Unit 1: Introduction

Concept of economy and economics

Economy refers to the system by which a society or country produces, distributes, and consumes goods and
services. It encompasses all the activities involved in the creation and exchange of wealth within a society or
between different societies.

Economics is the study of how society allocates its scarce resources among competing uses in order to satisfy
human wants and needs. It is concerned with the analysis of production, distribution, and consumption of goods
and services. Economists study how individuals, businesses, governments, and other organizations make decisions
about how to allocate resources and how these decisions affect the economy as a whole. They also analyze the
factors that determine prices, wages, and interest rates, and how changes in these factors affect economic
growth, employment, and inflation.

There are several major types of economy, including:

1. Market economy: In a market economy, the production and distribution of goods and services are
determined by supply and demand in the marketplace. The role of the government is limited, and the economy is
driven by private businesses and individuals.

2. Command economy: In a command economy, the government controls the production and distribution of
goods and services. Prices and wages are set by the government, and there is little room for private enterprise.

3. Mixed economy: A mixed economy combines elements of both market and command economies. The
government may regulate certain industries, provide public goods and services, and redistribute wealth through
taxes and social programs, while still allowing for private enterprise.

4. Traditional economy: In a traditional economy, goods and services are produced and distributed based on
traditional customs and beliefs. There is little or no use of modern technology and the economy is typically based
on agriculture, hunting, and gathering.

5. Post-industrial economy: A post-industrial economy is characterized by a shift away from manufacturing

and towards service-based industries, such as finance, healthcare, and education. This type of economy is
typically found in developed countries with advanced technological infrastructure.

Each type of economy has its own strengths and weaknesses, and the choice of economic system can have
significant impacts on factors such as income inequality, economic growth, and the role of the government in
society.

There are several different views of the economy, reflecting different ideologies and perspectives on how the
economy should be structured and managed. Here are a few examples:

1. Classical economics: Classical economics is based on the work of Adam Smith and other 18th and 19th
century economists. It emphasizes the role of markets and the importance of individual self-interest in driving
economic growth and prosperity. Classical economists believe that the government should have a limited role in
the economy, and that markets are generally self-regulating.
2. Keynesian economics: Keynesian economics is based on the work of John Maynard Keynes and other 20th
century economists. It emphasizes the importance of government intervention in the economy to stabilize
economic growth and promote full employment. Keynesian economists believe that government spending and
monetary policy can be used to counteract the effects of economic downturns.

3. Neoclassical economics: Neoclassical economics is a more recent development, building on classical

economics but incorporating more modern insights into market behavior and information asymmetry.
Neoclassical economists believe that markets are generally efficient and that government intervention can lead to
unintended consequences. They also emphasize the importance of incentives and information in shaping
economic outcomes.

4. Marxist economics: Marxist economics is based on the work of Karl Marx and other socialist thinkers. It
emphasizes the importance of social and class relations in shaping economic outcomes, and argues that
capitalism is inherently unstable and leads to inequality and exploitation. Marxist economists believe that the
state should play a central role in managing the economy and redistributing wealth.

5. Institutional economics: Institutional economics emphasizes the importance of social and institutional
structures in shaping economic outcomes. Institutional economists believe that the rules and norms governing
economic behavior are critical in determining economic performance, and that government policies can shape
these rules and norms in ways that promote economic growth and social welfare.

These are just a few examples of the different views of the economy that exist. Each perspective has its own
strengths and weaknesses, and there is ongoing debate and discussion about the best way to structure and
manage the economy to promote growth and social welfare.

Scope of the study of economics

The scope of economics is quite broad, as it encompasses a wide range of topics related to the production,
distribution, and consumption of goods and services. Some of the major areas of study in economics include:

1. Microeconomics: This is the study of individual economic agents, such as households, firms, and markets.
It focuses on how these agents make decisions about the allocation of resources and how these decisions affect
the prices and quantities of goods and services.

2. Macroeconomics: This is the study of the economy as a whole, including issues such as economic growth,
inflation, unemployment, and government policies. It deals with the aggregate behavior of economic agents and
the interactions between different sectors of the economy.

3. International economics: This is the study of economic interactions between different countries, including
international trade, exchange rates, and globalization.

4. Development economics: This is the study of economic growth and development in low-income
countries, focusing on issues such as poverty, inequality, and the role of institutions in promoting economic
growth.
5. Environmental economics: This is the study of the relationship between the economy and the natural
environment, including issues such as pollution, natural resource depletion, and climate change.

Overall, the scope of economics is vast and encompasses a wide range of topics related to the functioning of the
economy and its impact on society.

The concept of opportunity cost

The concept of opportunity cost is a fundamental principle in economics that refers to the cost of choosing one
option over another, taking into account the benefits and costs of both options. In other words, opportunity cost
is the value of the next best alternative that must be forgone in order to pursue a certain action or decision.

For example, suppose you have $10 and you can either spend it on a movie ticket or use it to buy a book. The
opportunity cost of buying the movie ticket is the value of the book that you could have purchased instead, while
the opportunity cost of buying the book is the value of the movie ticket that you would have missed out on. In this
case, the opportunity cost of each option is the value of the other option that you give up.

Opportunity cost is important in economics because resources are scarce and must be allocated efficiently.
Whenever a choice is made, there are always trade-offs involved and resources must be used in the most efficient
way possible. By understanding opportunity cost, individuals, businesses, and governments can make better
decisions by weighing the costs and benefits of different options and choosing the one that offers the highest net
benefit.

Scope of tourism economics

Tourism economics is a branch of economics that focuses on the economic aspects of the tourism industry. It
includes the study of the economic impacts of tourism, the economic characteristics of tourist demand and
supply, and the economic policies and strategies that are used to promote and develop tourism.

The scope of tourism economics is wide-ranging and includes the following areas of study:

1. Economic impact analysis: This involves assessing the economic effects of tourism on a particular region
or country. It includes analyzing the contribution of tourism to GDP, employment, income, and tax revenues, as
well as the economic multiplier effects that result from tourism spending.

2. Tourism demand analysis: This involves analyzing the factors that influence the demand for tourism,
including income, prices, tastes, preferences, and demographics. It also includes studying the patterns of tourism
demand, such as seasonality and destination choices.

3. Tourism supply analysis: This involves analyzing the supply of tourism products and services, including
accommodation, transportation, attractions, and activities. It includes studying the structure of the tourism
industry, such as the number and size of firms, as well as the characteristics of the products and services offered.

4. Tourism policy analysis: This involves analyzing the policies and strategies that are used to promote and
develop tourism. It includes studying the role of government in the tourism industry, such as the provision of
infrastructure, marketing and promotion, and regulatory frameworks.

Nepalese Economy
Overall, the scope of tourism economics is interdisciplinary, as it draws on concepts and methods from
economics, geography, sociology, and other fields to understand the economic aspects of the tourism industry.
Nepal is a small, landlocked country located in South Asia, bordered by India to the south and China to the north.
The economy of Nepal is primarily agricultural, with around two-thirds of the population engaged in farming. The
country has abundant natural resources, including water, minerals, and forests, but its development has been
hindered by political instability, weak institutions, and poor infrastructure.

The key sectors of the Nepalese economy are:

1. Agriculture: Agriculture is the mainstay of the Nepalese economy, contributing around 30% to the GDP
and employing around two-thirds of the population. The main crops grown in Nepal are rice, maize, wheat, and
vegetables.

2. Tourism: Tourism is a significant source of foreign exchange earnings for Nepal. The country is known for
its natural beauty, including the Himalayas and Mount Everest, and attracts a large number of tourists every year.

3. Manufacturing: Manufacturing is a growing sector in Nepal, with the production of textiles, cement, and
bricks being some of the major industries. However, the sector is constrained by the lack of infrastructure, high
production costs, and limited access to finance.

4. Services: The service sector is the fastest-growing sector of the Nepalese economy, contributing around
60% to the GDP. The sector includes trade, transport, finance, and tourism-related services.

Despite some progress in recent years, Nepal remains one of the poorest countries in South Asia, with a low level
of human development and high levels of poverty and inequality. The country faces several challenges, including
a weak infrastructure, limited access to finance, and political instability. However, the government of Nepal has
taken several initiatives to promote economic growth and development, including investment in infrastructure,
tourism promotion, and trade liberalization.

Importance of tourism for Nepalese economy

Tourism is an important sector of the Nepalese economy, as it contributes significantly to the country's GDP and
provides employment opportunities for a large number of people. Here are some of the key ways in which
tourism is important for the Nepalese economy:

1. Foreign exchange earnings: Tourism is a major source of foreign exchange earnings for Nepal. In 2019, the
tourism sector contributed around 8% to the country's GDP and generated over USD 2 billion in foreign exchange
earnings.

2. Employment generation: Tourism provides employment opportunities for a large number of people in
Nepal, particularly in the service sector. The sector is estimated to provide direct employment to over 600,000
people and indirect employment to many more.

3. Regional development: Tourism has the potential to promote regional development by creating
employment opportunities and stimulating economic activity in remote and rural areas of the country. Many of
the popular tourist destinations in Nepal, such as Pokhara and Chitwan, are located in rural areas.

4. Cultural preservation: Tourism can help to promote the preservation of Nepal's rich cultural heritage by
creating awareness about the country's cultural and historical sites and promoting sustainable tourism practices.

5. Promotion of other sectors: Tourism can also promote other sectors of the economy, such as agriculture
and handicrafts, by creating demand for local products and services.
Overall, tourism is an important sector for the Nepalese economy, as it has the potential to generate foreign
exchange earnings, create employment opportunities, and promote regional development and cultural
preservation. However, the sector also faces several challenges, including a lack of infrastructure, inadequate
marketing and promotion, and environmental degradation.

Challenge for the development of tourism in Nepal

Nepal has great potential for tourism development due to its natural beauty, cultural heritage, and adventure
tourism opportunities. However, the development of the tourism sector in Nepal is hindered by several
challenges. Here are some of the key challenges for the development of tourism in Nepal:

1. Infrastructure: One of the major challenges facing the Nepalese tourism industry is the lack of adequate
infrastructure, including transportation, accommodation, and communication facilities. The country's road
network is underdeveloped, and air travel can be expensive, making it difficult for tourists to access remote areas
of the country. The lack of quality accommodation and communication facilities is also a significant challenge.

2. Political instability: Nepal has experienced political instability in recent years, which has had a negative
impact on the tourism industry. Political unrest, strikes, and bandhs can disrupt travel plans, and the perception
of instability can discourage tourists from visiting the country.

3. Environmental degradation: Nepal's tourism industry is heavily reliant on its natural resources, including
its mountains, forests, and wildlife. However, unchecked tourism activities can lead to environmental
degradation, such as deforestation, wildlife disturbance, and pollution.

4. Safety and security: The safety and security of tourists is a key concern in Nepal, particularly in remote
areas of the country. Tourists can be at risk of accidents, theft, and harassment, and the country's emergency
response services can be limited.

5. Marketing and promotion: Nepal's tourism industry suffers from a lack of effective marketing and
promotion, which has resulted in limited awareness of the country's tourism potential. A coordinated effort is
needed to improve the branding, marketing, and promotion of Nepal as a tourism destination.

Overall, addressing these challenges is essential for the sustainable development of the Nepalese tourism
industry. The government, private sector, and civil society must work together to overcome these challenges and
develop a thriving and sustainable tourism industry in Nepal

Needs and types for economic analysis in the tourism industry

Economic analysis is a crucial tool for understanding and evaluating the economic impacts of tourism, identifying
opportunities for growth and development, and guiding policy decisions. There are several needs and types of
economic analysis that are relevant to the tourism industry, including:

1. Economic impact analysis: This type of analysis measures the direct and indirect economic effects of
tourism on a destination. It can provide valuable insights into the contribution of tourism to GDP, employment,
and tax revenues, and help identify the sectors and activities that benefit the most from tourism. This type of
analysis is often used by policymakers, destination managers, and tourism businesses to guide planning and
development decisions.

2. Cost-benefit analysis: Cost-benefit analysis is a tool used to evaluate the costs and benefits of tourism-
related projects, such as infrastructure development or marketing campaigns. This type of analysis can help
decision-makers to identify the most cost-effective investments and to prioritize tourism projects that will have
the greatest positive impact on the local economy.

3. Market analysis: Market analysis is used to evaluate the demand for tourism products and services,
identify market trends, and guide marketing and promotional efforts. This type of analysis can help tourism
businesses to understand their target audience and to develop products and services that meet their needs.

4. Pricing analysis: Pricing analysis is used to evaluate optimal pricing strategies for tourism products and
services. This type of analysis can help businesses to maximize revenues and profits while remaining competitive
in the market.

5. Environmental impact analysis: Environmental impact analysis is used to evaluate the environmental
impacts of tourism activities, such as pollution or habitat destruction. This type of analysis can help policymakers,
destination managers, and tourism businesses to identify sustainable tourism practices and to guide policy
decisions related to environmental protection.

6. Competitive Analysis: Competitive analysis is used to evaluate the strengths and weaknesses of a
destination compared to its competitors. This type of analysis can help destination managers and tourism
businesses to identify opportunities for growth and development, and to develop strategies to remain
competitive in the market.

Overall, economic analysis is an essential tool for understanding and evaluating the economic impacts of tourism,
guiding policy decisions, and ensuring the sustainable development of the tourism industry. By understanding the
needs and types of economic analysis relevant to the tourism industry, stakeholders can make informed decisions
and support the long-term success of the industry.