NCERT Gist: 12th Introductory Macro Economics Synopsis | Additional Study Material for UPSC PDF Download

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Introduction of Capitalist Economy

→ Production activities in a Capitalist country are mainly carried out by capitalist enterprises.
→ Natural resources are a part consumed in the process of production (e.g. raw materials) and a part fixed (e.g. plots of land).
→ The most important factor to carry the production is human labour.
→ After producing output with the help of these three factors of production, namely capital, land and labour, the entrepreneur sells the product in the market. The money that is earned is called revenue.
→ After paying rent for services, interest, and wages to labour, the remaining part of income left is known as Profit.
→ When a producer keeps his profit in order to buy new machinery, factors of production, new factories to expand and to improve productivity, it is called Investment Expenditure.

Characteristics of Capitalist Economy

A capitalist economy can be defined as an economy in which most of the economic activities have the following characteristics:
→ There is private ownership of means of production.
→ Production takes place for selling the output in the market.
→ There is sale and purchase of labour services at a price which is called the wage rate (the labour which is sold and purchased against wages is referred to as wage labour).

Four Sectors of Economy

→ Firms: Also known as Production Units.
→ In both the developed and developing countries, apart from the private capitalist sector, there is the institution of State.The role of the state includes framing laws, enforcing them and delivering justice, we shall use the term “Government” to denote state.
→ The state, in many instances, undertakes production - apart from imposing taxes and spending money on building public infrastructure, running schools, colleges, providing health services etc.
→ There is another section in an economy which is called a Household sector→  By a household we mean a single individual who takes decisions relating to her own consumption, or a group of individuals for whom decisions relating to consumption are jointly determined.
→ Fourth Important sector of economy is External Sector.
→ Trade with external sector is of two types: Imports and Exports.
→  All that goes out is called “exports”.
→ All that comes in is called “imports”.