BTT107_CU -SEM II- BSC TTM-Tourism Economics (1)-converted

BACHELOR OF SCIENCE (TRAVEL AND TOURISM MANAGEMENT) SEMESTER-II TOURISM ECONOMICS BTT107

CHANDIGARH UNIVERSITY Institute of Distance and Online Learning Course Development Committee Prof. (Dr.) R.S.Bawa Pro Chancellor, Chandigarh University, Gharuan, Punjab Advisors Prof. (Dr.) Bharat Bhushan, Director – IGNOU Prof. (Dr.) Majulika Srivastava, Director – CIQA, IGNOU Programme Coordinators & Editing Team Master of Business Administration (MBA) Bachelor of Business Administration (BBA) Coordinator – Dr. Rupali Arora Coordinator – Dr. Simran Jewandah Master of Computer Applications (MCA) Bachelor of Computer Applications (BCA) Coordinator – Dr. Raju Kumar Coordinator – Dr. Manisha Malhotra Master of Commerce (M.Com.) Bachelor of Commerce (B.Com.) Coordinator – Dr. Aman Jindal Coordinator – Dr. Minakshi Garg Master of Arts (Psychology) Bachelor of Science (Travel &Tourism Management) Coordinator – Dr. Samerjeet Kaur Coordinator – Dr. Shikha Sharma Master of Arts (English) Bachelor of Arts (General) Coordinator – Dr. Ashita Chadha Coordinator – Ms. Neeraj Gohlan Academic and Administrative Management Prof. (Dr.) R. M. Bhagat Prof. (Dr.) S.S. Sehgal Executive Director – Sciences Registrar Prof. (Dr.) Manaswini Acharya Prof. (Dr.) Gurpreet Singh Executive Director – Liberal Arts Director – IDOL © No part of this publication should be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the authors and the publisher. SLM SPECIALLY PREPARED FOR CU IDOL STUDENTS Printed and Published by: TeamLease Edtech Limited www.teamleaseedtech.com CONTACT NO:- 01133002345 For: CHANDIGARH UNIVERSITY Institute of Distance and Online Learning

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UNIT-1 CONTENT UNIT-2 BASIC OF ECONOMICS – I 1. Learning objectives 2. Introduction 3. Economics Definition and Methods 4. The Classical View of Economics 5. The Neo- Classical View of Economics 6. Scarcity and Choice Definition by Lionel Robbins 7. Samuelson’s Growth Oriented Definition 8. The Scope of Economics 9. Basic Economic Concepts: what, how and for whom to produce and how to distribute output 10. Microeconomics and Macroeconomics 11. Summary 12. Keywords 13. Learning activity 14. Unit end questions 15. Suggested readings BASIC OF ECONOMICS – II 1. Learning objectives 2. Introduction 3. Working of Price Mechanism

UNIT-3 4. Functions of Price Mechanism 5. Price Mechanism and resource allocation in free market 6. Characteristics Tourism Economics 7. Tourism Information System 8. Satellite Accounts 9. Summary 10. Keywords 11. Learning activity 12. Unit end questions 13. Suggested readings WTO 1. Learning objectives 2. Introduction 3. History 4. Tourism statistics 5. Tourism and/or holiday surveys 6. The tourism production index 7. Role of TFCI in tourism development 8. Summary 9. Keywords

UNIT-4 10. Learning activity UNIT-5 11. Unit end questions 12. Suggested readings ELASTICITY OF DEMAND – I 1. Learning objectives 2. Introduction 3. Elasticity of Demand 4. Types of Elasticity of Demand: income and cross elasticity’ s. 5. Summary 6. Keywords 7. Learning activity 8. Unit end questions 9. Suggested reading s ELASTICITY OF DEMAND – II 1. Learning objectives 2. Introduction 3. Total Revenue: 4. Average Revenue 5. Marginal Revenue 6. Average and Marginal Revenue under Imperfect

UNIT-6 Competition: 7. Average and Marginal Revenue under Perfect Competition: 8. Elasticity of demand 9. Determinants of Elasticity of Demands 10. Summary 11. Keywords 12. Learning activity 13. Unit end questions 14. Suggested readings TOURISM DEMAND 1. Learning objectives 2. Introduction 3. Defining demand 4. Determinants of Tourism 5. Factors affecting tourism demand 6. Trends in Tourism Demands 7. Tourism worldwide 8. Holiday Travel Propensity and frequency 9. Summary 10. Keywords

UNIT-7 11. Learning activity UNIT-8 12. Unit end questions 13. Suggested readings TOURISM SUPPLY – I 1. Learning objectives 2. Introduction 3. Tourism Supply Components 4. Tourism supply system 5. Seasonality 6. Tourism product life cycle 7. Summary 8. Keywords 9. Learning activity 10. Unit end questions 11. Suggested readings TOURISM SUPPLY – II 1. Learning objectives 2. Introduction 3. Tourism Supply and market structure 4. Pricing strategies for tourism 5. Supply trends in tourism

UNIT-9 7. Summary 8. Keywords 9. Learning activity 10. Unit end questions 11. Suggested readings TOURISM AND ECONOMICS 1. Learning objectives 2. Introduction 3. Definition of Sustainable Tourism 4. Sustainable Tourism Development 5. Need for Sustainable Tourism Development 6. Principles of Sustainable Tourism 7. Three Dimensions of Sustainable Tourism 8. Social Dimension 9. Tourism as a strategic dimension of economic development 10. Economic advantages and disadvantages 11. Summary 12. Keywords 13. Learning activity 14. Unit end questions

UNIT-10 15. Suggested readings UNIT-11 TOURISM AS MULTIPLIER 1. Learning objectives 2. Introduction 3. Tourism as multiplier 4. Balance of payments and tourism 5. The magic tourism multiplier. 6. Summary 7. Keywords 8. Learning activity 9. Unit end questions 10. Suggested readings INCOME AND EMPLOYMENT GENERATION 1. Learning objectives 2. Introduction 3. Tourism as income generations 4. Tourism as employment generation 5. Special characteristic 6. The impact of events

7. Summary 8. Keywords 9. Learning activity 10. Unit end questions 11. Suggested readings

UNIT -1 BASICS OF ECONOMICS STRUCTURE 1. Learning objectives 2. Introduction 3. Economics Definition and Methods 4. The Classical View of Economics 5. The Neo- Classical View of Economics 6. Scarcity and Choice Definition by Lionel Robbins 7. Samuelson’s Growth Oriented Definition 8. The Scope of Economics 9. Basic Economic Concepts: what, how and for whom to produce and how to distribute output 10. Microeconomics and Macroeconomics 11. Summary 12. Keywords 13. Learning activity 14. Unit end questions 15. Suggested readings LEARNING OBJECTIVES After studying this lesson, you will be able to: • To understand the basics of economics and its concepts

• Understand about scope and methods of economics • Different approaches of economics INTRODUCTION As a novice, economics seems to be a dry social science that is laced with diagrams and statistics; a complex branch that deals with rational choices by an individual as well as nations — a branch of study which does not befit isolated study but delving into the depths of other subject areas (such as psychology and world politics). ECONOMICS DEFINITION AND METHODS Economics is essentially a study of the usage of resources under specific constraints, all bound with an audacious hope that the subject under scrutiny is a rational entity which seeks to improve its overall well- being. Two branches within the subject have evolved thus: microeconomics ( individual choices) which deals with entit ies and the interaction between those entities, while macroeconomics ( aggregate outcomes) deals with the entire economy as a whole. A typical college student (or an overburdened husband?) appreciates the lessons of economics in day- to- day life. Semester books and carton of cigarettes (choices) are to be purchased with a limited amount of pocket money (constraints). The aim of studying economics is to understand the decision process behind allocating the currently available resources, the needs always unlimited but resources being limited. Adam Smith wrote ‘ An inquiry into the Nature and Causes of the Wealth of Nations‘ which as the name suggests, was an attempt at understanding the reasons behind the economic growth (or lack thereof) of a nation. MINKY SHARMA ATwddo abtrlaenacsht etwsosAhDoneufliindnitbieoernedssetafiinngdedibt awschitkohudlrdop to consider here — the fundamental assumption that nebuminbeirngblikoeld a..n.d...i.n...i.n..v.e..r.t..e.d...c..o..m...m...a..s............. Than explain each head of branches

we need to make for the whole economic system (as we know it today) to work is that human beings are motivated by pure self- interest and will take decisions that they think will make them ‘ better off’ now or sometime in the future. The economic and political systems of a country are closely inter- linked and jointly determine the well- being of its citizens. Economics is a very interesting subject because it analyses how human beings make choices in an effort to maximize utility. It also analyses how a society seeks to allocate their limited resources in other to achieve growth. The term economics is derived from two words economy and science meaning the science of the economy or the science of proper utilization of resources. This chapter focuses on the nature and scope of economics. To understand the subject matter of economics, we tried to look at its different definitions by different scholars. The basic concepts of economics are discussed in other to give a better understanding of the definitions. There is also the need to understand the basic economic problems of any society because other problems revolve around these problems. The various definitions of economics are grouped under different headings as discussed below: Methods of economics Economics is a science as well as art. But which type of science is a big question here, i. e. positive or normative? Positive economics is related to the analysis which is limited to cause and effect relationship. On the other hand, normative economics aims at examining real economic events from the moral and ethical point of view. It is used to judge whether the economic events are desirable or not. While Positive economics is based on facts about the economy. Normative economics is value judgment based. Most of the people think that the statements which are commonly accepted are a fact but in reality, they are valued. By, understanding the difference between positive and normative

economics, you will learn about how the economy operates and to which extent the policy makers are taking correct decisions. Difference Between Positive and Normative Economics Economics is a science as well as art. But which type of science is a big question here, i.e. positive or normative? Positive economics is related to the analysis which is limited to cause and effect relationship. On the other hand, normative economics aims at examining real economic events from the moral and ethical point of view. It is used to judge whether the economic events are desirable or not. While Positive economics is based on facts about the economy. Normative economics is value judgment based. Most of the people think that the statements which are commonly accepted are a fact but in reality, they are valued. By, understanding the difference between positive and normative economics, you will learn about how the economy operates and to which extent the policy makers are taking correct decisions. Comparison Chart MINKY SHARMA Heading need to be in Bold

BASIS FOR POSITIVE NORMATIVE ECONOMICS COMPARISON ECONOMICS Meaning A branch of economics A branch of economics based based on data and facts is on values, opinions and positive economics. judgement is normative economics. Nature Descriptive Prescriptive What it does? Analyses cause and Passes value judgement. effect relationship. Perspective Objective Subjective Study of What actually is What ought to be Testing Statements can be tested Statements cannot be tested. using scientific methods. Economic issues It clearly describes It provides solution for the economic issue. economic issue, based on value. Definition of Positive Economics Positive Economics- is always based upon what was, what is and what will be situations. These statements can be proved to be true or false easily and no chances of debate are there as the description is available for these statements. For Example- China is more populated country than India - This is the kind of positive statement which can be proved easily.’

Positive Economics is a branch of economics that has an objective approach, based on facts. It analyses and explains the casual relationship between variables. It explains people about how the economy of the country operates. Positive economics is alternatively known as pure economics or descriptive economics. When the scientific methods are applied to economic phenomena and scarcity related issues, it is positive economics. Statements based on positive economics considers what’ s actually occurring in the economy. It helps the policy makers to decide whether the proposed action, will be able to fulfill our objectives or not. In this way, they accept or reject the statements. Definition of Normative Economics Normative Economics- is based on what ought to be situations. These statements can not be proved to be true or false easily and there are chances of debate , on the basis of which policies can be framed. That is why this is also known as Policy economics . For Example- If someone is saying, Old age pension must be stopped. On this debate can be done and policies will be made for future. The economics that uses value judgments, opinions, beliefs is called normative economics. This branch of economics considers values and results in statements that state, ‘ what should be the things’. It incorporates subjective analyses and focuses on theoretical situations. Normative Economics suggests how the economy ought to operate. It is also known as policy economics, as it takes into account individual opinions and preferences. Hence, the statements can neither be proven right nor wrong. Key Differences Between Positive and Normative Economics The important differences between positive and normative economics are explained in the points given below: Positive Economics refers to a science which is based on data and facts.

Normative economics is described as a science based on opinions, values, and judgment. Positive economics is descriptive, but normative economics is prescriptive. Positive economics explains cause and effect relationship between variables. On the other hand, normative economics pass value judgments. The perspective of positive economics is objective while normative economics have a subjective perspective. Positive economics explains ‘ what is’ whereas normative economics explains ‘what should be’. The statements of positive economics can be scientifically tested, proved or disproved, which cannot be done with statements of normative economics. Positive economics clearly define economic issues. Unlike normative economics, in which the remedies are provided for the economic issues, on the basis of value judgment. THE CLASSICAL VIEW OF ECONOMICS The Classical economists viewed economics as a science of wealth. Adam Smith, the father of economics, in his book tit led: ‘An Enquiry into the Nature and Causes of Wealth of Nations’, defined economics as the science of wealth. According to Adam Smith, economics makes inquiries into the factors that determine the wealth and growth of a nation. So to Adam Smith what forms the subject matter of economics is the production and expansion of wealth. However, Ricardo shifted emphasis from wealth production to wealth distribution. According to a French classical economist, J. B Say, economics is the science of production, distribution and consumption of wealth. Other classical economists such J.S. Mill, defines economics as the

law that governs mankind in the production of wealth. The wealth definition means that wealth was considered to be an end in itself. Critical Evaluation of the Classical Economists View The classical economists narrowed the scope of economics by defining it as the science that deals with only material wealth. They do not regard the services of those who produce non- material goods because their services do not relate to production of tangible goods. This view or conception by the classical economists attracted a lot of criticisms. Critics pointed out that economics studies not only material goods and wealth, but also includes non- material goods such as services of teachers, doctors, lawyers. These services provided by human resources fulfill human wants and should be regarded as part of wealth. Secondly, the classical economists emphasized the importance of wealth rather than human beings in economic life. The critics observed that wealth was given primary role while human life was given secondary role, but on the contrary, human life should play a primary role and so cannot be sacrificed for wealth. According to the classical economists, wage to labour is the only source of wealth to a nation, but the critics are of the view that there are other sources of wealth such as natural resources, human resources and capital resources. THE NEO- CLASSICAL VIEW OF ECONOMICS The neo- classical economists led by Alfred Marshal gave economics a respectable place among social sciences. Marshall defined economics as the study of mankind in the ordinary business of life; it examines that part of

individual and the social action which is most closely connected with the attainment and use of material wellbeing Wealth was regarded not as an end in itself but a means to an end because it was seen as the source of human welfare. Major propositions of Marshall’s welfare definition are economics is the science of material welfare. Secondly, economics is a social science because it is a study of men as they live and move and think in the ordinary business of life and thirdly that economics is the study of rational behavior of people as they maximize their material welfare This means that Economics is concerned with economic activities that promote material welfare but excludes all non- economic activities that are socially undesirable like stealing, prostitutions, etc. Critical Evaluation of the Neo-Classical Economists View The neo- classical definition of economics was criticized by Lionel Robbins because of the distinction between material and non- material activities. According to Robbins, the use of the word ‘ material’ narrows down the scope of economics because there are many things in the world which are immaterial, but are useful for promoting human welfare. Robbins regards all goods and services which command a price as economic activity whether they are material or non- material. To say services are non–material is misleading because services have value. Their definition of Economics from the material point of view is a misrepresentation of the science of Economics. To the neo- classical economists, economics is concerned with material welfare. According to Robbins, the word welfare should not be used along with material activities because there are many activities which are regarded as economic activities but they do not promote human welfare. For example, the production and sale of tobacco, drugs and alcohol are economic activities but harmful to human health.

Robbins has also objected to the word ‘ welfare’ in the neo- classical definition. Welfare is a subjective thing and varies from person to person, from age to age. According to Robbins, it cannot be said in objective term which things will promote welfare and the ones that will not. Robbins believes that economics is not concerned with welfare rather he explains economics as the problem that have arisen because of scarcity of resources. SCARCITY AND CHOICE DEFINITION BY LIONEL ROBBINS Robbins criticized Marshall’s definition and provided his own definition in his book, “An Essay on the Nature and Significance of Economic Science” in 1932 . According to Robbins, economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. This means that economics is a human science. It involves maximizing satisfaction from scarce resource and the means available for satisfying these ends (wants) are scarce or limited in supply. Also the scarce means are capable of alternative uses, that is, the use of scarce resource for one end prevents its use for any other purpose at that point in t ime. The ends are of varying importance which necessarily leads to the problem of choice in selecting the uses to which scarce resources can be put to. It is the various alternative uses of the resources that we have to decide on the best allocation of resources. It should be noted that Robbins definition stands on three major facts namely: Unlimited wants, scarcity of resources and alternative uses of the resources. Robbins economics studies man’ s activities in regards to all goods and services, without distinguishing them as material and non- material; provided they satisfy human wants. In other words, economic problem is one of allocating scarce means in relation to numerous ends. Critical Evaluation of Robbins Definition Robbins definition is no doubt popular among economists because it points

out the basic economic problems confronting the society. But Robbins definition has also been criticized on several grounds. According to the critics, Robbins definition also talks about welfare which he formally criticized. In fact in Robbins definition the idea of welfare is present because it involves the allocation of resources to maximize satisfaction. But this maximum satisfaction is nothing but welfare. Also Robbins assumption fails to explain fully the nature of ‘ end’ and the difficulties associated with it . The idea of definite ends is also not acceptable because immediate ends many act as intermediaries to further ends. It is difficult to separate ends from means because immediate ends may be the means to the achievement of further ends. Robbins definition is also criticized for not analyzing the theory of economic growth and development rather it talks about the theory of product and factor pricing. The theory of economic growth and development studies how national income and per capita income increase and what causes the increase. Robbins takes the resources as given while the theory of economic growth is concerned with reducing the scarcity of resources through accumulation of capital and wealth. Therefore, Robbins definition though applicable to fully employed economy is not realistic for analyzing the economic problems of the real world. Economic problems arise not only due to scarcity but due to under, miss or over utilization of resources. SAMUELSON’S GROWTH ORIENTED DEFINITION The present trend in the world is the establishment of welfare states and improvement in the standard of living through reduction in poverty, unemployment and income inequality. In line with this trend Samuelson has given a definition of economics based on growth aspects. According to Samuelson, “Economics is the study of how people and society end up

choosing with or without the use of money, to employ scarce productive resources that could have alternative uses to produce various commodities over time and distribute them for consumption, now or in the future, among various person or groups in the society”. Samuelson’s definition is an improvement over Robbins scarcity definition based on the following facts: 1. Samuelson regards economics as a social science which emphasized the problem of scarce resources and the idea of alternative uses of resources. 2. He emphasized on the consumption and distribution of various commodities for the present and future economic growth thereby highlighting the study of macroeconomics. 3. Samuelson lays emphasis on the use of modern technique of cost- benefit analysis to evaluate the development programme for the use of limited resources. 4. Samuelson’ s definition of economics has superiority over that of Robbins because of the inclusion of time element thereby making the scope of economics dynamic. From the above discussion, it is clear that economics cannot adequately be defined in one sentence. No definition of economics has been generally accepted as being satisfactory because every single definition has been fo llowed up with criticism. Even though there are different definitions as there are different scholars, we will summarize economics as a social science concerned with how human beings allocate their limited resources in order to achieve a given end over time. That is, it analyses how households, firms, and society as a whole try to maximize their gains from their limited resources and opportunities now and in the future. A better understanding of the subject matter of economics needs a probe into the scope. [email protected] SCOPE OF ECONOMICS Scope should include proper description ofmicro and macro economics with suitable example.

Economics as a subject is experiencing continuous growth. The frontier of the subject has been widened after Alfred Marshall separated it from the term Political Economy . A discussion on the scope of economics includes the definition of economics, whether economics is an art or a science and whether it is a positive or a normative science. Economics as an Art and a Science There have been numerous questions whether economics is an art or a science. Economics is an art as well as a science. Economics is an art because different theories and laws are explained with the help of graphs, figures, tables, equations. Also economics make use of assumptions which helps to define the conditions for the application of theories, laws and relationship between economic variables. Economics is a science because it is a systematized body of knowledge in which economic facts are studied and analyzed. Economics just like science have laws and theories which trace out a causal relationship between two or more phenomena. For instance the law of demand tells us that, all things being equal, a fall in price leads to an increase in demand and vice versa. A rise or fall in price is the cause while the decrease or increase in demand is its effect. Economics is also a science because its laws possess universal validity such as the law of demand, law of diminishing marginal utility, etc. Some people do not regard economics as a science because there is no scope for experimentation. Science involves collections of facts and testing them by experimentation. Economic phenomena are complex because they relate to man who acts irrationally as a result of tastes, habits, social and legal institutions in the society. Although economics deal with statistical, mathematical and econometric methods for testing, but they are not so accurate to judge the true validity of economic laws and theories. As a result,

exact quantitative prediction becomes impossible. For instance, a rise in price may not lead to a reduction in demand rather may increase demand because people are scared of shortages in future. But this does not mean that economics is not a science. It is rather classified as a social science because it deals with human beings whose actions are so filled with uncertainty. Economics as a Positive and Normative Science According to J. N Keynes, a positive science may be defined as a body of systematized knowledge concerning what it is; while a normative science is a body of systematized knowledge relating to the criteria of what ought to be. The objective of a positive science is the establishment of scientific laws; while the objective of a normative science is the determination of the ideals. A positive science is concerned with what is. According to Robbins, economics is a science of what is which is not concerned with moral or ethical questions. The positive science of economics makes it devoid of value or ethical judgment, that is, it relates and describes facts without saying whether they are good or bad. For instance, statements such as ‘Growth creates pollution’ or Growth gets rid of pollution’ are called positive statements –assertions of facts that can be tested. Normative economics involves value judgment or what are simply known as value. It is concerned with the question of what ought to be . It makes distinction between good and bad depending on ethics and beliefs of the people rather than on scientific laws and principles. For instance, positive economics is concerned with how aggregate consumption and investment, how the national income and employment, and how the general price levels are determined; it does not go into the question of what should the prices be, what should be the savings rate, etc. these questions of what should be and what ought to be, falls within normative economics.

Economics is both a positive and normative science because positive economics sets about to discover what is true about the economy, while normative economics evaluates whether the facts found are good or bad. BASIC ECONOMIC CONCEPTS: WHAT, HOW AND FOR WHOM TO PRODUCE AND HOW TO DISTRIBUTE OUTPUT Scarcity: - Scarcity means limited in supply. According to Thomas Sowell, the first lesson of economics is scarcity. There are three categories of economic resources: Land, labour and capital. Each of these resources exists in a finite, limited quantity. People have unlimited wants and since we have a limited amount of resources it means we can only produce a limited amount of goods and services, that is, the limited resources cannot produce enough to satisfy everyone’s unlimited wants. This gives rise to the study of economics for better allocation of scare resources among competing and insatiable needs so as to maximize welfare. Choice: A choice is a comparison of alternatives. The problem of scarcity leaves us in a situation in which we must constantly choose which of our wants we will seek to satisfy. For instance, an individual consumer must choose among the types of goods and services to consume because of his limited income. He must also choose between spending on present consumption and saving for future consumption. The firm with its limited capital must decide what to produce and what not to produce. A situation where the firm wants to produce two commodities, the choice to produce more of one would mean a resolve to produce less of the other. The government is also forced to make a choice on the nature of public goods to provide for the citizens. The government has the task of utilizing the scare resources effectively in order to improve the welfare of the people. Scarcity

gives rise to choice and making a choice creates a sacrifice because alternatives must be given up leading to the loss of the benefits which the alternative would have provided. Scale of Preference: - In economics, it is assumed that man is rational in his choice making, that is, if a man has to choose between one thing and another, it is expected that he will always choose the alternative that will yield the greatest satisfaction. Similarly a firm faced with how to make a choice between production of one product and another, will choose the product that will yield the greatest profits. Scale of preference presents a list of wants arranged in order of importance with the most pressing want listed first, fo llowed by the second most pressing need and so on. Opportunity Cost: - Opportunity cost means forgone alternative. People must make choices because of limited resources. Every choice has an opportunity cost and so the satisfaction of one want involves forsaking the other. Therefore the real cost of satisfying any want is the alternative forgone or the opportunity cost. For instance, suppose a community uses a land and other resources to build a school instead of a factory, the opportunity cost of choosing the school is the loss of the factory and what could have been produced by building the factory. Also if a student misses his lecture on economics because he wants to go to the cinema, the cost to him is the lectures that he decides to miss. Opportunity cost of any choice is the value of the best alternative forgone in making it and not simply the amount spent on that choice. Central Economic Problems of any Economy All modern economies have certain fundamental or basic economic problems to deal with. The limited resources have led to the problem of how to assign

the scare resources in order to achieve maximum satisfaction. There is the need to economize and utilize these resources in the most efficient manner in order to satisfy the welfare of the society. These problems are called central economic problems because other problems revolve around them. They are: What to produce: - This has to do with the problem of allocation of resources among different goods and services. It involves selection of what should be produced and in what quantity in order to satisfy consumer wants as best as possible using the available resources. The society has to choose among different kinds of goods and decide on how to allocate resources among them, for instance whether to produce capital goods or consumer goods. The society also needs to determine the specific quantity of each type of good to be produced. In a market economy, the choice of what to produce is made by the buyers in other to fulfill their needs. Government can through its laws determine what to produce in a given economy. But the production of one good means a reduction in the production of another. How to Produce: - This problem refers to selection of appropriate technique of production, that is, how to combine resources in other to produce goods and service in a more efficient way and at a minimum cost. A combination of resources ( factors) implies a technique of production. The technique of using a combination which involves less capital and more labour is known as labor- intensive mode of production while a combination of more capital and less labour is capital- intensive mode of production. The decision on which resource combination to use depends on availability of factors and their relative prices. Therefore, it is in the interest of the society that factors should be combined in a manner that maximum output can be produced at minimum cost, using least possible scarce resources.

For whom to produce: - This economic problem focuses on how the national product is to be distributed among the members of the society, that is, how the consumer goods and capital goods will be distributed. The society has to decide who receives the outputs produced in the economy because human wants are unlimited. Should the economy produce goods for those with high incomes or for those with low income? What demographic group should production be targeted at? The money income of the people determines the distribution of output in the society. The greater ones money income, the greater the quantity of goods the person will purchase from the market. Sometimes the supply of goods are in short supply leading to government intervention through price legislation, rationing or through quotas. What provision should be made for economic growth? This problem deals with how to decide on how much saving and investment should be made for future economic growth. No society or individual would like to use all its scarce resources for only current consumption or else future production will remain stagnant leading to a decline in the levels of living. The society should devote a part of its resources for the production of capital goods and for the promotion of research and development activities. Capital and technological progress achieved in this way will lead to production of consumer goods in the future and increase standard of living. MICROECONOMICS AND MACROECONOMICS Economics is divided into two major areas – Microeconomics and Macroeconomics Microeconomics: - The word micro is derived from the Greek word mikros meaning small. Microeconomics is a branch of economics that is concerned with the behavior of individual consumers, firms, industries, commodities and prices. It studies how decisions made by individuals and businesses

affect the prices of goods and services. The main objective of microeconomics is to maximize utilit y and minimize cost. It is also known as the price theory. The major drawback of microeconomics is the unrealistic assumption of full employment condition in an economy and it deals with the part of the economy instead of the whole economy. Macroeconomics: - The word macro is derived from the Greek word makros meaning large. It is that branch of economics that focus on the impact of choices on the total or aggregate level of economic activities. Macroeconomics is the study of aggregates of individuals, firms, prices and outputs. In other words, it studies the economy as a whole. It analyses issues such as aggregate level of employment, the general price level, aggregate savings and investment in the economy. The main objectives of macroeconomics are full employment, economic growth, favourable balance of payment and price stability. The major limitation of macroeconomics is that it ignores the welfare of individuals in an economy and it takes into account only aggregate variables which may not clearly explain economic conditions. Microeconomics differs from macroeconomics in that while microeconomics maps up close how individuals make decisions and how these decisions affect the price and output of various goods and services, macroeconomics analyses not individuals but aggregates of the economy. While microeconomics studies how an individual firm employs its labours, macroeconomics studies the total employment in a given economy. While microeconomics is particularly concerned with the relative prices of goods and service; macroeconomics studies total prices of all goods and services in the economy. The division between microeconomics and macroeconomics is not rigid, they are interrelated. What affects the part affects the whole while the whole is made up of the parts. For instance, national income is the sum of the incomes of individuals, households, firms and industries. Also aggregates that are [email protected] in macro eco no mics are nothing but individual quant ities which are -D--if-f-e--r-e-n--c--e--i-n--T----fs-o-t-rum--d-a-i-te-i-sd--r-e-i-nq--u-mi-r-e-i-cd-.roeco no mics. Moreover, modern macro eco no mics is based upon

the study of microeconomics. Therefore, microeconomics and macroeconomics cannot be isolated from each other. SUMMARY Economics is the study of how people allocate scarce resources for production, distribution, and consumption, both individually and collectively. Two major types of economics are microeconomics, which focuses on the behavior of individual consumers and producers, and macroeconomics, which examine overall economies on a regional, national, or international scale. Economics is especially concerned with efficiency in production and exchange and uses models and assumptions to understand how to create incentives and policies that will maximize efficiency. Economists formulate and publish numerous economic indicators, such as gross domestic product (GDP) and the Consumer Price Index (CPI). Capitalism, socialism, and communism are types of economic systems. After the above discussion, we can say that these two branches are not contradictory but complementary to each other, and they should go hand in hand. While laying down laws and theories, economics should be treated as a positive science, but at the time of practical application, economics should be treated as a normative science. KEYWORDS • ross Domestic Product (GDP) Aggregate value of goods and services produced within the domestic territory of a country. It includes the [email protected] replacement investment of the depreciation of capital stock. Add the meanings o•f folloEwcinogno mic sanctio ns: A way of punishing errant co untries, which is keywords- Tourism Information system Satellite Account WTO Tourism goods and services Tourism demand and

supply

currently more acceptable than bombing or invading them. • Economies of scale: Bigger is better. In many industries, as output increases, the AVERAGE cost of each unit produced falls. • Efficiency; Getting the most out of the resources used. For a particular sort of efficiency often favoured by economists. • Capital: MONEY or assets put to economic use, the life- blood of CAPITALISM. Economists describe capital as one of the four essential ingredients of economic activity, the FACTORS OF PRODUCTION, along with LAND, LABOUR and ENTERPRISE. LEARNING ACTIVITY 1. 'The most we can say about the Demand Curve is that it slopes down unless it slopes up.' Discuss. 2. Critically assess the view that an understanding of the principles of 'scientific' decision- making is fundamental to the success of a modern economy. UNIT END QUESTIONS A. Descriptive Questions 1. Give two examples of Micro and Macro Economy. 2. What are the three central problems of Economy? 3. What do you mean by economizing of resources? 4. What is the difference between the planned economy and market economy? 5. Define Scarcity. B. Multiple Choice Questions (Mcq’s)

1. A growth of resources in an economy is shown in PP by. a. Leftward Shift b. Unchanged PPC c. Rightward Shift d. None of the above 2. What is another name for opportunity cost in economics? a. Economic problem b. Marginal Cost c. Total Cost d. Economic Cost 3. The central economy in market research is solved by. a. Demand for goods b. Supply of goods c. Planning authority d. Market forces 4. Is the subject of the Jute industry studied in a macroeconomy? a. True b. False

c. Maybe d. Can’t say 5. Which of the following is a statement of normative nature in economics a. Economics is a study of choices /alternatives b. The government should be concerned with how to reduce unemployment c. According to the estimate, in spite of severe shortage, more than 10% of houses in Indian cities are vacant d. Accommodation of refugees is posing a big problem for Europe Answer 1. c 2. d 3. d 4. a 5. b SUGGESTED READINGS • ompare with Nicho las Barr (2004), whose list of market failures is melded with failures of economic assumptions, which are (1) producers as price takers (i.e. presence of oligopo ly or monopo ly; but why is this not a product of the following?) (2) equal power of consumers (what [email protected] labour lawyers call an imbalance of bargaining power) (3) co mplet e These references are himghalyrknone-retcsom(m4en)dedp. ublic goods (5) external effect s (i. e. ext ernalit ies?) (6)

increasing returns to scale (i. e. practical monopoly) (7) perfect information (in The Economics of the Welfare State (4th ed.). Oxford University Press. 2004 . pp. 72 –79. ISBN 978- 0- 19 -926497- 1.). • • Joseph E. Stiglitz (2015) classifies market failures as from failure of competition ( including natural monopoly), information asymmetries, incomplete markets, externalities, public good situations, and macroeconomic disturbances (in \"Chapter 4: Market Failure\". Economics of the Public Sector: Fourth International Student Edition (4th ed.). W. W. Norton & Company. 2015 . pp. 81 –100. ISBN 978- 0- 393- 93709 -1 .). • See Chomsky, Noam (14 October 2008 ). \"Ruling the World\". Understanding Power. Archived from the original on 14 October 2008 . on Smith's emphasis on class conflict in the Wealth of Nations.

UNIT -2 BASIC OF ECONOMICS – II STRUCTURE 1. Learning objectives 2. Introduction 3. Working of Price Mechanism 4. Functions of Price Mechanism 5. Price Mechanism and resource allocation in free market 6. Characteristics Tourism Economics 7. Tourism Information System 8. Satellite Accounts 9. Summary 10. Keywords 11. Learning activity 12. Unit end questions 13. Suggested readings LEARNING OBJECTIVES After studying this lesson, you will be able to: • To understand the price mechanism and its functions • To understand the characteristics of tourism economics • To understand the use of information system in tourism • To understand the concept of tourism satellite account INTRODUCTION In economics, a price mechanism is the manner in which the profits of goods or services affects the supply and demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both buyer and seller who negotiate prices. A price mechanism, part of a market system, comprises various ways to match up buyers and sellers. Price mechanism is a mechanism where price plays a key role in directing the activities of producers, consumers, resource suppliers. An example of a price mechanism uses announced

bid and ask prices. Generally speaking, when two parties wish to engage in trade, the purchaser will announce a price he is willing to pay (the bid price) and seller will announce a price he is willing to accept (the ask price). The primary advantage of such a method is that conditions are laid out in advance and transactions can proceed with no further permission or authorization from any participant. When any bid and ask pair are compatible, a transaction occurs, in most cases automatically. WORKING OF PRICE MECHANISM For example: the oil crisis of the 1970s drove oil prices dramatically upwards, which in turn caused several countries to begin producing oil domestically. A price mechanism affects every economic situation in the long term. Price Mechanism plays a vital role in determining prices in a capitalist economy. An example of the effects of a price mechanism in the long run involves fuel for cars. If fuel becomes more expensive, then the demand for fuel would not decrease fast but eventually companies will start to produce alternatives such as biodiesel fuel and electrical cars. A price mechanism is a system by which the allocation of resources and distribution of goods and services are made on the basis of relative market price. There are two important elements of price mechanism – 1. PRICES - prices are essence of price mechanism. price mechanism works through prices in a free enterprise economy, where all goods and services carry price tags with them. a whole set of prices prevail in such an economy. goods and services are available at a price because it involves cost in producing these goods and services. consumers have to pay some prices if they want to buy some goods like food, clothes, etc. producers are willing to sell goods and services only if they get the appropriate price. 2. MARKET - forces of demand and supply operate within the framework of market. market constitute an integral part of the price mechanism A market means a system or a set-up in which the buyers and sellers of the commodity are able to interact and communicate with each other and strike a deal, i.e., price and the quantity to be bought and sold. FUNCTIONS OF PRICE MECHANISM The price mechanism plays three important functions in a market: Signaling function Prices perform a signaling function – they adjust to demonstrate where resources are required, and where they are not

Prices rise and fall to reflect scarcities and surpluses If prices are rising because of high demand from consumers, this is a signal to suppliers to expand production to meet the higher demand If there is excess supply in the market the price mechanism will help to eliminate a surplus of a good by allowing the market price to fall. The signaling function - changes in price provides information to both producers and consumers about changes in market conditions Transmission of preferences Through their choice’s consumers send information to producers about the changing nature of needs and wants Higher prices act as an incentive to raise output because the supplier stands to make a better profit. When demand is weaker in a recession then supply contracts as producers cut back on output. One of the features of a market economy system is that decision-making is decentralized i.e. there is no single body responsible for deciding what is to be produced and in what quantities. This is a remarkable feature of an organic market system. The rationing function - when there is a shortage of a product, price will rise and deter some consumers from buying the product Rationing function Prices serve to ration scarce resources when demand in a market outstrips supply. When there is a shortage, the price is bid up – leaving only those with the willingness and ability to pay to purchase the product. Be it the demand for tickets among England supporters for an Ashes cricket series or the demand for a rare antique, the market price acts a rationing device to equate demand with supply. The popularity of auctions as a means of allocating resources is worth considering as a means of allocating resources and clearing a market. Mixed and Command Economies and Prices Most economies are mixed economies, comprising not only a market sector, but also a non- market sector, where the government (or state) uses planning to provide public goods and services such as police, roads and merit goods such as education, libraries and health. In a command economy, planning directs resources to where the state thinks there is greatest need. Following the collapse of communism in the late 1980s and early 1990s, the market- based economy is now the dominant system in most countries – even though we are increasingly aware of many imperfections in the operation of the market.

Prices and incentives Incentives matter! For competitive markets to work efficiently all 'economic agents' (i.e. consumers and producers) must respond to appropriate price signals in the market. Market failure occurs when the signaling and incentive functions of the price mechanism fail to operate optimally leading to a loss of economic and social welfare. For example, the market may fail to take into account the external costs and benefits arising from production and consumption. Consumer preferences for goods and services may be based on imperfect information on the costs and benefits of a particular decision to buy and consume a product. Secondary markets Secondary markets occur when buyers and sellers are prepared to use a second market to re- sell items that have already been purchased. Perhaps the best example is the secondary market in tickets for concerts and sporting-events. PRICE MECHANISM AND RESOURCE ALLOCATION IN FREE MARKET One of the most basic yet important concept in the learning of microeconomics is how are prices of goods and services determined. While individual consumers only cares about the price of a good, however on a deeper level, collectively, the price of the good is closely linked to how much resources are allocated to the production and consumption of that good. Market Equilibrium A market is where consumers and producers interact with their demand and supply to determine the market equilibrium price and quantity of a good or service exchanged. Anywhere that consumers and producers interact is known as a market. A free market is where the consumers and producers interact without any intervention by the government. • Demand of a good is the quantity of a good or services that consumer are willing and able to purchase at various prices in a given period of time, ceteris paribus. • Supply of a good is the quantity of a good that producers are willing

and able to produce and sell at various prices over a period of time, ceteris paribus. 'Ceteris paribus' is a Latin phrase means 'other things being equal', a common assumption made by economists. In the free market without governmental intervention, the market equilibrium price and quantity are determined using the price mechanism. The market equilibrium happens when the demand of a goods equals to its supply, it is the market price and market quantity where there is no further tendency for price and quantity to change, PE and QE as shown in Figure 1. Figure 1: Market Equilibrium When the market is in equilibrium, any changes to demand and supply will lead to changes in equilibrium price and quantity. These changes are affected by changes in non- price determinants of demand and supply. The price mechanism is activated when there is either a surplus or shortage in the market. Market Disequilibrium: Surplus When the market price (P1) is higher the market equilibrium price (PE), there will be a surplus as quantity supplied (QS) is larger than quantity demanded (QD) as shown in Figure 2.

Figure 2: Surplus This will lead to a downwards pressure on price as producers will try to clear stock and reduce the surplus. As price decreases (P1 to P2 , P2 to PE), quantity demanded will increase while the quantity supplied will decrease, reducing the surplus. Prices will stop to decrease at the equilibrium price where demand equals to supply at (PE and QE). The downward pressure on price will signal producers to allocate lesser resources in the production of this good. Market Disequilibrium: Shortage On the other hand, when the market price (P1) is below the market equilibrium price (PE), there will be a shortage as quantity demanded (QD) is larger than quantity supplied (QS) as shown in Figure 3. Figure 3: Shortage

This will lead to an upwards pressure on price as consumers will compete among themselves for the goods. As price increases (P1 to P2 , P2 to PE), quantity demanded will decrease while the quantity supplied will increase, reducing the shortage. Prices will stop to increase at the equilibrium price where demand equals to supply at (PE and QE). The upward pressure on price will signal producers to allocate more resources in the production of this good. Changes in Demand and Supply: While the price mechanism allocates resources through changes in price when clearing or surplus and shortages, changes in demand and supply due to changes in non- price determinants is the main reasons affecting the allocation of resources in the free market. While increase in supply will lead to a surplus, however there will be net effect of an increase in the allocation of resource in the market. On the other hand, while decrease in demand will also lead to a surplus, however there will be net effect of a decrease in the allocation of resource in the market. While decrease in supply will lead to a shortage, however there will be net effect of a decrease in the allocation of resource in the market. On the other hand, while increase in demand will also lead to a shortage, however there will be net effect of an increase in the allocation of resource in the market. Changes in factors other than the price of the good itself such as taste and preferences, disposable income, population, price of substitutes and complement and consumers’ expectations of economic condition and future prices will affect consumers’ willingness and ability to consume therefore changing the demand for the good. Changes in factors other than the price of the good itself such as cost of

production, prices of good in joint supply, prices of good in competitive in supply, technology and weather conditions will also affect producers’ willingness and ability to consume therefore changing the supply for the good. CHARACTERISTICS OF TOURISM ECONOMICS Tourism as a service industry is fast becoming one of the major industries in the world South Africa is no exception with its natural beauty found in most of its regions, especially Kwa Zulu - Natal and Western Cape. Why is tourism regarded as a service industry? Tourism demonstrates all the qualities of a service industry. This is shown by the nature of its constituent’s service trades, which are separate industries in their own right. To put the tourism industry's development in perspective the traditional three - sector model of development present a theory of the development process in stages. In the early phase primary (agricultural and mining) activities dominate the economy in Digitized by the University of Pretoria, Library Services, 2012 -54 - terms of their share of output and employment, followed by a more and more important role for the secondary (industrial) sector at a later stage. Finally, tertiary (services) activities (including the tourism industry) should become the largest sector in the economy (Ochel and Wegner, 1987 ). Attempts have been made to explain the secular shift of employment towards the tertiary sector by combining two elements : the relative increase in demand for services with growing per capita income of private households (Engel's Law), and the trend of service productivity to rise more slowly than other parts of the economy (productivity gap). A fourth ( quaternary) stage was then added to the traditional three- stage model and linked to the growth of the information sector, comprising information producers, information processors and distributors. The information economy theories emphasize the new computer and information technologies both as the dominant source for structural change and the driving force for the rapid creation of information jobs in all sectors. Ochel and Wegner (1987) also mentioned that information service activities and occupations have grown in all sectors, but they are situated mainly within the

service sector. The new information technologies are more than a supplementary sector; they are transforming the quality and nature of services as well as the mode of production. In fact service industries complement other industries ( manufacturing, agriculture) thereby making an impact on the economy. Like any other industry in the economy, the tourism industry can be economically viewed from the outputs ( services) it delivers and from the inputs it needs to perform the production of tourist products or services. Before any country or region within a country can attract tourists on a large scale, certain important inputs ( facilit ies and services) must exist and I or provided for tourists to cater for their needs from their time of arrival to their departure (op. cit.). The organizations or businesses that provide these facilit ies make up a tourism industry. The most important services sectors or branches that directly relate to the tourism industry are the following: 1. Travel and transport services To get out of their countries and away from their homes, people need transport to enable them to travel to their destination. Without travel and transport services, there could be no tourism. Also during visits tourists need the services of transport, taxis and buses, car rentals or travel agencies/ operators, passport services, tour guides, etcetera. 2. Catering and accommodation services Tourists away from their homes need places to stay and they need to be fed Shops, restaurants, hotels, resorts, caravan sites and camps, et cetera, provide tourists with catering and accommodation services. 3. Leisure and Business facilities Leisure ( for example, trips to game parks) and business needs ( attending conferences I seminars) are the two main reasons that lead to tourist activity. Businesses and organizations that provide leisure, recreation and business facilit ies (for example, postal services and financial services) make up the third branch of the tourism industry.

4. Marketing and promotional services The existence of any tourist attraction is of no value if it is not known to the potential users. Their existence needs to be promoted through well planned marketing strategies and by professional agencies, for example, publicity associations (public and private institutions). For these service sectors to exist or to be developed in an area or a region, basic infrastructure is required These infrastructural facilities can be regarded as inputs necessary for the development of the output of the tourism industry. These inputs are inter alia the following: tourist attractions water, that is, the region must have access to sufficient amount of drinkable water. roads and travel facilities for tourists to travel, which means that all the attractions must be accessible. It is of no use to have a beautiful attraction which cannot be visited because it is inaccessible. electricity, without electricity there could be no or very little tourism activities taking place. labour, it has been said that the tourism industry is a labour - intensive industry, therefore it is the most important input. other services, for example, financial, accommodation and catering services. Hence, Howell (1983) defines tourism as both an industry and a response to a social need because its product includes all the elements that combine to form (the tourism consumer's experiences and exist to service their needs and expectations. On the other hand, Rogers and Slinn (1993) defined tourism as denoting the temporary short-term movement of people to destinations outside the places where they normally live and work and their activities during their stay at these destinations. Because tourism industry is defined as a heterogeneous group of enterprises, Singh and Kaur (1982) grouped tourist related enterprises into different sectors (branches of economic activity). These sectors are: • Energy • Basic metals • Manufacturing of electrical machines, apparatus, appliances, etc • Manufacture of chemicals and chemical products • Manufacture of wood • Manufacture of textiles, leather and rubber products • Food manufacturing industries and tobacco • Agriculture • Forestry • Construction All these sectors are directly and indirectly linked to the tourism industry. This grouping of different enterprises and sectors confirms the fact that there are extensive linkages between

tourism as an economic sector and other economic sectors. This also shows the linkages that exist between tourism industry as a tertiary industry and both the primary and secondary industries. At the same time the multiplier effect of the tourism industry is also important, in the sense that the increase in tourism production, results in an increase in the activities of all these other sectors. Tourism is also more than a service industry because the products of tourism consist of natural beauty, dramatic landscapes, cultural heritage, commercial hospitality, etcetera. According to Singh and Kaur (1982) tourism can be broken down into three elements: (a) Human element (tourist needs and desires) (b) Physical element (geographical aspects and accessibility) (c) Time element (trip duration and stay) TOURISM INFORMATION SYSTEM TOURISM INFORMATION SYSTEMS Tourism Information Systems (TIS) are evaluated as a type of information systems basically including the concepts of tourist, urban people, local administrations, businesses, technological environment, political environment, social environment, economic environment and ecological environment (Figure 2) (Çuhadar, 2010; Njegus, 2013; Etravelweek, 2016) Cycle in tourism information systems (Etravelweek, 2016) In general, TISs can be defined as computer-aided systems through which tourists can access the information they search simply and fast. TISs provide information for tourists on information, accommodation, transportation, destination and other services. The interface of TIS forms the map or city plan of a tourism region. In accordance with the purposes of tourists and tourism (politic, economic, social and technological), information such as historical places, national parks, transportation routes, lakes, etc. takes place on this map or plan. As maps are the mediators of visual information presenting for tourists, the unlocational information for tourism must be relevant to the location information. The system includes storage, processing, analysis of these data and their submission to users by updating them. Questioning and analyses to be made in TIS depend on the information scope of the system and analysis abilities. The scope of information is determined at the design stage according to the user group of the system. These data need to be in the database and regularly updated (Cömert & Bostancı, 1999; Çelik, 2005; Çuhadar, 2010; Njegus, 2013). With these systems, it is aimed to manage the fields related to tourism, decide on planning for the future and ensure coherence with GISs established at the following

stage (Esen, 2005). It is useful to set up Tourism Information System so as to provide an information resource for tourists in cities, present a province, region, and country and create a basis for the infrastructure for Geographic Information System based works. By this means, tourists coming to a city can easily learn where and what opportunities they will have, how they will reach somewhere in the shortest way and 666 which places in the city are worth seeing. Locational and unlocational data necessary to form an infrastructure of TIS in the landscape planning process must be collected and stored in a healthy way. SATELLITE ACCOUNTS Satellite account is a framework to measure the size of economic sectors that are not defined as industries in the National Accounts. It maintains a loose relationship with the national accounts, with boundaries expanded and reclassified. In satellite accounts, certain types of transactions (such as tourism, health care, environment, etc.) are analyzed from the expenditure side. The unit of analysis to which classification is applied is a transaction. Tourism Satellite Account Satellite accounts take off from the SNA by focusing on the purpose or function of transactions. Thus, transactions in the economy are first analyzed in the SNA according to their characteristics. Then, certain types of transactions (such as tourism, or health care, or environment, etc.) are analyzed from the expenditure side. In satellite accounts, therefore, the unit of analysis to which classification is applied is not an establishment (as in national accounts) but, instead, is transactions, or groups of transactions. The need for a satellite account for tourism arises because tourism is not an industry in the way industry is defined in the System of National Accounts. Instead, tourism is a demand-based concept defined not by its output but by its use. Industries defined in national accounts, such as air transport, hotels and restaurants, etc. produce the same output irrespective of whether it is consumed by tourists or non-tourists. While the total output of these industries is usually captured by the national accounts, it is only the consumption by tourists that defines the tourism economy, e.g., the part of total value added attributable to tourism activities. Thus, to the extent tourism is an economic phenomenon, it is already embodied in the national accounts but not in a manner readily apparent because commodities and services that are produced and consumed in meeting tourism demand are buried in some other element of the core accounts. The TSA provides a mechanism by which these economic aspects of tourism can be drawn out and

analyzed separately but in a way that the results can still be related to the rest of the national accounts. The WTO suggests developing the TSA in the form of ten tables. The first three tables identify tourism consumption by products and forms of tourism (inbound, domestic and outbound). The fourth table consolidates total tourism consumption, including coverage of tourism consumption in the form of nonmonetary transactions, to develop estimates of internal tourism consumption and tourism internal consumption. The fifth table presents the production accounts of the tourism industries in a form suitable for comparison with tourism consumption. The next table is essentially the core of the TSA, bringing together the demand and supply sides of the tourism and wherein aggregates like tourism value added and tourism GDP can be evaluated. The seventh table gives the estimate of employment in the tourism industries, and the indicator to express its size is recommended to be the simplest one, that of number of jobs. The next table, Table 8 presents at the same time the detailed fixed capital formation of the compiling economy of produced fixed assets specific to tourism acquired by the tourism industries and by producers outside the tourism industries as well as the gross fixed capital formation of the tourism industries in non-tourism specific produced assets. A compilation of tourism collective non-market services by type of services and level of government. The last table, Table 10, presents a few quantitative indicators, without monetary expression which have been used in most of the previous tables: number of arrivals by forms of tourism and duration of the stay, physical indicators regarding forms of accommodation, means of transportation used by inbound visitors to enter the compiling economy, and finally number and size of the establishments belonging to tourism characteristic and related activities. The WTO recommends countries to focus initially on getting at least first six tables implemented (and also not to emphasize non-monetary flows of tourism consumption in the initial stages of developing a TSA) to estimate the tourism value added and the seventh table to estimate employment. This is the approach adopted in developing India’s first TSA. SUMMARY In economics, a price mechanism is the manner in which the profits of goods or services affects the supply and demand of goods and services, principally by the price elasticity of demand. A price mechanism affects both buyer and seller who negotiate prices. A price mechanism, part of a market system, comprises various ways to match up buyers and sellers. Price mechanism is a mechanism where price plays a key role in directing the activities of [email protected] ---------------------p--r-o--d--u--c-e--r-s--,-c--o--n-s--umers, resource suppliers. An example of a price mechanism uses announced WAdhdefroermis aTtaobfleto8uraisnmd 1sa0t?e?llite account.