their children or may have to hire babysitters for the time that they are out of the home. The
extra hours also mean that the parents will not have the leisure to upgrade their skill-sets for a
better paying job.The aid amount also does not take into account living conditions for the family.
Because they are poor, the family lives in one of the most dangerous neighborhoods in the city
and does not have access to proper healthcare facilities. In turn, crime or susceptibility to disease
could drive up their average monthly spending, making an increase in the family's income
effectively useless.

Causes of Unemployment

The major causes of unemployment in India are as mentioned below:

 Large population.
 Lack of vocational skills or low educational levels of the working population.
 Labour-intensive sectors suffering from the slowdown in private investment particularly
after demonetisation
 The low productivity in the agriculture sector plus the lack of alternative opportunities for
agricultural workers that makes transition among the three sectors difficult.
 Legal complexities, Inadequate state support, low infrastructural, financial and market
linkages to small businesses making such enterprises unviable with cost and compliance
overruns.
 Inadequate growth of infrastructure and low investments in the manufacturing sector,
hence restricting the employment potential of the secondary sector.
  The huge workforce of the country is associated with the informal sector because of a
lack of required education or skills, and this data is not captured in employment statistics.
 The main cause of structural unemployment is the education provided in schools and
colleges are not as per the current requirements of the industries.
 Regressive social norms that deter women from taking/continuing employment.

What is meant by privatization? Give 2 example.

The transfer of ownership, property or business from the government to the private sector is
termed privatization. The government ceases to be the owner of the entity or business. The
process in which a publicly-traded company is taken over by a few people is also called
privatization.

Objectives of Privatization:

1) Providing strong momentum for the inflow of FDI

 Privatization aims at providing a strong base for the inflow of FDI.
 The increased inflow of FDI improves the financial strength of the economy.
2) Improving the efficiency of public sector undertakings (PSUs)
 The efficiency of PSUs is improved by giving them the autonomy to make decisions.
 Some companies were given special categories of Navratna and Miniratna.

Examples: Air India and Bharat Petroleum (BPCL).

Differentiate between the characteristics of a monopoly and perfect competition market.

Monopoly differs from perfect competition in the following ways :

(i) In monopoly, there is a single seller (or firms) of a product whereas under perfect
competition there arelarge number of sellers (or firms).

(ii) A monopolist produces or sells a product which has no close substitute. On the other
hand, under perfect competition, the products sold by the various firms are homogenous or
identical. They are perfect substitutes of each other.
(iii) In case of monopoly, there is no freedom of entry of new firms in the industry whereas
under perfect competition, there is free entry and exit of firms in the industry.
(iv) For a monopolist firm, the demand curve of its product slopes downward to the right.
On the other hand, a perfectly competitive firm faces a perfectly elastic downward curve
(i.e., horizontal straight line).
What are the different sectors of the economy? Explain its characteristics.

Primary Sector Secondary Sector Tertiary Sector

It is known as the agricultural and It is known as the manufacturing It is known as the service
allied sector services sector sector

This sector provides raw materials This sector transforms one good The tertiary sector provides
for goods and services into another by creating more useful services for the primary
utility from it and secondary sectors

The primary sector is unorganized The secondary sector is This sector is well organized
and uses traditional techniques organized and uses better and uses modern-day logistics
methods of production techniques to perform its
functions

Activities in this sector consist of It includes manufacturing units, Banking, insurance trade and
agriculture, forestry and mining small scale units, large firms communications come under
and multinational corporations this sector

In most developing nations such as The employment rate is in This sector’s employment
India, this sector is where a large equilibrium as a specialized set share has increased in the
section of the workforce is of skills is required to find ensuing years
employed, in comparison to employment in this sector
developed nations

Primary sector: Red collared job

Secondary Sector: Blue collared job
Tertiary Sector: White collared job

“Economics as a basics of social welfare”. Justify the statement using examples from Indian
context

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Differentiate between frictional, structural and cyclical unemployment.

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