NATIONAL INCOME AND EQUILIBRIUM. SUB: ECONOMICS GROUP MEMBERS: HOORAIN & NOOR. NATIONAL INCOME. The total value of all income in a nation (wages and profits and interest and rents and pension payments) during a given period (usually 1 yr). CONCEPTS OF NATIONAL INCOME.
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HOORAIN & NOOR
The total value of all income in a nation (wages and profits and interest and rents and pension payments) during a given period (usually 1 yr)
CONCEPTS OF NATIONAL INCOME
The various concepts of national income are given below:
Gross national product: “ The total market value of all final goods and services produced in a year.”
G.N.P = CONSUMER GOODS + CAPITAL GOODS + DEPRECIATION + INDIRECT TAXES
Net National Product (N.N.P): “The market value of final goods and services after deducting the depreciation charges is called net national product. N.N.P = G.N.P – DEPRECIATION
Personal Income (P. I ): The some of all incomes received by an individaual or an household is known as personal income.
PERSONAL INCOME (P.I)= NATIONAL INCOME – SOCIAL SECURITY CONTRIBUTION - COOPERATE INCOME TAX – UNDISTRIBUTED PROFITS
Disposable Income: After the payment of all the taxes the income which is left is known as disposable income.
THE EXPENDITURE APPROACH
The expenditure approach is basically an output accounting method. It focuses on finding the total output of a nation by finding the total amount of money spent. The basic formula for domestic output combines all the different areas in which money is spent within the region, and then combining them to find the total output.
GDP = C + I + G + (X - M)
Where:C = household consumption expenditures / personal consumption expendituresI = gross private domestic investment G= Govt investment
X=Exports M= Imports
Economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal
General equilibrium: analyses the way in which the choices of economic agents are co-ordinated acrossall product and factor markets.
Partial equilibrium: neglects the way in which changes in one market affect other (product/factor) market.
Market equilibrium, for example, refers to a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the equilibrium price or market clearing price and will tend not to change unless demand or supply change.
PROPERTIES OF EQUILIBRIUM
When the price is above the equilibrium point there is a surplus of supply; where the price is below the equilibrium point there is a shortage in supply.
In most simple microeconomic stories of supply and demand in a market a static equilibrium is observed in a market; however, economic equilibrium can exist in non-market relationships and can be dynamic.
an increase in supply will disrupt the equilibrium, leading to lower prices. Eventually, a new equilibrium will be attained in most markets. Then, there will be no change in price or the amount of output bought and sold; until there is an exogenous shift in supply or demand (such as changes in technology or tastes). That is, there are no endogenous forces leading to the price or the quantity.
CHANGES IN SUPPLY, DEMAND AND MARKET EQUILIBRIUM
The price adjustment mechanism: If the quantity supplied, Qs, is greater than the quantity demanded, Qd, at a price P0, then a surplus exists at P0. Because of this surplus, consumers will bid down the market price. As the market price decreases, the quantity demanded will increase and the quantity supplied will decrease until the quantity demanded equals the quantity supplied, at which point the surplus is eliminated and a market equilibrium is established.
An increase in supply S with constant demand D will decrease the equilibrium price P* and increase the equilibrium quantity Q*. Similarly, a decrease in supply S with constant demand D will increase the equilibrium price P* and decrease the equilibrium quantity Q*. Alternatively, an increase in demand D with constant supply S will increase both the equilibrium price P* and equilibrium quantity Q*. A decrease in demand D with constant supply S will decrease both the equilibrium price P* and equilibrium quantity Q*.
MARKET EQUILIBRIUM IN THE LONG AND SHORT RUN
EQUILIBRIUM IN SHORT RUN