IAS Prelims Exam Economic Terms Explained - 1

IAS Prelims Exam is a conglomeration of the Subject Questions and each section of the IAS Syllabus is important. But Economy has its larger share among them. Mere knowledge of the terms fetch at least two questions in the Civil Services Prelims Exam

Created On: Oct 8, 2015 19:25 IST

The Association of South-east Asian Nations (ASEAN)

It is a political and economic organisation of ten South-east Asian countries. On 8th August 1967 it was formed by five countries Indonesia, Malaysia, the Philippines, Singapore and Thailand. Presently it has ten members. Its aims include accelerating economic growth, social progress, and sociocultural evolution among its members, protection of regional peace and stability, and opportunities for member countries to resolve differences peacefully

Balance of Payments (BOP)

It is a statistical statement summarising all the external transactions (receipts and payments) on current and capital account in which a country is involved over a period of time, say, a year. As the BOP shows the total assets and obligations over a time-period, it always balances.

Barriers to Entry

This refers to the factors which make it disadvantageous for new entrants to enter an industry as compared with the firms already established within the industry.

Better Compliance

Obeying or complying with the Government regulation. It is referred to usually in case of payment of taxes and dues to the Government.

Bilateral Trade Agreements

The agreements relating to exchange of commodities or services between two countries.

Brundtland Commission

A Commission established by United Nations Organisation in 1983 to study the world’s environmental problems and propose agenda for addressing them. It came out with a report. The definition provided by the Commission for the term, ‘sustainable development’, is very popular and widely cited all over the world.

Budgetary Deficit

A situation when the government’s income and tax receipts fail to cover its expenditures.

Bureau of Energy Efficiency (BEE)

It is a government organisation that aims to develop policies and strategies with a thrust on self regulation and market principles. It promotes energy conservation in different sectors of the economy and undertakes measures against the wasteful uses of electricity.

Business Process Outsourcing (BPO)

Outsourcing of business processes (activities constituting a service) by companies to other companies. This term is frequently associated with outsourcing of such activities (e.g. receiving and making calls on behalf of other companies popularly known as call centres), by foreign companies to Indian companies in the field of IT-enabled services.

Carrying Capacity

It is the measure of habitat to indefinitely sustain a population at a particular density. A more technical definition for carrying capacity is the largest size of a density-dependent population for which the population growth rate is zero. Hence, below carrying capacity, populations will tend to increase, while they will decrease above carrying capacity. Population size decreases above carrying capacity due to either reduced survivorship (e.g. due to insufficient space or food) or reproductive success (e.g. due to insufficient food, or behavioural interactions), or both. The carrying capacity of an environment will vary for different species in different habitats, and can change over time due to a variety factors, including trends in food availability, environmental conditions and space.

Cascading Effect

When tax imposition leads to a disproportionate rise in prices, i.e. by an extent more than the rise in the tax, it is known as cascading effect.

Cash Reserve Ratio (CRR)

A proportion of the total deposits and reserves of the commercial banks that is to be kept with the central bank (RBI) in liquid form. It is used as a measure of control of RBI over the commercial banks.

Casual Wage Labourer

A person, who is casually engaged in others’ farm or non-farm enterprises and, in return, receives wages according to the terms of the daily or periodic work contract.


The practice of acquiring colonies by conquest or other means and making them dependent. It also means extending power, control or rule by a country over the political and economic life of areas outside its borders. The main feature of colonialism is exploitation.

Commercialisation of Agriculture

It implies production of crops for the market rather than for self-consumption i.e. family consumption. During the British rule, the commercialisation of agriculture acquired a different meaning—it became basically commercialisation of crops. The British started offering higher price to farmers for producing cash crops rather than for food crops. They used these cash crops as raw materials for industries in Britain.


Known as people’s communes, or renmin gongshe in China, were formerly the highest of three administrative levels in rural areas in the period from 1958 to 1982-85, when they were replaced by townships. Communes, the largest collective units, were divided in turn into production brigades and production teams. The communes had governmental, political, and economic functions.

Consumption Basket

Group of goods and services consumed by a household is called consumption basket. In order to estimate the consumption pattern of people, statistical agencies identify such items. For instance NSSO has indentified 19 groups of items in the consumption basket. Some of them are (i) cereals (ii) pulses (iii) milk and milk products (iv) edible oil (v) vegetables (vi) fuel and light and (vii) clothing.

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