BUNTS SANGHA'S
S M SHETTY INTERNATIONAL SCHOOL & JUNIOR COLLEGE
An IB World School
(ISO 21001:2018 Certified)
CAMBRIDGE INTERNATIONAL CENTRE - IN686
CHPT III
CC
1
Name of Student: _______________
Topic: CC Notes
Topic 1: Trade and Aid to Trade
What is Trade?
In simple terms, trade is basically an exchange, voluntary in nature between two parties in requirement
of each other’s resources i.e. goods and services.
Let us suppose there are two people, Liam and Henry. Henry has food but needs wool whereas Liam
has wool but needs food. So Liam and Henry will exchange food and wool with each other so that
Liam gets food and Henry gets wool making both of them satisfied. This is a perfect example of trade.
Types of Trade
Trade can be ascribed to two types:
1. Domestic Trade
This type of trade can further be classified into two types as well:
a. Wholesale Trade
This type of trade is carried on by a wholesaler who is basically the middle man between retailers and
producers. The producer sells his products in hefty quantities to the wholesale trader and in turn, the
wholesaler sells it to the retailer which goes on to be sold to customers. This trade is practiced widely
in the majority of shops
b. Retail Trade
Now the retail trade is carried on by a retailer who is basically the middle man between wholesalers
and customers. The wholesaler sells his products in hefty quantities to the retail trader and in turn, the
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retailer sells them to the customers for their use. This trade acts as the second link in the journey of a
finished product from the producer to the customer.
2. Foreign Trade
This type of trade can be classified into two types as well:
a. Import Trade
This type of trade is basically the transportation of goods to one’s home country, in other words, being
on the receiving end of the trade between two countries. These trades require the home country to pay
for the goods.
b. Export Trade
This type of trade is basically the transportation of goods from one’s home country, in other words,
being on the giving end of the trade between two countries. These trades require the home country to
charge for the goods.
Trade Advantages
A few major advantages of trade are:
● Efficiency Increase
● Natural Resources are Maximum Utilization
● Development of Sympathies and Common Interests among countries
● Development of Large-Scale Production
Trade Disadvantages
A few major disadvantages of trade are:
● Job Insecurity
● Developed Economy Dependence
● Monopoly creations
● Influence on Political Decisions
What is trade according to the dictionary?
The dictionary meaning of the word trade is the business involving selling and buying of items or
goods and services.
What are the types of trade?
What are the examples of trade?
There are two major types of trade both of which have two subparts as well:
● Domestic trade
● Wholesale trade
● Retail trade
● Foreign trade
● Import trade
● Export trade
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Topic 2: Needs and Wants / economic
problem –Scarcity
Needs
1. Needs are the basic requirements essential for survival and well-being.
2. They are necessary for maintaining life, health, and meeting fundamental human requirements.
3. Examples of needs include food, water, shelter, clothing, healthcare, and safety.
4. Needs are considered universal and essential for every individual.
Wants
1. Wants are desires or wishes that are not essential for survival but are based on personal preferences
and aspirations.
2. They arise from individual tastes, preferences, and cultural influences.
3. Examples of wants include luxury goods, entertainment, travel, fashion items, and hobbies.
4. Wants are subjective and vary from person to person, influenced by personal interests, social
influences, and marketing.
Meaning of economic problem
An economic problem generally means the problem of making choices that occurs because
of the scarcity of resources. It arises because people have unlimited desires but the means to
satisfy that desire is limited. Therefore, satisfying all human needs is difficult with limited
means.
Causes or Reasons for Economic Problems
●
Scarcity of resources: Resources like labor, land, and capital are insufficient as
compared to the demand. Therefore, the economy cannot provide everything that
people want.
● Unlimited Human Wants: Human beings’ demands and wants are unlimited which
means they will never be satisfied. If a person’s one want is satisfied, they will start
having new desires. People’s wants are unlimited and keep multiplying, therefore,
cannot be satisfied because of limited resources.
● Alternative Uses: Resources being scarce, the same resources are used for different
purposes. and it is therefore essential to make a choice among resources. For
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instance, petrol is used in vehicles and is also used for generators, running machines,
etc. Therefore, the economy should now make a choice within the alternative uses.
List of Economic Problems:
(A) What to produce?
●
●
●
●
A country cannot produce all goods because it has limited resources.
It has to make a choice between different goods and services.
Every economy has to decide what goods and services should be produced.
Example: If a farmer has a single piece of agricultural land, then he has to make a choice between
two goods, i.e., whether to grow rice or wheat.
(B) How to produce?
●
●
This problem refers to the choice of technique of production. It arises when there is an availability
of more than one way to produce goods and services.
There are mainly two techniques of production. These are:
● Labour intensive technique(greater use of labour)
● Capital intensive technique(greater use of machines)
(C) For whom to produce?
●
●
Society cannot satisfy all the wants of all the people. Therefore, it has to decide who should get
how much of the total output of goods and services.
Society has to make choice of whether luxury goods or normal goods have to be produce
Opportunity cost
Opportunity cost refers to the value of the next best alternative forgone when making a decision or
choice. It is the cost of choosing one option over another, representing the benefits or opportunities lost
by not selecting the alternative.
In simpler terms, opportunity cost is the trade-off or sacrifice involved in choosing one option or
course of action over others. It implies that when resources are used for a particular purpose, they
cannot be used for alternative purposes. Thus, the opportunity cost measures the value of the foregone
alternatives.
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Topic 3: Factors of production
Meaning of Factors of Production
Anything that helps in production is the factor of production. These are the various factors that mean
any resource is transformed into a more useful commodity or service.
They are the inputs for the process of production. They are the starting point of the production process.
Factors of production are the parameters which affect the output of production.
Types of Factors of Production
Factors of production have been categorized into four types.
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Land
It refers to all natural resources. All natural resources either on the surface of the earth or below the
surface of the earth or above the surface of the earth is Land.
One uses the land to produces goods. It is the primary and natural factor of production. All gifts of
nature such as rivers, oceans, land, climate, mountains, mines, forests etc. are land. The payment for
land is rent.
Characteristics of Land as a Factor of Production
● The land is a free gift of nature.
● The land has no cost of production.
● It is immobile.
● The land is fixed and limited in supply.
Labor
All human effort that assists in production is labour. This effort can be mental or physical. It is a
human factor of production. It is the worker who applies their efforts, abilities, and skills to produce.
The payment for labour is the wage.
Characteristic
● It is a human factor.
● One cannot store labour.
● No two types of labour are the same.
Capital
Capital refers to all manmade resources used in the production process. It is a produced factor of
production. It includes factories, machinery, tools, equipment, raw materials, wealth etc.
The payment for capital is interest.
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Characteristics
● Capital is a manmade factor of production.
● It is mobile.
● It is a passive factor of production.
Entrepreneur
An entrepreneur is a person who brings other factors of production in one place. He uses them for the
production process. He is the person who decides
● What to produce
● Where to produce
● How to produce
A person who takes these decisions along with the associated risk is an entrepreneur.
The payment for land is profit.
Characteristics
● He has imagination.
● He has great administrative power.
● An entrepreneur must be a man of action.
● An entrepreneur must have the ability to organize.
● He should be a knowledgeable person.
● He must have a professional approach.
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Topic:4 Division of labour and Specialisation
Meaning
Division of labor is a system in which complex tasks are broken down into simpler ones, and
each worker specializes in one particular task. This system has been used in various
industries for centuries to optimize productivity and efficiency.
Examples of Division of Labor
1. Manufacturing
Assembly lines are a classic example of division of labor, in which each worker specializes in
a specific task to produce goods more efficiently.
2. Education
Teachers can divide up tasks by assigning specific topics or skills to each other to manage
the workload, teach more effectively and save time.
3. Healthcare
Hospitals often use teams with different specialties like nurses, doctors, and surgeons to
provide the best and most efficient care for patients.
4. Food Industry
In restaurants, kitchen staff can specialize in specific tasks like chopping vegetables,
preparing sauces, and cooking meats to ensure quicker food preparation.
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5. Construction
Construction requires various skill sets and tasks that can benefit from division of labor. For
example, the foundation team can do a specific job, while the roofing team works on a
different aspect.
6. Cleaning Services
To maintain large buildings like hospitals, schools, and office complexes, cleaning companies
use division of labor when allocating various tasks to their workers, from window-washing to
scrubbing floors.
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Advantages of Division of Labor
1. Efficiency
This system increases productivity by allowing workers to focus on a specific task, completing
it faster and more efficiently. In return, the overall production speed is improved.
2. Consistency
When workers specialize in one task, they gain proficiency, which leads to better quality,
reducing the chance of errors or inconsistencies and taking care of every detail.
3. Cost Reduction
The mass production system created by division of labor minimizes the training costs for
workers. It also reduces the amount of time spent switching between different tasks or
workers, which further reduces overall costs.
Disadvantages of Division of Labor
1. Boredom and Monotony
Workers who perform the same task repeatedly can become bored. This can lead to a lack of
motivation, which in turn can affect productivity. Work can become monotonous, and workers
can lose interest in their work.
2. Dependency on Technology
The implementation of automation and computers in manufacturing significantly reduces the
need for human involvement. In some industries, this has led to job loss or a low demand for
specialized workers.
3. Decreased Creativity
Work that focuses too much on repetitive tasks tends to require less creativity. This can limit
innovation and can reduce morale by making the work less engaging and challenging.
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Topic:5 Demand and supply
1. Demand:
Definition: Demand refers to the quantity of a good or service that consumers are willing and able to
purchase at various prices during a given period.
Law of Demand: Generally, as the price of a good or service decreases, the quantity demanded
increases, and vice versa, assuming all other factors remain constant.
Graphical Representation: The demand curve slopes downward from left to right. This indicates the
inverse relationship between price and quantity demanded.
2. Supply:
Definition: Supply represents the quantity of a good or service that producers are willing and able to offer for
sale at various prices during a given period.
Law of Supply: Generally, as the price of a good or service increases, the quantity supplied increases, and vice
versa, assuming all other factors remain constant.
Graphical Representation: The supply curve slopes upward from left to right, indicating the direct
relationship between price and quantity supplied.
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Supply curve
3. Equilibrium:
Definition: The equilibrium is the point where the quantity demanded equals the quantity supplied,
resulting in a stable market price.
Graphical Representation: The intersection of the demand and supply curves represents the
equilibrium price (P*) and quantity (Q*).
Equilibrium of demand and supply
4. Factors affecting Demand
a. Price of the Good or Service (Own Price):
Law of Demand: As the price of a good or service decreases, the quantity demanded tends to increase,
and as the price increases, the quantity demanded tends to decrease, assuming other factors remain
constant.
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b. Income:
Normal Goods: For most goods, as consumers' incomes increase, their demand for these goods also
increases.
Inferior Goods: For some goods, as incomes rise, demand may decrease (e.g., generic or lower-quality
products).
c. Price of Related Goods:
Substitute goods: If the price of a substitute for a good increases, the demand for the good may increase.
Complementary goods: If the price of a complement to a good increases, the demand for the good may
decrease.
d. Consumer Tastes and Preferences:
Changes in fashion, trends, or preferences can significantly impact the demand for certain goods and
services.
e. Expectations:
Future Price Expectations: If consumers expect the price of a good to rise in the future, they may increase
their current demand, and vice versa.
f. Population and Demographics:
Changes in population size and demographics (age, gender, income distribution) can influence overall
demand patterns.
g. Advertising and Marketing:
Effective advertising and marketing can create awareness and desire, influencing consumer preferences
and increasing demand.
h. Government Policies:
Tax policies, subsidies, and regulations can impact the demand for certain goods or services.
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i. Seasonal Factors:
Demand for certain goods can vary based on the time of year (e.g., winter coats in winter, swimsuits in
summer).
j. Availability of Credit:
If credit is readily available, consumers may be more willing to make large purchases, increasing demand
for certain goods.
5. Factors affecting supply
a. Price of the Good or Service (Own Price):
Law of Supply: Generally, as the price of a good or service increases, the quantity supplied by producers
tends to increase, and as the price decreases, the quantity supplied tends to decrease, assuming other
factors remain constant.
b. Cost of Production:
Input Prices: The prices of inputs (raw materials, labor, energy) used in the production process influence
the cost of production and, consequently, the supply.
c. Technology:
Advances in technology can lead to increased efficiency and lower production costs, positively
impacting the supply of goods and services.
d. Number of Sellers in the Market:
The overall supply in a market can be influenced by the number of producers or sellers. More sellers can
lead to a higher overall supply.
e. Natural Factors:
Weather and Climate: Weather conditions can affect agricultural output and certain industries.
Natural Disasters: Events like earthquakes or floods can disrupt the supply chain.
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f. Expectations:
Producers may adjust their supply based on expectations of future prices or changes in the market.
g. Prices of Related Goods:
If a producer can easily switch between producing different goods, the prices of those goods may
influence the decision to supply one over the other.
i. Transportation Costs:
The cost and efficiency of transporting goods from producers to consumers can affect the overall supply.
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Topic: 6 Tax (Direct and Indirect Tax)
1. What are Taxes?
Definition: "Taxes are money that individuals and businesses pay to the government. It helps the
government provide services and maintain our community."
Why Do We Pay Taxes?
Common Good: "Taxes help in building and maintaining schools, roads, parks, and other things that
benefit everyone."
Services: "Think of taxes as a way we all contribute to services like police, firefighters, and hospitals."
2. Direct Taxes:
Definition: Direct taxes are taxes that are directly levied on individuals or businesses. The burden of
these taxes cannot be shifted to someone else.
Income Tax:
Explanation: Tax levied on the income earned by individuals and businesses.
Example: If you earn money through a job, a portion of your salary may be deducted as income tax.
Corporate Tax:
Explanation: Tax imposed on the profits of businesses or corporations.
Example: If a company makes a profit, a percentage of that profit is paid as corporate tax.
Property Tax:
Explanation: Tax assessed on the value of real estate owned by individuals or businesses.
Example: Homeowners pay property tax based on the value of their homes.
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Estate Tax:
Explanation: Tax on the transfer of the estate of a deceased person.
Example: When someone passes away and leaves behind an inheritance, estate tax may be applied.
Gift Tax:
Explanation: Tax on the transfer of money or property as a gift.
Example: If you receive a significant gift, the giver might have to pay a gift tax.
3. Indirect Taxes:
Definition: Indirect taxes are taxes that are not directly paid by the person or business on whom they are
levied. Instead, they are passed on to the consumer as part of the price of a good or service.
Sales Tax:
Explanation: Tax imposed on the sale of goods and services, usually a percentage of the purchase price.
Example: When you buy something at a store, the sales tax is included in the total price.
Value Added Tax (VAT):
Explanation: Similar to sales tax, but applied at each stage of the production and distribution chain.
Example: A manufacturer pays VAT on raw materials, and the tax is added to the final product's price.
Excise Tax:
Explanation: Tax on specific goods, often considered harmful or non-essential.
Example: Taxes on alcohol, tobacco, and gasoline are common examples of excise taxes.
Customs Duty:
Explanation: Tax imposed on goods imported into a country.
Example: When goods are brought into a country from another, customs duties may be applied.
Service Tax:
Explanation: Tax applied to certain services.
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Example: Fees for services such as telecommunications or professional consulting may include service
tax.
4. Burden of tax distribution (Tax system)
Proportional Tax:
Definition: A proportional tax, also known as a flat tax, is one where everyone pays the same percentage
of their income, regardless of how much they earn.
Characteristics:
1. The tax rate remains constant across all income levels.
2. As income increases, the amount paid in taxes increases proportionally.
Example:
If there is a 10% proportional tax, everyone, regardless of their income, pays 10% of their income in
taxes. So, if you earn $1,000, you pay $100; if you earn $10,000, you pay $1,000, and so on.
Progressive Tax:
Definition: In a progressive tax system, the tax rate increases as the taxpayer's income increases. The
idea is that higher-income individuals pay a higher percentage of their income in taxes.
Characteristics:
● The tax rate rises with higher income brackets.
● It is designed to distribute the tax burden more heavily on those with higher incomes.
Example:
Imagine a progressive tax system with three income brackets: 10% for incomes up to $20,000, 15% for
incomes from $20,001 to $50,000, and 20% for incomes above $50,000. A person earning $30,000
would pay 10% on the first $20,000 and 15% on the remaining $10,000.
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Regressive Tax:
Definition: A regressive tax takes a larger percentage of income from low-income earners than from
high-income earners. In other words, the tax rate decreases as income increases.
Characteristics:
● The tax rate decreases with higher income brackets.
● It tends to place a larger burden on lower-income individuals.
Example:
Consider a sales tax of 8% on goods. A person with a lower income may spend a larger portion of their
income on taxable goods, making the 8% tax take up a larger share of their income compared to someone
with a higher income.
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Topic: 7 Accounting terminologies
1. Business Transaction – A business transaction is a financial event between two
or more parties. It involves an exchange of goods, services or money.
2. Capital – Capital is a critical component of any business to run its daily operations
and help its future growth.(shares, debentures or bonds).
Money for Business: For a business, capital is the money and assets it has to fund its
operations, invest, and grow.
Investments: If you have money invested in stocks, bonds, or other ventures, that's also
considered capital.
Property and Assets: Owning valuable things like land, buildings, or equipment adds to your
capital.
Start-up Money: When someone starts a business, the initial money they put into it is often
called "startup capital."
3. Drawings – Drawings refer to the withdrawals made by the owners of a business
for personal use.
Purpose of Recordings:
By recording drawings, you keep track of the money you've taken for yourself. It helps you
see how much of the business's money is used for personal things.
4. Liabilities (Non-Current and Current) – Current Liabilities are the amount due
to the creditors of a business that has to be paid back within twelve months.
Examples of liabilities:
Borrowed Money: If you borrow $50 from a friend, you have a liability to pay back that
$50.
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Bills to Pay: Imagine you have a phone bill due next week. Until you pay it, that bill is a
liability.
Loans: If you take a loan to buy a car, the amount you owe to the bank is a liability.
5. Assets (Non-Current and Current) – Current Assets are the assets that a firm
can liquidate within twelve months.
6. Income – Income is the revenue that a business earns from the sale of its goods
or services.
7. Profit – Profit is the positive difference between the income generated from
selling goods or services and the Expenses incurred to perform that business
activity
8. Gain – A Gain is an increase in the total value of an asset of a business. It takes
place when the current price of the asset exceeds its original purchase price.
9. Loss – Loss is the excess of the Expenses incurred from selling goods or
services over the income generated to perform that business activity.
10. Purchase – Purchase is the activity of buying an item to either use it in the
production of goods and services or resell it to another entity.
11. Creditor – A creditor is an individual or entity to whom a business owes money
Creditors are individuals, institutions, or entities to whom someone owes money or
has a financial obligation. In other words, creditors are the people or organizations
that have provided goods or services, or lent money, with the expectation of being
paid back in the future. The term is commonly used in the context of financial
transactions, loans, or business dealings.
12. Sales – Sales is an economic activity where a business exchanges goods or
services with another entity for money.
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13. Debtor – A debtor is an individual or entity that owes money to a business.
Companies treat it as an asset because they will get money from them in the near
or distant future. Debtors are individuals, businesses, or entities that owe money to others.
In financial terms, a debtor is someone who has borrowed money, received goods or services
on credit, or has incurred an obligation to make payments at a later date. Essentially, debtors
are on the side of the transaction where they owe funds to another party.
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