Vital or Essential Economic Processes

-Durga Prasad Gautam

Important or vital the essential economic activities without which an economy cannot function or exist are referred to as an economy’s processes. The provision of commodities and services to meet the needs of the population is the economy’s main objective.

Consumption is the process of using commodities and services to fulfill desires. Therefore, production and consumption are fundamental economic activities that must continue continuously in an economy. However, the economy must consume less than it creates if it is to retain its current level of production or boost its capacity for future output. In other words, if the economy wants to develop and thrive, it must set aside money from its existing output and invest it. Consequently, there are three crucial steps.

Production: The creation of commodities and services is crucial for the existence of an economy. In the end, the amount and variety of production determines the population’s level of living or consumption. In actuality, the level of production is used to evaluate the performance of an economy. A nation’s ability to generate a certain volume of products and services determines whether it is rich or poor.

The process of growth or development entails raising the economy’s level of production. Due to its highest level of production, the United States of America is the richest nation in the world, and as a result, its citizens enjoy the highest standard of living. Because of its level of production, India is a developing nation.
In the field of economics, “production” refers to any economic activity that aims to fulfill consumer demands. Production includes both the creation of tangible commodities and the delivery of any service as long as it satisfies the needs of certain individuals. Thus, in Economics, if the act of creating fabric by industrial employees is referred to as production, the service provided by the store in delivering it to the customer is also considered to be production.

This is true because the service provided by the store plays a similar role in meeting consumer demands as does the work performed by the industrial worker. Similar to this, the job of doctors, lawyers, teachers, actors, dancers, and other professionals is fruitful because the services they give.

Consumption: Consumption is the second crucial economic activity. The level of consumption, both in quantity and quality, determines how people live. Consumption is the process of giving in to one’s desires. It goes without saying that consumption is a crucial component of an economy. In order to fulfill peoples’ desires for consuming, producers create things. No one will produce if no one eats. Thus, all productive work comes to a stop with consumption.

The late Lord Keynes, a distinguished economist, demonstrated how the amount of aggregate effective demand affects employment and national revenue. One element of this aggregate demand is consumption. Income and employment in the nation will vary as a result of changes in people’s consumption habits.

Investment: Not all of an economy’s output must be consumed. In actuality, for an economy to advance or flourish, less must be consumed than produced. Savings are the surplus of output over consumption throughout a year, and they are used to finance new production. It is possible to define investment as “the addition made to the total stock of capital (including inventories) in a year.”

Stock investment and fixed investment are two different types of investment.
In a year, the economy may build up stocks of materials, finished consumer goods, and “goods in process.” Inventory is the term used for these stocks. Inventory will increase and the investment in inventory will be profitable if the rate of production of products and materials is higher than the rate of their consumption. On the other side, if production is outpacing consumption, this will result in a negative decline in inventory. Inventory investment refers to the addition made to the overall stock of finished items, materials, and “goods in process.”

Another thing that can be taken from an excess of production over consumption is something called a fixed investment. There are some items referred to as “fixed capital,” such as industrial machinery, plants, tools and implements, manufacturing structures, etc., which are not created to directly serve customer demands. Instead, they are made to help in the production of things for consumers. Fixed investment is the annual addition made to the overall stock of fixed capital.

The rate of net investment needs to increase for the economy to expand. Investment, or capital formation, which is the same thing, is a key factor in determining economic growth and development. Capital enables us to generate more consumer items. Productivity is considerably increased by the use of equipment, tools, and implements in both industry and agriculture. Thus, investment significantly increases the economy’s potential for production.
In the near run, the amount of investment has a significant impact on how much money is made and how many people are employed. The amount of investment determines the country’s employment level because the propensity to consume is steady in the short term. fluctuations in the economy or in what is known as business.

(Principal Arya Academy Secondary School, sitapaila,Subhakamanaa Tole, Ktm )


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