HS3002

PRINCIPLES OF
ECONOMICS
ASSIGNMENT
AKSHAYKUMAR VARMA
MM13B006

QUESTION 2
National income is the measurement of what the economy produces per year and what is available for
consumption. National income statistics give us information about how a nation's economic growth and related
objectives such as: quality of life, standard of living of one country compared to another. There are three ways
of calculating national income. These are income, output and expenditure. In practice the expenditure figure is
taken as the most accurate. A variety of measures of national income and output are used in economics to
estimate total economic activity in a country or region, including gross domestic product (GDP), gross national
product (GNP), net national income (NNI). All are specially concerned with counting the total amount of goods
and services produced.
Net national income (NNI) is an economics term used in national income accounting. It is calculated by the
income approach. This method approaches national income from distribution side. In other words, this method
measures national income at the phase of distribution and appears as income paid and or received by
individuals of the country. Thus, under this method, national income is obtained by summing up of the incomes
of all individuals of a country. Individuals earn incomes by contributing their own services and the services of
their property such as land and capital to the national production. Therefore, national income is calculated by
adding up the rent of land, wages and salaries of employees, interest on capital, profits of entrepreneurs and

incomes of self-employed people.

NNI = Consumption + Investments + Government spending + net exports+ net foreign factor income - indirect
taxes - depreciation
GDP is the total value of final goods and services produced within a country's borders in a year. GDP counts
income according to where it is earned rather than who owns the factors of production. GDP measures two
things at once: the total income of everyone in the economy and the total expenditure on the economys output
of goods and services. The reason that GDP can perform the trick of measuring both total income and total
expenditure is that these two things are really the same. For an economy as a whole, income must equal
expenditure. There are two ways to measure GDP, the expenditure method and the income method. According
to the expenditure method, GDP is equal to consumption + investment + government expenditures + exports imports according to the expenditure method, GDP is equal to consumption + investment + government
expenditures + exports imports. The income approach focuses on finding the total output of a nation by
finding the total income of a nation. This is acceptable, because all money spent on the production of a good
the total value of the goodis paid to workers as income. In this income approach, GDP(I) is equal to
compensation of employees + net interest (credit debit) + corporate profits (distributed + undistributed) +
proprietors income (self-employed + small business) + rental income) + indirect taxes + depreciation
GNP is a broad measure of a nation's total economic activity. GNP is the value of all finished goods and
services produced in a country in one year by its nationals. The output approach is used to calculate GNP.
Nominal GNP measures the value of output during a given year using the prices prevailing during that year.
Over time, the general level of prices rise due to inflation, leading to an increase in nominal GNP even if the
volume of goods and services produced is unchanged.
Real GNP measures the value of output in two or more different years by valuing the goods and services
produced at the same prices.
To convert from GDP to GNP you must add factor input payments to foreigners that correspond to goods and
services produced in the domestic country using the factor inputs supplied by foreigners.
GDP is a better measure of the state of production in the short term. GNP is a better when analyzing sources
and uses of income on a longer term basis.
These measures are valuable tools in assessing the state of a nation's economy. However, using these strictly
economic statistics as attempts to capture the standard of living trends and their mapping in any particular
country, has serious problems. Even if per capita GDP (or GNP) per capita grows within the short period of
years, the standard of living may increase as well. The other reason is that we cannot compare or statistically
infer anything regarding two or more environments that are independent from each other. In this case, on the
one hand is the economy, and on the other is sociology combined with psychology. While there are factors that
affect both, there is not a correlation.

QUESTION 3
The Indian mobile industry is the fastest growing in the world and India continues to add more mobile
connections every month than any other country in the world. The telecom boom in the country provides great
opportunity to handset manufacturers and the hottest segment for these manufacturers is the entry level
segment. Among the fastest growing sectors in the country, telecom has been zooming up the growth curve at a
fiery pace.
The mobile manufacturing market is an oligopoly. This is a market situation where there are more than 2
producers of a product. The number of producers in oligopoly are lesser than that of perfect competition and
monopolistic competition. We will be studying the nature of this market and examining the features with case
studies. Oligopoly is an imperfect market with few sellers of similar or differentiated products. The few firms in
oligopoly enjoy a high degree of market power.
The major properties of this market are1. There are very few producers in an oligopoly market. Major manufacturers in India are LG, Samsung

Sony Ericsson.
2. Huge Investments to Start Oligopoly Industries
Building a phone/tablet that can effectively compete with other devices in the market, is not a simple
process. Various components like the camera, chipset, memory modules etc are usually sourced from
different companies. In order to manufacture a phone in India, you will need the entire ecosystem to be
present here. And, that is the biggest hurdle right now. Manufacturing needs are currently outsourced to
facilities in China. Indian companies, like Micromaxx and Karbonn Mobiles, draw out specifications of
their goods, which are then manufactured by contract manufacturers in China, shipped to India and then
sold in the Indian market. The Indian market also relies heavily on imports for most of the building
blocks of finished electronic goods known as Integrated Circuits. Despite generating immense demand
and providing a pool of cheap labor supply, Indias electronic manufacturing sector has been unable to
serve the needs of the electronics market. There are several challenges that the electronic manufacturing
industry faces such as the countrys chronic infrastructure and logistics shortage with unproductive
transport networks making it hard-hitting for manufacturing companies to achieve just-in-time
production, unavailability of local components and assembly and an organized ecosystem for chipset
manufacturing. The high taxation structures and interest rates for corporate lending discourage the entry
of domestic manufacturers in these segments.
3. Product Differentiation
The producers in an oligopoly market compete on the basis of product differentiation, which is a
distinguishing feature of oligopoly. The products sold by the competing producers may be substitutes.
However, one can easily recognize the product by its brand name, packaging and so on. Product
differentiation helps to create a barrier for other potential producers to enter in industries.
4. Advertising
In oligopoly market situation, the producers are forced to advertise their product . Aggressive
advertising measures are undertaken with a view to capture the market share. In fact, the producers
compete on these lines rather than resorting to price cutting to attract buyers.
5. Group Behavior and interdependence
Since the number of firms is few, the action of even one will have some effect on the other firms in the
group. In oligopoly, the firms in a group may not be guided by a common goal. The group may or may
not have a formal or informal organization bound by certain rules of conduct. The group may have a
dominant leader, though the other firms may not follow him in all respects. If one company tries to take
away the customers from the others, their market share and profits will fall. Thus, any attempt by a
company to increase sale will lead to a reaction from the other rivals. They may strengthen their
marketing efforts or cut the prices.
Indian companies constitute 6.6 per cent of the global demand for telecommunication equipment in 2014-15.
The industry expects it will spend Rs.46,000 crores on buying gear, excluding handsets. The bulk of this money
will, however, be spent on buying imported equipment, mainly from Europe and China. Many government
initiative are being taken up to encourage manufacturing in India such as the Prime Minister Make in India
program and raising taxes on imported mobile phones in the most recent budget etc. Chinese companies such as
Xiaomi are already setting up manufacturing plants in India. India is in the radar of investors worldwide, let us
see what the future has in store for us.