- The Foreign Trade Policy corrects both excess demand and deficient demand
- Balance of Trade = Exports − Imports
- Export Surplus = Exports > Imports = Favourable BOT
- Import Surplus = Imports > Exports = Unfavourable BOT
- Exports fix deficient demand — they work just like investment in boosting aggregate demand
- Three factors that raise exports: foreign income ↑, export prices ↓, surplus production ↑
- Imports fix excess demand — more goods in market → prices fall → inflation controlled
- Import surplus is financed by: foreign reserves, IMF/World Bank loans, foreign grants
Topics
Demand
- Introduction to Microeconomics and Macroeconomics
- Microeconomics
- Macroeconomics
- Macroeconomics Vs Microeconomics
- Introduction to Demand
- Meaning of Demand
- Features of Demand
- Types of Demand
- Determinants of Demand
- Demand Function
- Quantity Demanded and Demand
- Law of Demand
- Demand Schedule
- Demand Curve
- Individual Demand Curve to Market Demand Curve
- Slope of the Demand Curve
- Linear Demand Curve
- Reasons for the Downward Slope of the Demand Curve
- Importance of the Law of Demand
- Exceptions to the Law of Demand
- Movement Along the Demand Curve
- Change in Demand – Shift in Demand Curve
- Difference Between Extension and Increase in Demand
- Difference Between Contraction and Decrease in Demand
- Cross Price Effects
- Relationship Between Income and Demand
- Impact of Tastes and Preferences on Demand for a Commodity
- Industry Demand Vs Firm Demand
- Concept of Utility
- Cardinal Utility Analysis / Marginal Utility Analysis
- Types of Marginal Utility
- Total Utility and Marginal Utility
- Forms of Utility
- Features of Utility
- Relationship Between Total Utility and Marginal Utility
- Law of Diminishing Marginal Utility
- Exceptions of the Law of Diminishing Marginal Utility
- Importance of the Law of Diminishing Marginal Utility
- Consumer's Equilibrium through Cardinal Utility Approach
- Law of Equi-Marginal Utility
- Exceptions of the Law of Equi-marginal Utility
- Importance of the Law of Equi-marginal Utility
- Ordinal Utility Analysis/Indifference Curve Analysis
- Indifference Schedule
- Indifference Curve
- Indifference Map
- Marginal Rate of Substitution (MRS)
- Assumptions of Indifference Curve Analysis
- Properties of Indifference Curves
- Price Line or Budget Line
- Consumer's Equilibrium through Indifference Curve Approach
- Comparison of Utility Theory and Indifference Curve Theory
- Consumer's Equilibrium through Indifference Curve Approach
- Relationship Between Marginal Rate of Substitution and Marginal Utility
Microeconomic Theory
Theory of Income and Employment
- Introduction to Theory of Income and Employment
- Basic Model of Income Determination
- Aggregate Demand and Its Components
- Desired (Ex Ante) and Effective Demand (Ex Post)
- Propensity to Consume or Consumption Function
- Propensity to Save - Saving Function
- Relationship Between Consumption and Saving Functions
- Derivation of Saving Function
- Investment Expenditure
- Private and Public Investment
- Induced and Autonomous Investment
- Determination of Equilibrium Income and Output
- Concept of Aggregate Demand and Aggregate Supply
- Saving-investment Approach
- Investment Multiplier
- Investment Multiplier Defined
- The Multiplier Mechanism
- Graphic Presentation of Multiplier
- Derivation of Multiplier Formula
- Solved Numerical Problems on Propensity to Consume and Save, Equilibrium Income and Multiplier
- Meaning of Full Employment and Voluntary Unemployment
- The Concept of Full Employment
- Voluntary and Involuntary Unemployment
- Excess Demand
- Measures to Correct the Excess Demand
- Deficient Demand
- Measures to Correct Deficient Demand
- Deficient and Excess Demand and Business Cycle
- Aggregate Demand in a Three - Sector Economy
- Features of the Consumption Function
- Shifting of the Consumption Function
- Importance of the Consumption Function
- Gross Investment and Net Investment
- Paradox of Thrift
- Variables
- Partial and General Equilibrium
- Static Analysis
- Comparative Static Analysis
- Dynamic Analysis
- Difference between Static and Dynamic Analysis
- Psychological Law of Propensity to Consume
- Measures to Raise Propensity to Consume
- Importance of Investment
- Static Multiplier
- Dynamic Concept of Multiplier
- Limitations of Multiplier
- Leakages of Multipler
- Importance of Multiplier
- Types of Multiplier
- Balanced-Budget Multiplier
- Unemployment Associated with Full Employment
- Inflationary Gap
- Foreign Trade Policy
Elasticity of Demand
- Introduction to Elasticity of Demand
- Meaning and Types of Elasticity of Demand
- Price Elasticity of Demand
- Classification of Price Elasticity - Degrees of Price Elasticity of Demand
- Methods of Measuring Price Elasticity of Demand
- Percentage or Proportionate Method
- Total Expenditure Method
- Point Method (Geometric Method)
- Arc Elasticity of Demand
- Revenue Method
- Numerical Problems of Price Elasticity of Demand
- Factors Affecting Price Elasticity of Demand
- Importance of Elasticity of Demand
- Income Elasticity of Demand
- Types of Income Elasticity of Demand
- Importance of Income Elasticity
- Cross Elasticity of Demand
- Туpes of Cross Elasticity of Demand
- Limitations of Cross Elasticity of Demand
- Importance of Cross Elasticity of Demand
Money and Banking
Supply
- Concept of Supply
- Individual and Market Supply
- Distinction Between Supply and Stock
- Determinants of Supply
- Supply Function
- Law of Supply
- Supply Schedule
- Supply Curve
- Derivation of Market Supply Curve From Individual Supply Curves
- Explanation of the Law of Supply
- Time Period and Supply
- Exceptions to the Law of Supply
- Movement Along the Supply Curve Or Expansion and Contraction of Supply
- Shift of the Supply Curve or Change in Supply
- Expansion of Supply and Increase in Supply
- Contraction of Supply and Decrease in Supply
- Elasticity of Supply
- Meaning and Types of Elasticity of Demand
- Price Elasticity of Supply
- Categories (Degrees) of Elasticity of Supply
- Measurement of Elasticity of Supply > Percentage Method
- Measurement of Elasticity of Supply > Geometric or Point Method
- Determinants of Elasticity of Supply
- Importance of Elasticity of Supply
Market Mechanism
- Introduction to Market Mechanism
- Basic Concepts of Equilibrium and Equilibrium Price
- Equilibrium Price and Quantity in a Competitive Market
- Changes in Equilibrium
- Effects of Changes (Shifts) in Demand on Equilibrium Price and Equilibrium Quantity
- Effects of Changes (Shifts) in Supply on Equilibrium Price and Equilibrium Quantity
- Effects of Simultaneous Changes (Shifts) in Demand and Supply
- Some Special Cases of Equilibrium
- Importance of the Element in the Determination of Price
- Applications of Tools of Demand and Supply Price Control
- Mаximum Price Legislation or Price Ceiling and Rationing
- Minimum Price Legislation or Floor Price
- Important Areas of Applications of Tools of Demand and Supply Curves
- Meaning of Perfect Competition
- Assumptions and Conditions of Perfect Competition
- Pure and Perfect Competition
- Time Element in the Theory of Price Determination
- Determination of Equilibrium Prices
- Normal Price and Law of Returns
- Comparison between Market Price and Normal Price
- Practical Applications of Tools of Demand and Supply Analysis
Balance of Payments and Exchange Rate
Public Finance
Concepts of Production
- Concept of Production
- Product
- Factors of Production
- Production Function
- Short-run and Long-run
- Features of Production Function
- Types of Production Functions
- Some Basic Concepts - Total, Average and Marginal Physical Products
- Relationship between Average Product (AP) and Marginal Product (MP)
- Relationship between Total Product (TP) and Marginal Product (MP)
- Returns to a Factor - Laws of Returns to a Variable Factor
- Law of Variable Proportions
- Statement of the Law of Variable Proportions
- Assumptions of the Law of Variable Proportions
- Illustration of the Law of Variable Proportions
- Three Stages of Production
- Explanation of the Law of Variable Proportions
- Stages of Operation and the Decision to Produce
- Conditions Or Causes of Applicability
- Applicability of the Law of Variable Proportions
- Changes in Production
- Returns to a Factor or Law of Returns
- Law of Variable Proportions and Returns to Scale Compared
- Variation of Output in the Long Run - Returns to Scale
- Scale of Production
- Concept of Indivisibility
- Economies of Scale
- Diseconomies of Scale
National Income
Cost and Revenue
- Introduction to Cost of Production
- Money Cost Or Accounting Cost / Explicit Cost
- Economic Cost
- Opportunity Cost
- Real Cost
- Private and Social Cost
- Fixed Cost and Variable Cost
- Different Cost Concepts
- Total Cost Curves
- Average Cost Curves
- Marginal Cost (MC)
- Relationship between Average and Marginal Cost
- Long-Run Cost Curves
- Long-run Average Cost (LAC) Curve
- Long-run Marginal Cost (LMC) Curve
- LAC Curve U-shaped - Economies and Diseconomies of Scale
- Numerical Problems Long-run Cost Curves
- Revenue Concepts
- Behaviour of Revenue Under Different Market Structures
- Relationship Between Total, Average and Marginal Revenues Under Perfect Competition
- Relationship Between Total, Average and Marginal Revenue Under Imperfect Competition
- Significance of Revenue Curve
- Numerical Problems of Revenue
Main Market Forms and Equilibrium of a Firm
- Concept of Market
- Market Structure
- Factors Determining Market Forms
- Perfect Competition
- Features of Perfect Competition
- Pure and Perfect Competition
- Monopoly
- Features of Monopoly
- Monopolistic Competition
- Features of Monopolistic Competition
- Oligopoly
- Features of Oligopoly
- Monopsony
- Features of Monopsony
- Duopoly
- Characteristics of Duopoly
- Bilateral Monopoly
- Other Forms of Market
- Factors Determining Market / Extent of Market
- Demand Curves of Firms under Different Market Forms
- Comparison between different forms of market
- Difference Between Imperfect Competition and Monopolistic Competition
- Firm : An Economic Entity
- Profit Maximisation Objective
- The Definition of Profits
- Rules for Profit-Maximisation
- Producer's (Firm's) Equilibrium: Total Revenue and Total Cost Approach
- Producer's (Firm's) Equilibrium: Marginal Revenue and Marginal Cost Approach
- Short-run Equilibrium
- Long-run Equilibrium
- Firm is a Price Taker, Not a Price Maker
- Equilibrium of Industry
- Difference Between Firm and Industry's Equilibrium
- Meaning of a Producer
- Producer's Equilibrium under Perfect Competition
- Determination of Price and Equilibrium Under Monopoly
- Monopoly Equilibrium and Laws of Costs
- Price Discrimination or Discriminating Monopoly
- Price and Output Discrimination Under Discriminating Monopoly
- Measures of Monopoly Power
- Nature of Demand and Cost Curves
- Equilibrium Price and Output under Monopolistic Competition
- Group Equilibrium in Monopolistic Competition
- Product Differentiation
- Selling Costs
- Equilibrium with Selling Costs
- Price and Output Under Oligopoly Indeterminate
- Price and Output Determination under Oligopoly
- Price Rigidity-Sweezy's Kinky Demand Curve Model or Equilibrium under Independent Action
- Reasons for Price Stability
- Cournot's Model
- Collusive Oligopoly
- Mergers
Estimated time: 16 minutes
- Introduction
- Key Terms
- Deficient Demand and Export Surplus
- Excess Demand and Import Surplus
- Ways India Covers Excess Imports
- Key Points: Foreign Trade Policy
CISCE: Class 12
Introduction
Foreign Trade Policy is a tool used by the government to control imports and exports in order to fix problems of excess demand or deficient demand in the economy.
Simple words: If the economy has too much demand → bring in more goods from abroad. If the economy has too little demand → sell more goods to other countries.
CISCE: Class 12
Key Terms
| Term | Meaning |
|---|---|
| Balance of Trade (BOT) | The difference between a country's exports and imports |
| Favourable BOT | Exports > Imports → called Export Surplus |
| Unfavourable BOT | Imports > Exports → called Import Surplus |
| Excess Demand | Total demand in the economy is MORE than total supply → causes inflation |
| Deficient Demand | Total demand in the economy is LESS than total supply → causes unemployment |
CISCE: Class 12
Deficient Demand and Export Surplus
When there is a deficient demand, people are not spending enough. Factories produce more than people buy. Workers lose jobs. Prices fall. The economy slows down.
What is the Solution? → Increase Exports
When India sells more goods to other countries (exports), foreign buyers pay us money. This is like getting new demand from outside — it boosts production and employment inside India.
Easy Analogy: Think of exports like a new customer walking into a shop. Even if local people aren't buying, a foreign customer buying our goods keeps the factory running!
Why does Export = Investment?
An increase in exports has the same effect on aggregate demand as an increase in investment. Both inject new money into the economy.
3 Ways to Increase Exports
Result → Export Surplus = Favourable Balance of Trade
CISCE: Class 12
Excess Demand and Import Surplus
When there is excess demand, everyone is spending too much. There are not enough goods in the market. Prices shoot up. This is called inflation.
What is the Solution? → Increase Imports
When India brings in more goods from other countries (imports), the supply of goods in the market goes up. More goods available → prices come down → inflation is controlled.
Easy Analogy: Imagine a shop running out of sugar and the price skyrockets. Now imagine the shopkeeper gets extra sugar from another city — prices immediately come down. That is exactly what imports do for the whole country!
Result → Import Surplus = Unfavourable Balance of Trade
CISCE: Class 12
Ways India Covers Excess Imports
When India imports more, it has to pay foreign countries in their currency (foreign exchange). The government arranges this money in 3 ways:
CISCE: Class 12
