SET 1

Q1 ) Answer In Book

Q2 ) Law of Supply & demand are basics of Psychological Law

Ans - Concept - Then Chapter No 4 Demand full & Law of Supply with
Diagram

* Concept - this Thought Came by Alfred Marshall. These laws are based
on the Notion of Economic Rationalty. Which is Basically an acceptable
Proportion in Human Psychology. This is more could be consumed if it
price falls and more could be supplied if its Price Rises.

* Demand Defination - Demand is an economic principle referring to a

consumer's desire to purchase goods and services and willingness to pay
a price for a specific good or service.

Examples of the Law of Supply

 Corn crops are very plentiful over the course of the year and
there is more corn than people would normally buy. To get rid of
the excess supply, farmers need to lower the price of corn and
thus the price is driven down for everyone.
 There is a drought and very few strawberries are available.
More people want the strawberries than there are berries
available. The price of strawberries increases dramatically.
 A huge wave of new, unskilled workers come to a city and all
of the workers are willing to take jobs at low wages. Because
there are more workers than there are available jobs, the excess
supply of workers drives wages downward.

Examples of the Law of Demand

 A popular artist dies and, thus, he obviously will be producing
no more art. Demand for his art increases substantially as people
want to purchase the few pieces that exist.
 A cultural fad item that was all-the-rage for a period of time
falls out of favor and is no longer "cool." Demand for the item
falls dramatically as it is no longer the must-have item of the
season.
  A new restaurant opens up in town and gets great reviews.
There are only 12 tables in the restaurant but everyone wants to
get a reservation. Demand for the reservations goes up.

How the Law of Supply and Demand Works

 A company sets the price of its product at $10.00. No one
wants the product, so the price is lowered to $9.00. Demand for
the product increases at the new lower price point and the
company begins to make money and a profit.
 The company could lower the price to $5.00 to increase
demand even more, but the increase in the number of people
buying the product would not make up money lost when the price
point was lowered from $9.00 to $5.00. The company leaves the
price set at $9.00 because that is the point at which supply and
demand are in equilibrium. Raising the price would reduce
demand and make the company less profitable, while lowering
the price would not increase demand by enough to make up the
money lost.
These are examples of how the law of supply and demand works in
the real world.

* Types of Demand - )

1 ) Individual Demand and Market Demand: The

individual demand refers to the demand for goods and
services by the single consumer, whereas the market
demand is the demand for a product by all the consumers
who buy that product. Thus, the market demand is the
aggregate of the individual demand.

2 .Total Market Demand and Market Segment Demand: The

total market demand refers to the aggregate demand for a product
by all the consumers in the market who purchase a specific kind of a
product. Further, this aggregate demand can be sub-divided into the
segments on the basis of geographical areas, price sensitivity,
customer size, age, sex, etc. are called as the market segment
demand.

1. Derived Demand and Direct Demand: When the

demand for a product/outcome is associated with the demand for
another product/outcome is called as the derived demand or
induced demand. Derived demand is a term in economics that describes
the demand for a certain good or service resulting from a demand for
related, necessary goods or services. For example, the demand for large-
 screen televisions creates a derived demand for home theater products
such as audio speakers, amplifiers, and installation services.

Industry Demand and Company Demand: Refers to the

classification of demand on the basis of market. The demand
for the products of an organization at given price over a point
of time is known as organization demand. For example, the
demand for Toyota cars is organization demand. The sum total
of demand for products of all organizations in a particular
industry is known as industry demand.
For example, the demand for cars of various brands, such as
Toyota, Maruti Suzuki, Tata, and Hyundai, in India constitutes
the industry’ demand. The distinction between organization
demand and industry demand is not so useful in a highly
competitive market.
This is due to the fact that in a highly competitive market,
organizations have insignificant market share. Therefore, the
demand for an organization’s product is of no importance.
However, an organization can forecast the demand for its
products only by analyzing the industry demand.
2. Short-Run Demand and Long-Run Demand: The short
term demand is more elastic which means that the changes in
price or income are reflected immediately on the quantity
demanded. Whereas, the long run demand is inelastic, which
shows that demand for commodity exists as a result of
adjustments following changes in pricing, promotional strategies,
consumption patterns, etc.
3. Price Demand: The demand is often studied in parlance to
price, and is therefore called as a price demand. The price
demand means the amount of commodity a person is willing to
purchase at a given price. While studying the demand, we often
assume that the other factors such as income of the consumer,
their tastes, and preferences, the prices of other related goods
remain unchanged. There is a negative relationship between the
price and demand Viz. As the price increases the demand
decreases and as the price decreases the demand increases.
4. Income Demand: The income demand refers to the
willingness of an individual to buy a certain quantity at a given
income level. Here the price of the product, customer’s tastes
and preferences and the price of the related goods are expected
to remain unchanged. There is a positive relationship between
 the income and demand. As the income increases the demand for
the commodity also increases and vice-versa.
5. Cross Demand: It is one of the important types of demand
wherein the demand for a commodity depends not on its own
price, but on the price of other related products is called as the
cross demand. Such as with the increase in the price of coffee the
consumption of tea increases, since tea and coffee
are substitutes to each other. Also, when the price of cars
increases the demand for petrol decreases, as the car and petrol
are complimentary to each other.

These are some of the important types of demand that the firms
must cater to before deciding on the price and other factors
related to their products.

* Demand & Price Relation

According to law of demand “price is inversely proportional to demand”. This means that
when the price of a good increases, demand for that good decreases and vice versa.

The extent of change in demand due to change in price is measured by elasticity of

demand.

This law is subject to some conditions and some exceptions to law of demand are

 Giffen goods
 Precious goods
 When the consumer judge the quality by price
In all above cases there is a positive relationship between price of a good and it’s
demand. That is when the price increases the demand of the good also increases and vice
versa.

* Funtion of supply Missing

* Exception law of Demand

Giffen Goods

Giffen Goods is a concept that was introduced by

Sir Robert Giffen. These goods are goods that are
inferior in comparison to luxury goods. However,
the unique characteristic of Giffen goods is that
as its price increases, the demand also increases.
And this feature is what makes it an exception to
the law of demand.
The Irish Potato Famine is a classic example of
the Giffen goods concept. Potato is a staple in the
Irish diet. During the potato famine, when the
price of potatoes increased, people spent less on
luxury foods such as meat and bought more
potatoes to stick to their diet. So as the price of
potatoes increased, so did the demand, which is a
complete reversal of the law of demand.

Veblen Goods

The second exception to the law of demand is the

concept of Veblen goods. Veblen Goods is a
concept that is named after the economist
Thorstein Veblen, who introduced the theory of
“conspicuous consumption“. According to Veblen,
there are certain goods that become more
valuable as their price increases. If a product is
expensive, then its value and utility are perceived
to be more, and hence the demand for that
product increases.

And this happens mostly with precious metals and

stones such as gold and diamonds and luxury cars
such as Rolls-Royce. As the price of these goods
increases, their demand also increases because
these products then become a status symbol.

The expectation of Price Change

In addition to Giffen and Veblen goods, another

exception to the law of demand is the expectation
of price change. There are times when the price
of a product increases and market conditions are
such that the product may get more expensive. In
such cases, consumers may buy more of these
products before the price increases any further.
Consequently, when the price drops or may be
expected to drop further, consumers might
postpone the purchase to avail the benefits of a
lower price.

For instance, in recent times, the price of onions

had increased to quite an extent. Consumers
started buying and storing more onions fearing
further price rise, which resulted in increased
demand.

There are also times when consumers may buy

and store commodities due to a fear of shortage.
Therefore, even if the price of a product
increases, its associated demand may also
increase as the product may be taken off the shelf
or it might cease to exist in the market.

* Law of Supply

The law of supply is the microeconomic law that states that, all

other factors being equal, as the price of a good or service
increases, the quantity of goods or services that suppliers offer
will increase, and vice versa. Thelaw of supply says that as the
price of an item goes up, suppliers will attempt to maximize
their profits by increasing the quantity offered for sale.

Q3 - Sums ask Sir

Q4 - Explain in detail Money Cost, Real cost, Oppourtunity Cost, Expict

Cost, Implict Cost , Economics of Scale & Scope, what is cost,
Replacment Cost ?

Ans - Cost of Production: Money, Real and

Opportunity Costs!
The concept of cost of production is very significant in
economics because it influences the production, supply, sales
and the determination of price in the market.
It means cost of production is a function of total costs in
relation to price to guide the firm in deciding whether to
expand or contract output and also whether to leave or enter
an industry.

. Money Costs:
Money cost is also known as the nominal cost. It is nothing but
the expenses incurred by a firm to produce a commodity. For
instance, the cost of producing 200 chairs is Rs. 10000, and
then it will be called the money cost of producing 200 chairs.
Therefore, money costs include the following
expenses:
(i) Depreciation and obsolescence charges.
(ii) Power fuel charges.
(iii) Wages and salaries.
(iv) Cost of machinery, raw material etc.
(v) Expenses on advertising and publicity,
(vi) Interest on capital.
(vii) Expenses on electricity.
(viii) Insurance charges.

(ix) Transport costs.

(x) Packing charges.
(xi) All types of taxes viz; property tax, license fees, excise
duty.
(xii) Rent on land.
Therefore, money costs relate to money outlays by a firm on
factors of production which enable the firm to produce and
sell a product. Every producer is interested only in nominal
costs. Thus, in the words of Prof. Hanson, “The money cost of
producing a certain output of a commodity is the sum of all the
payments to the factors of production engaged in the
production of that commodity.”
Moreover, total costs of a firm include both:
(i) Explicit as well as
(ii) Implicit costs.
(a) Explicit Costs:
Explicit costs refer to all those expenses made by a firm to buy
goods directly. They include, payments for raw material, taxes
and depreciation charges, transportation, power, high fuel,
advertising and so on.
According to Leftwitch, “Explicit costs are those cash
payments which firms make to outsiders for their services and
goods.” He has given stress on the word explicit and it may be
called the approach used by the accountant of the firm. The
payments are explicit-clear-cut, paid to agents (owners) of
factors of production. A contract fixes the rate at which the
payments are to be made.
The examples are clear to see. These are wages to workers,
money paid for raw materials and semi-finished goods,
various fixed costs etc. The producer takes money out of his
pocket and pays to others. These are payments to attract
resources from other uses to the use made by a particular
producer. They are also known as Accounting Costs or
Historical Costs.
(b) Implicit Costs:
Implicit costs are the imputed value of the entrepreneur’s own
resources and Services. In fact, these costs refer to the implied
or unnoticed costs. They include the interest on his own
capital, rent on his land, wages of his own labour etc.
Moreover, these costs go to the entrepreneur himself and are
not recorded in practice. In the words of Leftwitch, “Implicit
costs are the costs of self-owned, self employed resources.”
In short we can say that:
Economic costs = Explicit costs – Implicit costs
There are some resources which are “self-owned” and are self-
employed”; the cost is in the shape of income given up rather
than payment made. The income forgone is income which
could have been earned by allowing the resources to be used
by somebody else and the ‘cost’ is at the rate at which income
could be earned in the next best use.
Suppose a producer uses his own money in his own business.
He does not pay any interest to himself, but he could have
earned some money if he had given the money as loan to
someone else. Thus for personal capital, self-employed rate of
interest would be imputed at the rate at which it could earn
interest somewhere else. To make the approach still more
realistic, the modern economists prefer to add normal profit to
implicit and explicit costs of production.

2. Real Costs:
Another concept of costs is the real costs. It is a philosophical
concept which refers to all those efforts and sacrifices
undergone by various members of the society to produce a
commodity. Like monetary costs, real costs do not tell us
anything what lies behind these costs. Prof. Marshall has
called these costs as the “Social Costs of Production.”
According to Marshall, “Real costs are the exertion of all the
different kinds of labour that are directly or indirectly involved
in making it together with the abstinence rather than the
waiting required for saving the capital used in making it, all
these efforts and sacrifices together will be called the real cost
of production of the commodity.”
In this way, real cost means the trouble, sacrifice of factors in
producing a commodity. Though, this concept gained
momentum for sometime it has been relegated to the
background in modern times due to its impracticability.
3. Opportunity Costs:
The concept of opportunity costs was first systematically
developed by Austrian School of Economics. Later on, it was
popularized by American economist named Davenport. It is
also known as the alternative cost or transfer cost. In simple
words, opportunity cost is the cost of production of any unit of
commodity for the value of factors of production used in
producing other unit.
For instance, a farmer can grow both the potatoes as well as
garlic on a farm. On a farm of two hectares, the farmer grows
only potatoes and foregoes the production of garlic. Suppose,
the price of the quantity of potatoes is Rs. 5000, the
opportunity cost of producing the garlic will be Rs. 5000. In
this way, the price of garlic which he has to forego to produce
is called the opportunity cost of potatoes.
Here, one thing is worth-mentioning that if a factor of
production has no alternative use; in that case its opportunity
cost will be zero. According to Prof. Benham, “The opportunity
cost of anything is the next best alternative that could be
produced instead by the same factors or by an equivalent
group of factors, costing the same amount of money.”
* Economics of Scope and Economics of Scale Differ

Economies of Scope
The theory of an economy of scope states the average total cost of a company's
production decreases when there is an increasing variety of goods produced.
Economy of scope gives a cost advantage to a company when it produces a
complementary range of products while focusing on its core
competencies. Economy of scope is an easily misunderstood concept, especially since
it appears to run counter to the concepts of specialization and scale economies. One
simple way to think about economy of scope is to imagine that it's cheaper for two
products to share the same resource inputs (if possible) than for each of them to have
separate inputs.

An easy way to illustrate economy of scope is with rail transportation. A single train

can carry both passengers and freight more cheaply than having separate trains, one
for passengers and another for freight. In this case, joint production reduces total input
costs. (In economic terminology, this means that one input factor's net marginal
benefit increases after product diversification.)

For example, company ABC is the leading desktop computer producer in the industry.
Company ABC wants to increase its product line and remodels its manufacturing
building to produce a variety of electronic devices, such as laptops, tablets and
phones. Since the cost of operating the manufacturing building is spread out across a
variety of products, the average total cost of production decreases. The costs of
producing each electronic device in another building would be greater than just using
a single manufacturing building to produce multiple products.

Real-world examples of the economy of scope can be seen in mergers and

acquisitions (M&A), newly discovered uses of resource byproducts (such as crude
petroleum) and when two producers agree to share the same factors of production. 

Volume 75%
 

Economies of Scale
Conversely, an economy of scale is the cost advantage a
company has with the increased output of a good or service.
There is an inverse relationship between the volume of output
of goods and services and the fixed costs per unit to a
company.

For example, suppose company ABC, a seller of computer

processors, is considering purchasing processors in bulk. The
producer of the computer processors, company DEF, quotes a
price of $10,000 for 100 processors. However, if company ABC
buys 500 computer processors, the producer quotes a price of
$37,500. If company ABC decides to purchase 100 processors
from company DEF, ABC's per unit cost is $100. However, if
ABC purchases 500 processors, its per unit cost is $75.

In this example, the producer is passing on the cost advantage

of producing a larger number of computer processors onto
company ABC. This cost advantage arises because the fixed
cost of producing the processors has the same fixed cost
whether it produces 100 or 500 processors. Generally, when
the fixed costs are covered, the marginal cost of production for
each additional computer processor decreases. At lower
marginal costs, additional units represent increasing profit
margins. It offers companies the ability to drop prices if need
be, improving the competitiveness of their products. Large,
warehouse-style retailers such as Costco and Sam's Club
package and sell large items in bulk due in part to realized
economy of scale.

Although an economy of scale may seem beneficial to a

company, it has some limits. Marginal costs never decrease
perpetually. At some point, operations become too large to
keep experiencing economies of scale. This forces companies
to innovate, improve their working capital or remain at their
present optimal level of production. For example, if the
company that produces the computer processors surpasses its
optimal production point, the cost of each additional unit may
begin to increase instead of continuing to decrease.

* Replacment Cost
Definition: Replacement cost is the amount of money required to replace an
existing asset with an equally valued or similar asset at the current market
price. In other words, it is the cost of purchasing a substitute asset for the
current asset being used by a company.

Q 5 ) Answer needs to be Send

Q 6 ) Monopoly & Weather have one thing in Common. You may complain
about it and you cant do much about it. Elaborate
Ans - Basic Impapct of this question is that in a market economy some firm
may tend to become more dominant in the same industry due to
A - Some Being better at being Inovative
Example - Paytm ( Wite few lines on Paytm )
B - Some being more Luckier
Example - Paytm during demonitization
C- Some can also Imply unfair Methids to beat Competion
Example - Shared pawar case during Election

As a cumulative Impact of the above dominance may develop or may not

develop economic filed sooner or no sooner or later. Heance the Proporation
monopoly is sometimes what like is Somewhat who.

Q 7 ) What are main Objective of Monetary Policy

Ans - Monetary Policy - Monetary policy is the policy adopted by
the monetary authority of a country that controls either the interest rate
payable on very short-term borrowing or the money supply, often targeting
inflation or the interest rate to ensure price stability and general trust in the
currency.

Montary Polciy do
The goals of monetary policy are to promote maximum employment, stable
prices and moderate long-term interest rates. By implementing
effective monetary policy, the Fed can maintain stable prices, thereby
supporting conditions for long-term economic growth and maximum
employment.

Significance -
Price Stabilty - Definition: Price stability is the stable level of prices in
the economy, which avoids long periods of inflation or deflation and
sustains the value of money over time. Price level stability is
important for savers.
Price level stability denotes that consumer spending is not affected
by inflation because consumers do not worry that the value of money
will change anytime soon. It is important to separate the increase in
the prices of individual goods or services from the increase in the
general price level.

In market economies, it is expected that individual prices will change

following the changes in demand and supply, but this doesn’t mean
that the general price level will change as well. Governments and
central banks set a target inflation rate up to 2% because such a low
inflation cannot affect the economic activity and the financial stability.
Furthermore, price level stability contributes to employment because
the increased demand for goods and services forces business to hire
more workers.

2 - Growth in Change -

3 - Liquidity Managment
- Rapo rate - Price level stability denotes that consumer spending is
not affected by inflation because consumers do not worry that the
value of money will change anytime soon. It is important to separate
the increase in the prices of individual goods or services from the
increase in the general price level.

- Reverse Rapo RATE - A Reverse Repo Rate is a rate that RBI

offers to banks when they deposit their surplus cash with RBI for
shorter periods. In other words, it is the rate at which the RBI
borrows from the commercial banks. When banks have excess funds
but don’t have any other lending or investment options, they
deposit/lend the surplus funds with the RBI. This way, banks can
raise additional interest from their funds.
The reverse repo rate has an inverse relationship with the money
supply in the economy. During high levels of inflation in the
economy, the RBI increases the reverse repo. It encourages the
banks to park more funds with the RBI to earn higher returns on idle
cash. As a result, every excess rupee is put to use in the banking
system. Banks are left with lesser funds to extend loans, curbing the
purchasing power of individuals.

- Curent Rapo rate -

RBI keeps changing the repo rate and the reverse repo rate
according to changing macroeconomic factors. Whenever RBI
modifies the rates, it impacts all sectors of the economy; albeit in
different ways. Some segments gain as a result of the rate hike
while others may suffer losses. RBI recently cut down the repo rate
by 25 basis points to 5.75% from 6%. In the same line, the reverse
repo rate was also reduced by 25 basis points to 5.5% from 5.75%.
Changes in the repo rates can directly impact big-ticket loans such
as home loans. An increase/decrease in the repo rates can result in
banks and financial institutions revising their MCLR proportionately.
The Marginal Cost of Funds Based Lending Rate or the MCLR is the
benchmark rate below which a bank/financial institution cannot
lend.
A decline in the repo rate can lead to the banks bringing down their
lending rate. This can prove to be beneficial for retail loan
borrowers. However, to bring down the loan EMIs, the lender has to
reduce its base lending rate. As per the RBI guidelines,
banks/financial institutions are required to transfer the benefit of
interest rate cuts to consumers as soon as possible.
- SLR - In the definition, the liquid assets are the assets readily
convertible into cash, includes government bonds, or government
approved securities, gold, and cash reserve. The objective of
statutory liquidity ratio is to prevent the commercial banks from
liquidating their liquid assets during the time when CRR is raised.

The statutory liquidity ratio is determined by the central bank as

the percentage of total demand and time liabilities. The time
liabilities refer to the liabilities of a bank which is to be paid to the
customer anytime the demand arises and are the deposits of the
customers which are to be paid on demand.

The statutory liquidity ratio is determined and maintained by the

central bank to control the bank credit, ensure the solvency
of commercial banks and compel banks to invest in the
government securities.  By changing the SLR, the flow of bank
credit in the economy can be increased or decreased. Such as,
when the central bank decides to curb the bank credit so as to
control the inflation will raise the SLR. On the contrary, when the
economy faces recession, and the central bank decides to
increase the bank credit will cut down the SLR.

A penalty at a rate of 3% per annum above the bank rate is

imposed if any commercial bank fails to maintain the statutory
liquidity ratio. Further, a penalty at a rate of 5% per
annum above the bank rate is imposed on a defaulter bank if
it continues to default on the next working day. The central
bank imposes such a restriction on the commercial banks so that
the funds are readily made available to the customers on their
demand.

Open Market Operations - 1. Open market operations is the sale and

purchase of government securities and treasury bills by RBI or the central
bank of the country.

2. The objective of OMO is to regulate the money supply in the economy.

3. When the RBI wants to increase the money supply in the economy, it
purchases the government securities from the market and it sells government
securities to suck out liquidity from the system.

4. RBI carries out the OMO through commercial banks and does not directly
deal with the public.

5. OMO is one of the tools that RBI uses to smoothen the liquidity conditions
through the year and minimise its impact on the interest rate and inflation rate
levels.

- Forex Manegment & exchnage rate

- Forex management is planning of foreign exchange, reserving, controlling,
hedging and maximizes the consolidated earnings. It requires its participants
to enter the market to deliver and accept currencies at fluctuating exchange
rates.

Q 8 ) What is risk & its Nature

Ans - Risk may be defind as a degree of variabilty associated with out comes
flowing formula given stratergy.
Risk - Business risk is the possibilities a company will have lower than
anticipated profits or experience a loss rather than taking a profit. Business
risk is influenced by numerous factors, including sales volume, per-unit price,
input costs, competition, and the overall economic climate and government
regulations.

Types of Risk

1. Strategic Risk
Everyone knows that a successful business needs a comprehensive,
well-thought-out business plan. But it’s also a fact of life that things
change, and your best-laid plans can sometimes come to look very
outdated, very quickly.
This is strategic risk. It’s the risk that your company’s strategy
becomes less effective and your company struggles to reach its
goals as a result. It could be due to technological changes, a
powerful new competitor entering the market, shifts in customer
demand, spikes in the costs of raw materials, or any number of other
large-scale changes.

History is littered with examples of companies that faced strategic

risk. Some managed to adapt successfully; others didn’t.

A classic example is Kodak, which had such a dominant position in

the film photography market that when one of its own engineers
invented a digital camera in 1975, it saw the innovation as a threat to
its core business model, and failed to develop it.

It’s easy to say with hindsight, of course, but if Kodak had analyzed
the strategic risk more carefully, it would have concluded that
someone else would start producing digital cameras eventually, so it
was better for Kodak to cannibalize its own business than for another
company to do it.

Failure to adapt to a strategic risk led to bankruptcy for Kodak. It’s

now emerged from bankruptcy as a much smaller company focusing
on corporate imaging solutions, but if it had made that shift sooner, it
could have preserved its dominance.

Facing a strategic risk doesn’t have to be disastrous, however. Think

of Xerox, which became synonymous with a single, hugely
successful product, the Xerox photocopier. The development of laser
printing was a strategic risk to Xerox’s position, but unlike Kodak, it
was able to adapt to the new technology and change its business
model. Laser printing became a multi-billion-dollar business line for
Xerox, and the company survived the strategic risk.

2. Compliance Risk
Are you complying with all the necessary laws and regulations that
apply to your business?
Of course you are (I hope!). But laws change all the time, and there’s
always a risk that you’ll face additional regulations in the future. And
as your own business expands, you might find yourself needing to
comply with new rules that didn’t apply to you before.

For example, let’s say you run an organic farm in California, and sell
your products in grocery stores across the U.S. Things are going so
well that you decide to expand to Europe and begin selling there.

That’s great, but you’re also incurring significant compliance risk.

European countries have their own food safety rules, labeling rules,
and a whole lot more. And if you set up a European subsidiary to
handle it all, you’ll need to comply with local accounting and tax rules.
Meeting all those extra regulatory requirements could end up being a
significant cost for your business.

Even if your business doesn’t expand geographically, you can still

incur new compliance risk just by expanding your product line. Let’s
say your California farm starts producing wine in addition to food.
Selling alcohol opens you up to a whole raft of new, potentially costly
regulations.

And finally, even if your business remains unchanged, you could get
hit with new rules at any time. Perhaps a new data protection rule
requires you to beef up your website’s security, for example. Or
employee safety regulations mean you need to invest in new, safer
equipment in your factory. Or perhaps you’ve unwittingly been
breaking a rule, and have to pay a fine. All of these things involve
costs, and present a compliance risk to your business.

In extreme cases, a compliance risk can also affect your business’s

future, becoming a strategic risk too. Think of tobacco companies
facing new advertising restrictions, for example, or the late-1990s
online music-sharing services that were sued for copyright
infringement and were unable to stay in business. We’re breaking
these risks into different categories, but they often overlap.

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3. Operational Risk
So far, we’ve been looking at risks stemming from external events.
But your own company is also a source of risk.

Operational risk refers to an unexpected failure in your company’s

day-to-day operations. It could be a technical failure, like a server
outage, or it could be caused by your people or processes.

In some cases, operational risk has more than one cause. For
example, consider the risk that one of your employees writes the
wrong amount on a check, paying out $100,000 instead of $10,000
from your account.

That’s a “people” failure, but also a “process” failure. It could have

been prevented by having a more secure payment process, for
example having a second member of staff authorize every major
payment, or using an electronic system that would flag unusual
amounts for review.

In some cases, operational risk can also stem from events outside
your control, such as a natural disaster, or a power cut, or a problem
with your website host.  Anything that interrupts your company’s core
operations comes under the category of operational risk.

While the events themselves can seem quite small compared with
the large strategic risks we talked about earlier, operational risks can
still have a big impact on your company. Not only is there the cost of
fixing the problem, but operational issues can also prevent customer
orders from being delivered or make it impossible to contact you,
resulting in a loss of revenue and damage to your reputation.

4. Financial Risk
Most categories of risk have a financial impact, in terms of extra
costs or lost revenue. But the category of financial risk refers
specifically to the money flowing in and out of your business, and the
possibility of a sudden financial loss.

For example, let’s say that a large proportion of your revenue comes
from a single large client, and you extend 60 days credit to that client
(for more on extending credit and dealing with cash flow, see our
earlier cash flow tutorial).

In that case, you have a significant financial risk. If that customer is

unable to pay, or delays payment for whatever reason, then your
business is in big trouble.

Having a lot of debt also increases your financial risk, particularly if a

lot of it is short-term debt that’s due in the near future. And what if
interest rates suddenly go up, and instead of paying 8% on the loan,
you’re now paying 15%? That’s a big extra cost for your business,
and so it’s counted as a financial risk.

Financial risk is increased when you do business internationally. Let’s

go back to that example of the California farm selling its products in
Europe. When it makes sales in France or Germany, its revenue
comes in euros, and its UK sales come in pounds. The exchange
rates are always fluctuating, meaning that the amount the company
receives in dollars will change. The company could make more sales
next month, for example, but receive less money in dollars. That’s a
big financial risk to take into account.

5. Reputational Risk
There are many different kinds of business, but they all have one
thing in common: no matter which industry you’re in, your reputation
is everything.

If your reputation is damaged, you’ll see an immediate loss of

revenue, as customers become wary of doing business with you. But
there are other effects, too. Your employees may get demoralized
and even decide to leave. You may find it hard to hire good
replacements, as potential candidates have heard about your bad
reputation and don’t want to join your firm. Suppliers may start to
offer you less favorable terms. Advertisers, sponsors or other
partners may decide that they no longer want to be associated with
you.

Reputational risk can take the form of a major lawsuit, an

embarrassing product recall, negative publicity about you or your
staff, or high-profile criticism of your products or services. And these
days, it doesn’t even take a major event to cause reputational
damage; it could be a slow death by a thousand negative tweets and
online product reviews.

- Impact of Technolgy on Business

Impact on Operating Costs

Small business owners can use technology to reduce business costs. Basic enterprise
software enables a firm to automate back office functions, such as record keeping,
accounting and payroll. Mobile tech allows home offices and field reps to interact in real
time. For example, field reps can use mobile apps to record their daily expenses as they
incur them and have them sync automatically with accounting software back at the office.

Increased Employee Productivity

Small businesses can increase their employees' productivity through the use of
technology. Computer programs and business software usually allow employees to
process more information than manual methods. Business owners can also implement
business technology to reduce the amount of human labor in business functions. This
allows small businesses to avoid paying labor costs along with employee benefits.

Even fundamental business tech can have a major impact on employee performance.
For example, by placing employee-performance appraisal information in an online
framework, supervisors can easily create measurable goals for their employees to reach
and sustain company objectives. Business owners may also choose to expand
operations using technology rather than employees if the technology will provide better
production output.

Broaden Customer Bases

Technology allows small businesses to reach new economic markets. Rather than just
selling consumer goods or services in the local market, small businesses can reach
regional, national and international markets. Retail websites are the most common way
small businesses sell products in several different economic markets.

Websites represent a low-cost option that consumers can access 24/7 when needing to
purchase goods or services. Small business owners can also use internet advertising to
reach new markets and customers through carefully placed web banners or ads.

Collaboration and Outsourcing

Business technology allows companies to outsource business functions to other
businesses in the national and international business environment. Outsourcing can help
companies lower costs and focus on completing the business function they do best.
Technical support and customer service are two common function companies outsource.

Small business owners may consider outsourcing some operations if they do not have
the proper facilities or available manpower. Outsourcing technology also allows
businesses to outsource function to the least expensive areas possible, including foreign
countries.

- Break even Point & its Economic Significane - Fixed and Variable Costs

Fixed costs represent a company’s costs that do not increase because of an increase in
production or sales activity. For example, the rent a company pays for a warehouse does
not increase if the company sells more of its products than in the previous month.
Common fixed costs in a company include interest paid on debt, insurance expenses,
and salaries paid to full-time workers. Variable costs increase as the of total dollar
amount or unit number of sales within a company increase. Examples of variable costs
include sales commissions, shipping expenses, cost of goods sold, and wages of part-
time employees.

Calculating the Contribution Margin

The contribution margin represents the amount of money earned before the deduction of
fixed costs. The contribution margin essentially shows the financial resources of a
company to cover its fixed costs. The equation to calculate the contribution margin is
revenue minus variable expenses. For example, a company earned $500,000 in revenue
and variable costs equal $100,000. The company’s contribution margin equals $500,000
minus $100,000, or $400,000. You can also calculate the contribution margin ratio to
express the information in percentage terms. The formula for the contribution margin ratio
is contribution margin divided by revenue. Continuing with the previous example, the
contribution ratio equals $400,000 divided by $500,000, or 80 percent.

Determining the Break-Even Point

The break-even point determines the amount of sales needed to achieve a net income of
zero. It shows the point when a company’s revenue equals total fixed costs plus variable
costs, and its fixed costs equal the contribution margin. To calculate the break-even point
in sales dollars, you must divide total fixed costs by the contribution margin ratio. For
example, the break-even point is $1,000,000 for a company with $500,000 in fixed costs
and a contribution ratio of 50 percent. This means that if the company earns $1,000,000
in revenue, it can cover its expenses but does not earn a profit.

Desired Profit

Another way to use break-even analysis is to determine the level of sales you need to
achieve a desired profit. To determine your required sales, add the targeted income plus
fixed costs, and divide the total by the contribution margin. For example, your company
desires to earn $500,000 in profit, your fixed costs equal $100,000, and your contribution
margin equals 40 percent. Add $500,000 to $100,000, and divide the result, which is
$600,000, by 40 percent. To earn $500,000 in profit, your required sales in dollars must
equal $1,500,000 .

Q 9 ) Explain what is fiscal Policy & How fiscal policy plays an Impportant role in the
development of the country. Also explain few Government schemes which as Impacted
the life of Common man in our country.

Ans - Fiscal Policy

Fiscal Policy Work in India - Fiscal policy helps to accelerate the rate

of economic growth by raising the rate of investment in public as well as
private sectors. ... In short, investment in basic and capital goods industries
and in social overheads is the pillars of economic development in an
underdeveloped economy.

 Fiscal policy is the means by which a government adjusts

its spending levels and tax rates to monitor and influence
a nation's economy.
 It is the sister strategy to monetary policy through which
a central bank influences a nation's money supply.
 Using a mix of monetary and fiscal policies, governments
can control economic phenomena.

Role of Fiscal Policy in Development -

It is illustrated by the following points:
1. To Mobilize Resources:
The foremost aim of fiscal policy in underdeveloped countries
is to mobilize resources in the private and public sectors.
Generally, the national income and per capita income is very
low due to low rate of savings. Therefore, the governments of
such countries through forced savings pushes the rate of
investment and capital formation which in turn accelerates the
rate of economic development.
It also undertakes the policy of planned investment in the
public sector. Private investments have the favourable effect of
increasing investment, the curtailment of conspicuous
consumption and investment in unproductive channels can
help to check the inflationary trend in the economy. Moreover,
these countries face the problem of foreign capital. Thus the
remedy lies in increasing the incremental saving ratio, the
marginal propensity to save through public finance, taxation
and forced loans.
To some extent, progressive taxation, heavy duty on luxury
imports, ban on the manufacture of luxury and semi-luxury
goods are other measures which help to mobilize the
resources, Therefore, progressive taxation on windfall gains,
on unearned incomes on capital gains, on expenditure and real
estates etc. can go a long way in equitable distribution of
wealth.
2. To Accelerate the Rate of Growth:
ADVERTISEMENTS:

Fiscal policy helps to accelerate the rate of economic growth by

raising the rate of investment in public as well as private
sectors. Therefore, various tools of fiscal policy as taxation,
public borrowing, deficit financing and surpluses of public
enterprises should be used in a combined manner so that they
may not adversely affect the consumption, production and
distribution of wealth.
In order to achieve balanced growth in different sectors of the
economy, according to Prof. J. Chelliah, the most fruitful line
of advance lies along the path of a balanced development of
agriculture and industry. In short, investment in basic and
capital goods industries and in social overheads is the pillars
of economic development in an underdeveloped economy.
Thus, top priority to such investment should be given to
accelerate the all round growth of an economy.
3. To Encourage Socially Optimal Investment:
In underdeveloped countries, fiscal policy encourages the
investment into those productive channels which are
considered socially and economically desirable. This means
optimal investment which promotes economic development
and avoids wasteful and unproductive investment.
In short, aim of the fiscal policy should be to make investment
on social and economic overheads such as transportation,
communication, technical training, education, health and soil
conservation. They tend to raise productivity and widen the
market to enjoy external economies. At the same time,
unproductive investment is checked and diverted towards
productive and socially desirable channels.
4. Inducement to Investment and Capital Formation:
Fiscal policy plays crucial role in underdeveloped countries by
making investment in strategic industries and services of
public utility on one side and induces investment in private
sector by giving assistance to new industries and introduces
modern techniques of production. Thus, investment on social
and economic overheads are helpful in increasing the social
marginal productivity and thereby raising the marginal
productivity of private investment and capital formation.
Here, optimum pattern of investment can also go a long way to
yield fruitful results of economic development.
Economic development is a most dynamic process which
involves changes in the size and quality of population, tastes,
knowledge and social institutions. Keeping all factors in mind,
if social marginal productivity in socially desirable projects is
low, fiscal policy should be framed to raise social marginal
productivity and to divert resources to that productive
channels where the social marginal productivity is the highest.
5. To Provide more Employment Opportunities:
Since in less developed countries, population grows at a very
fast rate, the aim of fiscal policy in such countries is to make
high doses of expenditures which are helpful to raise
employment opportunities. Generally under developed
economies suffer from unemployment.
The unemployment is of two types:
(I) Cyclical unemployment and
(II) Disguised unemployment.
(I) Cyclical Unemployment and Fiscal Policy:
Cyclical unemployment is caused by external factors in
underdeveloped countries. These countries mostly export their
raw materials. When demand for these raw materials falls due
to cyclical depression, then under developed countries also
have to face the problem of unemployment in the primary
industries. In order to remove this type of unemployment, the
government may increase public expenditure. But it is not
likely to have any favourable effect. As public expenditure
increases, the people may spend on imports or conspicuous
consumption.
Thus, expenditure on imports fails to generate employment in
the country. Expenditure on conspicuous consumption will
lead to rise in prices instead of increasing output and
employment. It is because production capacity in under-
developed countries is limited. It is not capable of meeting
rising demand. Thus, the objective of fiscal policy should be to
modernize and diversify the economy.
It implies that public investment should be directed towards
the setting up of new industries, promoting the growth of
private industries and developing agriculture. Besides, Govt.
should provide tax concessions, tax holidays, bonus and
subsidies etc. This will help to reduce the problem of
unemployment.
(II) Disguised Unemployment and Fiscal Policy:
Unemployment in under-developed countries is disguised in
nature. It is found in agricultural sector. It implies that more
number of people are engaged in production activity than are
actually needed. To remove this kind of unemployment, it is
necessary to increase the rate of capital formation. Thus, the
main objective of fiscal policy in under-developed countries
should be to foster the maximum rate of capital formation
without inflation. Stability is the pre-requisite of development.
This will help to raise the rate of savings. By increasing the
ratio of saving to income, the economy would not only be able
to reduce unemployment but also maintain economic stability
in the long run. According to Raja J.Chelliah, “The main goal
of fiscal policy in an underdeveloped country may be the
promotion of the highest possible rate of capital formation
without inflation. Stability is necessary for progress but the
maintenance of stability does not require a fall in the rate of
saving…………..” Therefore, the fiscal operations of the
government for promoting the economic development of less
developed countries are as of an investor, as a stabilizer, as a
saver and as an income redistributor.
6. Promotion of Economic Stability:
Still another role played by the fiscal policy in developing
countries is of maintaining reasonable internal and external
economic stability. Generally, a developing country is prone to
the efforts of international cyclical fluctuations. Such countries
mainly export primary products and import manufactured and
capital goods. However, in order to minimize the effects of
international cyclical fluctuations, fiscal policy should be
viewed from a longer perspective.
It must aim at the diversification of all sectors of the economy.
For bringing balanced growth and reducing the effects of
cyclical fluctuations, a contra-cyclical fiscal policy of deficit
budgeting in depression and surplus budgeting in inflation are
most suitable measures.
In a recession, public works programme through deficit
financing brings fruitful results. No doubt, injection of
additional purchasing power would tend to inflationary
pressures which can be controlled with preventive measures.
On the contrary, such a policy should be supplemented by
appropriate monetary measures.
7. To Check Inflationary Tendencies:
Inflationary tendencies is one of the main problems of
developing countries as these countries make heavy doses of
investment for their development activities. Thus, there is
always an imbalance between the demand for and the supply
of real resources.
With additional injection of purchasing power, the demand
rises and supply remains inelastic on account of its structural
rigidities, market imperfections and other bottlenecks which
in turn lead to inflationary pressures on the economy.
Aggregate demand as a result of rise in the income of the
people exceeds the aggregate supply. Capital goods and
consumption goods fail to keep pace with the rising income.
Fiscal policy, therefore, can take several steps to
control inflationary forces in the economy. They are:
(i) Reducing the purchasing power of the people through
Compulsory Deposit Scheme
(ii) Mobilizing resources through public debt
(iii) Levying of Expenditure Tax
(iv) Imposing more taxes on rentier class
(v) Raising the rate of Capital Gains Tax
(vi) Encouraging the habit of saving among the people
(vii) Raising the percentage deduction of provident fund
(viii) Making of public investment in such production projects
as have short gestation period,
(ix) Encouraging more production
(x) Mobilizing more resources by way of public borrowing and
using the same in production projects.
8. National Income and Proper Distribution:
The importance of increasing national income and removing
inequalities of income and wealth can hardly be exaggerated.
According to Prof… Raja J. Chelliah, a mere increase in per
capita income does not necessarily lead to an increase in the
welfare of all sections of the people, unless an equitable
distribution is usually taken to mean a reduction in the
existing inequalities of income and wealth.
The existence of extreme inequalities in income and wealth
create social cleavages, lead to economic and political
instability and the biggest hindrance in the way of economic
development of an economy. As a result, few rich roll in wealth
and misuse their income on conspicuous consumption and
inventories, real estate, gold and speculation, while poor
masses grow under poverty and misery.
9. Subsidies in Consumption and Production:
Fiscal instruments are also used in under developed
economies to provide subsidized food and production inputs
to the poor people. Government programmes like public
distribution system, price support policy, procurement of food
grains, marketing facilities to the producers, input supply
schemes, etc. are all directed to help the poorer sections to
enable them to be more productive so that the income level is
raised. For example, in India, many of poverty alleviation
programmes like IRDP, NREP, RLEGP etc. have been directed
to improve the position of the poorer sections and to create
permanent community assets in order that the national and
per capita income can grow with the passage of time.
10. Reallocation of Resources:
Allocation of resources are not proper in the underdeveloped
countries. Much of the resources in private sector are directed
to the production of those goods which meet the need of richer
sections of society and yield higher profit. It is very important
that the fiscal tools are employed in such a way as to divert
resources from less useful production to more useful channels.
This can be done by various tax incentive measures and
government subsidy programmes.
11. Incentive to Production:
Increase in production and productivity can be influenced by
fiscal policy to a greater extent. Through grant of tax holiday
or tax concessions relating to output produced from desirable
lines of production, the industrial activity can be enhanced. On
the other hand, discriminatory fiscal policy against the output
on undesirable lines of business activity will help more
essential commodities to grow because the resources will be
released for their use in such production.
12. Balanced Growth:
Most of the underdeveloped countries suffer acutely from
regional imbalance in the matter of economic development.
Private sector in these countries normally concentrates its
production on those luxury goods which are consumed mostly
by richer sections who live in the urban areas. Hence,
backward areas will not be developed unless government
interferes into the decision making relating to industrial
location. By providing fiscal incentives to the private sector
and by setting up industries in the public sector in these
geographical areas, the government can achieve balanced
development of the country.
13. Reduction of Inequality:
Since inequality of income and wealth is vast in the
underdeveloped countries, fiscal policy has an important role
to play in reducing inequality. Taxation of income and
property at progressive rates, imposition of heavy taxes on
goods consumed by the rich and exemption from tax or tax
concession granted to commodities of mass consumption,
government expenditure on relief programmes, supply of
inputs for small industries and agricultural farms, provision of
essential commodities to the poor at subsidized prices, etc. are
the fiscal measures directed to the reduction of the gap
between poverty and prosperity. Hence, the role of fiscal
policy becomes significant to frame such policy to remove
these inequalities of income and direct these misused
resources into productive channels for economic development.
To conclude, the main objective of fiscal policy in
underdeveloped countries should be promoting capital
formation, raising national income, reducing disparities of
income and wealth, proper allocation of resources, controlling
inflation and achieving of full employment.
Limitations in U.D.C:
In under-developed countries, there are other several
limitations which act as an obstacle in the successful working
of fiscal policy.
They are summarized below:
1. Existence of Barter Economy:
In UDC’s, there exists non-monetized sector i.e. barter system
prevails in the economy. This sector remains unaffected by the
fiscal policy.
2. Lack of Elasticity:
Taxation system in underdeveloped countries is not modern,
rational and elastic. Tax evasion leads to the generation of
black market. It becomes difficult to earn sufficient revenue by
the way of taxes which hinders the development activities.
3. Inadequate Data:
Generally, in less developed countries, there is inadequate
statistical data. In the absence of accurate data, the scope of
fiscal policy is minimized.
4. Illiteracy:
Lack of knowledge and proper understanding on account of
illiteracy, the scope of fiscal policy becomes limited. The
common people are unable to recognize the significance of
fiscal policy.
5. Lack of co-operation:
In U.D.Cs lack of confidence and non-cooperative attitude
among people hinders the significance of fiscal policy.

Q 10 ) What is Production ? Explain how efficency in Production plays

an Important role in growth of Nation ?
Ans - Production is a process of combining various material inputs and
immaterial inputs (plans, know-how) in order to make something for
consumption (output). It is the act of creating an output, a good or
service which has value and contributes to the utility of individuals.[1] The
area of economics that focuses on production is referred to as production
theory, which in many respects is similar to the consumption (or consumer)
theory in economics.
Economic well-being is created in a production process, meaning all economic
activities that aim directly or indirectly to satisfy human wants and needs. The
degree to which the needs are satisfied is often accepted as a measure of
economic well-being. In production there are two features which explain
increasing economic well-being. They are improving quality-price-ratio of
goods and services and increasing incomes from growing and more efficient
market production.
The most important forms of production are:

 market production
 public production
 household production
What is Production Efficiency
An operational state whereby a company cannot increase output of a specific
good or service without additional costs.

BREAKING DOWN Production Efficiency

Production efficiency is based on a business’s ability to
produce the highest number of units of a good while using the
least amount of resources possible. The aim is to find a
balance between the use of resources, the rate of
production and quality of the goods being produced. When
production efficiency has been reached, it is not possible to
produce more goods without using excess resources or
sacrificing product quality.

Theoretically, production efficiency includes all of the points

along the production possibility frontier, but this is difficult to
measure in practice. If the economy cannot make more of
good without sacrificing the production of another, then a
maximum level of production has been reached.
Measuring Efficiency
To measure efficiency, you need to divide an employee’s
output rate by the standard output rate, then multiply that
figure by 100 percent. The formula looks like this: 

                                             Efficiency = Employee’s output

rate ÷ Standard output rate x 100 percent

The standard output rate is the employee’s normal

performance rate or the volume of work she can produce per
unit of time using a particular method and with the typical
kinds of skills. Things like operational strategy, technology,
process and the employee’s skills and effort can influence the
rate of output. 

Productivity vs. Efficiency

Productivity serves as a measurement of output, normally
expressed as some units per an amount of time, such as 100
units per hour. Efficiency relates to how well a goal is
accomplished, normally by considering the number of
resources used, and waste created, in comparison to goods
produced.

Evaluating Production Efficiency

To evaluate production efficiency, each phase of production
must be examined. The primary focus is on maintaining
acceptable quality standards while reducing waste in both
materials and production times without harming another
portion of the process. This is seen as a long-term process, as
changing conditions may impact current methods resulting in
the need for reevaluation.

True Production Efficiency

True production efficiency is only reached when it is not
possible to improve performance in one area without harming
another. At that point, the business is seen as functioning at
peak efficiency within the current system.

Production Efficiency and the Service Industry

The concepts of production efficiency can also apply to the
service industry. To perform a service, resources are required,
such as the use of human capital and time, even if no other
supplies are required. In these cases, efficiency can be
measured by the ability to complete a particular task or goal in
the shortest amount of time while minimizing waste and
maintaining quality.
Second Set - 2

Q 1 ) Explain Equiblrium In economist ? It as Equailbirum Price in Necessary

an Ideal Price

Ans - In economics, economic equilibrium is a situation in which economic

forces such as supply and demand are balanced and in the absence of
external influences the (equilibrium) values of economic variables will not
change. For example, in the standard text perfect competition, equilibrium
occurs at the point at which quantity demanded and quantity supplied are
equal.[1] Market equilibrium in this case is a condition where a
market price is established through competition such that the amount of
goods or services sought by buyers is equal to the amount of goods or
services produced by sellers. This price is often called the competitive
price or market clearing price and will tend not to change unless demand or
supply changes, and the quantity is called the "competitive quantity" or
market clearing quantity. However, the concept of equilibrium in economics
also applies to imperfectly competitive markets, where it takes the form of
a Nash equilibrium.

KEY TAKEAWAYS

 Economic equilibrium is a condition where market forces

are balanced, a concept borrowed from physical sciences,
where observable physical forces can balance each other.
 The incentives faced by buyers and sellers in a market,
communicated through current prices and quantities
drive them to offer higher or lower prices and quantities
that move the economy toward equilibrium.
 Economic equilibrium is a theoretical construct only. The
market never actually reach equilibrium, though it is
constantly moving toward equilibrium.

Types of Economic Equilibrium

In microeconomics, economic equilibrium may also be defined
as the price at which supply equals demand for a product, in
other words where the hypothetical supply and demand curves
intersect. If this refers to a market for a single good, service, or
factor of production it can also be referred to as partial
equilibrium, as opposed to general equilibrium, which refers to
a state where all final good, service, and factor markets are in
equilibrium themselves and with each other simultaneously.
Equilibrium can also refer to a similar state
in macroeconomics, where aggregate supply and aggregate
demand are in balance.

Second part of answer need to search.

Q 2 ) Discuss any 3 Economics Model Concept that

will help usefull in making magical decision.
Explain how in real world it will be used by Manager
?
Ans - Defination ( Economic Model ) - An economic
model is a simplified version of reality that allows us to observe, understand,
and make predictions about economic behavior. ... A good model is simple
enough to be understood while complex enough to capture key information.

Economic Model Concept -

Economics Concept # 1. Value:
Ordinarily, the concept of value is related to the concept of
utility. Utility is the want satisfying quality of a thing when we
use or consume it. Thus utility is the value-in-use of a
commodity. For instance, water quenches our thirst. When we
use water to quench our thirst, it is the value-in-use of water.
In economics, value means the power that goods and services
have to exchange other goods and services, i.e. value-in-
exchange. If one pen can be exchanged for two pencils, then
the value of one pen is equal to two pencils. For a commodity
to have value, it must possess the following three
characteristics.
1. Utility:
It should have utility. A rotten egg has no utility because it
cannot be exchanged for anything. It possesses no value-in-
exchange.
2. Scarcity:
Mere utility does not create value unless it is scarce. A good or
service is scarce (limited) in relation to its demand. All
economic goods like pen, book, etc. are scarce and have value.
But free goods like air do not possess value. Thus goods
possessing the quality of scarcity have value.
3. Transferability:
Besides the above two characteristics, a good should be
transferable from one place to another or from one person to
another. Thus a commodity to have value-in-exchange must
possess the qualities of utility, scarcity and transferability.
Basic Concept of Economics # 2. Value and Price:
In common language, the terms ‘value’ and ‘price’ are used as
synonyms (i.e. the same). But in economics, the meaning of
price is different from that of value. Price is value expressed in
terms of money. Value is expressed in terms of other goods. If
one pen is equal to two pencils and one pen can be had for
Rs.10. Then the price of one pen is Rs.10 and the price of one
pencil is Rs.5.
Value is a relative concept in comparison to the concept of
price. It means that there cannot be a general rise or fall in
values, but there can be a general rise or fall in prices. Suppose
1 pen = 2 pencils. If the value of pen increases it means that
one pen can buy more pencils in exchange.

Let it be 1 pen= 4 pencils. It means that the value of pencils

has fallen. So when the value of one commodity raises that of
the other good in exchange falls. Thus there cannot be a
general rise or fall in values. On the other hand, when prices of
goods start rising or falling, they rise or fall together. It is
another thing that prices of some goods may rise or fall slowly
or swiftly than others. Thus there can be a general rise or fall
in prices.
Basic Concept of Economics # 3. Wealth:
In common use, the term ‘wealth’ means money, property,
gold, etc. But in economics it is used to describe all things that
have value. For a commodity to be called wealth, it must
prossess utility, scarcity and transferability. If it lacks even one
quality, it cannot be termed as wealth.
Forms of Wealth:
Wealth may be of the following types:
1. Individual Wealth:
Wealth owned by an individual is called private or individual
wealth such as a car, house, company, etc.
2. Social Wealth:
Goods which are owned by the society are called social or
collective wealth, such as schools, colleges, roads, canals,
mines, forests, etc.
3. National or Real Wealth:
National wealth includes all individual and social wealth. It
consists of material assets possessed by the society. National
wealth is real wealth.
4. International Wealth:
The United Nations Organisation and its various agencies like
the World Bank, IMF, WHO, etc. are international wealth
because all countries contribute towards their operations.
5. Financial Wealth:
Financial wealth is the holding of money, stocks, bonds, etc. by
individuals in the society. Financial wealth is excluded from
national wealth. This is because money, stocks, bonds, etc.
which individuals hold as wealth are claims against one
another.
Some differences:
Wealth is different from capital, income and money.
Wealth and Capital:
Goods which have value are termed as wealth. But capital is
that part of wealth which is used for further production of
wealth. Furniture used in the home is wealth but given on rent
is capital. Thus all capital is wealth but all wealth is not capital.
Wealth and Income:
Wealth is a stock and income is a flow. Income is the earning
from wealth. The shares of a company are wealth but the
dividend received on them is income.
Wealth and Money:
Money consists of coins and currency notes. Money is the
liquid form of wealth. All money is wealth but all wealth is not
money.
Basic Concept of Economics # 4. Stocks and Flows:
Distinction may be made here between a stock variable and a
flow variable. A stock variable has no time dimension. Its
value is ascertained at some point in time. A stock variable
does not involve the specification of any particular length of
time. On the other hand, a flow variable has a time dimension.
It is related to a specified period of time.
So national income is a flow and national wealth is a stock.
Change in any variable which can be measured over a period
of time relates to a flow. In this sense, in ventories are stocks
but change in inventories in a flow.
A number of other examples of stocks and flows can also be
given. Money is a stock but the spending of money is flow.
Government debt is stock. Saving and investment and
operating surplus during a year are flows but if they relate to
the past year, they are stocks. But certain variables are only in
the form of flows such as NNP, NDP, value added, dividends,
tax payments, imports, exports, net foreign investment, social
security benefits, wages and salaries, etc.
Basic Concept of Economics # 5. Optimisation:
Optimisation means the most efficient use of resources subject
to certain constraints it is the choice from all possible uses of
resources which gives the best results, it is the task of
maximisation or minimisation of an objective function it is a
technique which is used by a consumer and a producer as
decision-maker.
A consumer wants to buy the best combination of a consumer
good when his objective function is to maximise his utility,
given his fixed income as the constraints. Similarly, a producer
wants to produce the most suitable level of output to maximise
his profit, given the raw materials, capital, etc. as constraints.
As against this, a firm cans hence the objective of
minimisation of its cost of production by choosing the best
combination of factors of production, given the manpower
resources, capital, etc. as constraints. Thus optimisation is the
determination of the maximisation or minimisation of an
objective function.

Q 3 - Explain what is cost & different types of cost. Also how

monopoly is different from a carte olygopoly & Perfect
Combination.
Ans - Economic cost is the combination losses of any goods that have a
value attached to them by any one individual.[1][2] Economic cost is used
mainly by economists as means to compare the prudence of one course of
action with that of another. The factors to be taken into consideration are
money, time, and other resources

Types of Cost

Fixed Costs (FC). The costs which don’t vary with changing

output. Fixed costs might include the cost of building a
factory, insurance and legal bills. Even if your output changes
or you don’t produce anything, your fixed costs stay the same.
In the above example, fixed costs are always £1,000.

Variable Costs (VC). Costs which depend on the output

produced. For example, if you produce more cars, you have to
use more raw materials such as metal. This is a variable cost.
Semi-Variable Cost. Labour might be a semi-variable cost. If
you produce more cars, you need to employ more workers; this
is a variable cost. However, even if you didn’t produce any
cars, you may still need some workers to look after empty
factory.

Total Costs (TC)  – Fixed + Variable Costs

Marginal Costs – Marginal cost is the cost of producing an

extra unit. If the total cost of 3 units is 1550, and the total
cost of 4 units is 1900. The marginal cost of the 4th unit is
350.

Opportunity Cost – Opportunity cost is the next best

alternative foregone. If you invest £1million in developing a
cure for pancreatic cancer, the opportunity cost is that you
can’t use that money to invest in developing a cure for skin
cancer.

Economic Cost. Economic cost includes both the actual direct

costs (accounting costs) plus the opportunity cost. For
example, if you take time off work to a training scheme. You
may lose a weeks pay of £350, plus also have to pay the direct
cost of £200. Thus the total economic cost = £550.

Accounting Costs – this is the monetary outlay for producing a

certain good. Accounting costs will include your variable and
fixed costs you have to pay.

Sunk Costs. These are costs that have been incurred and
cannot be recouped. If you left the industry, you could not
reclaim sunk costs. For example, if you spend money on
advertising to enter an industry, you can never claim these
costs back. If you buy a machine, you might be able to sell if
you leave the industry. See: Sunk cost fallacy

Avoidable Costs. Costs that can be avoided. If you stop

producing cars, you don’t have to pay for extra raw materials
and electricity. Sometimes known as an escapable cost

Second part of answer need to find out

Q 4 - What are Characteritics of Perfect
Competition, Discuss both the Iletical Insights and
Practical Examples -
How it is Differect from Monopolistic Competion,
Olygopoly and Monopoly
Answer Meaning and Definition of Perfect
Competition:
A Perfect Competition market is that type of market in which
the number of buyers and sellers is very large, all are engaged
in buying and selling a homogeneous product without any
artificial restrictions and possessing perfect knowledge of the
market at a time.

In other words it can be said—”A market is said to be perfect

when all the potential buyers and sellers are promptly aware of
the prices at which the transaction take place. Under such
conditions the price of the commodity will tend to be equal
everywhere.”
1. Large Number of Buyers and Sellers:
The first condition is that the number of buyers and
sellers must be so large that none of them
individually is in a position to influence the price and
output of the industry as a whole. In the market the
position of a purchaser or a seller is just like a drop of
water in an ocean.

2. Free Entry and Exit of Firms:

The firm should be free to enter or leave the firm. If there is
hope of profit the firm will enter in business and if there is
profitability of loss, the firm will leave the business.
4. Perfect Knowledge of the Market:
Buyers and sellers must possess complete knowledge about
the prices at which goods are being bought and sold and of the
prices at which others are prepared to buy and sell. This will
help in having uniformity in prices.
7. Perfect Competition among Buyers and Sellers:
In this purchasers and sellers have got complete freedom for
bargaining, no restrictions in charging more or demanding
less, competition feeling must be present there.
8. Absence of Transport Cost:
There must be absence of transport cost. In having less or
negligible transport cost will help complete market in
maintaining uniformity in price.
9. One Price of the Commodity:
There is always one price of the commodity available in the
market.
10. Independent Relationship between Buyers and
Sellers:
There should not be any attachment between sellers and
purchasers in the market. Here, the seller should not show
prick and choose method in accepting the price of the
commodity. If we will see from the close we will find that in
real life “Perfect Competition is a pure myth.”

Monopolistic Competition - Monopolistic competition is a type

of imperfect competition such that many producers sell products that
are differentiated from one another (e.g. by branding or quality) and hence
are not perfect substitutes. In monopolistic competition, a firm takes the
prices charged by its rivals as given and ignores the impact of its own prices
on the prices of other firms.[1][2] In the presence of coercive government,
monopolistic competition will fall into government-granted monopoly.
Unlike perfect competition, the firm maintains spare capacity. Models of
monopolistic competition are often used to model industries.

Monopolistically competitive markets have the following characteristics:

 There are many producers and many consumers in the market, and no
business has total control over the market price.
 Consumers perceive that there are non-price differences among the
competitors' products.
 There are few barriers to entry and exit.[4]
 Producers have a degree of control over price.
 The principal goal of the firm is to maximize it's profits.
 Factor prices and technology are given.
 A firm is assumed to behave as if it knew it's demand and cost curves
with certainty.
 The decision regarding price and output of any firm does not affect the
behavior of other firms in a group,i.e., impact of the decision made by a
single firm is spread sufficiently evenly across the entire group. Thus, there
is no conscious rivalry among the firms.
 Each firm earns only normal profit in the long run.
 Each firm spends substantial amount on advertisement. The publicity
and advertisement costs are known as selling costs.

Find Olygopoly and Monopoly

Q.5 ) Explain Feature of Olygopoly ? Elborate

on the context of the Prisons Dilema of
Olygopoly

Ans -

Q.6 ) Curently Indian economy is strugling

and going through ( ask )
Q.7 ) Do you feel masala bond can help the
country to stablise the currency. How it is
diffrent from other bonds ?
Anser - Understand in Youtube

Q. 8 ) Explain demand and supply in detail ?

Explain law of demand and types of elasticity

Ans -
Definition: Supply and demand are economic are the economic
forces of the free market that control what suppliers are willing to
produce and what consumers are willing and able to purchase.

What Does Supply and Demand

Mean?
What is the definition of supply and demand? The term supply
refers to how much of a certain product, item, commodity, or service
suppliers are willing to make available at a particular price. Demand
refers to how much of that product, item, commodity, or service
consumers are willing and able to purchase at a particular price.

In other words, supply pertains to how much the producers of a

product or service are willing to produce and can provide to the
market with limited amount of resources available. Whereas, demand
is how much of that product or service the buyers desire to have from
the market.

Demand and supply play a key role in setting price of a particular

product in the market economy. Since demands of buyers are
endless, not all that is demanded can be supplied due to scarcity of
resources. This is where the relationship of demand and supply plays
a significant role, allowing efficient allocation of resources and
determining a market price for the product or service, known
as equilibrium price. This price reflects the price at which suppliers
are willing to supply and the buyers are willing to buy from the
market.

Supply and Demand Curve Example

According to the law of demand, as the price of a product or service
rises, the demand of buyers will decrease for it due to limited amount
of cash they have to make purchases.

Example 1: A shopkeeper was offering a box of chocolate at price of

$20, for which he was able to sell on average 50 boxes every week.
He decided to offer 50% discount, decreasing the price to $10. This
resulted in increase of his sales to 100 boxes each week.
According to the law of supply, as the price of a product increases,
the suppliers will be more willing to supply that product as they can
enjoy higher profits by selling that product or service.

Example 2: A factory worker is paid $10 for providing his services to
the factory for 50 hours per day. However, due to extra workload,
more services were required per day for which the worker would only
provide 100 hours if he were paid more i.e. $20.

From this we can conclude that demand has an inverse relationship

with price; whereas, supply has a direct relationship with price.
Therefore, when both demand and supply are put together, we can
determine the equilibrium price, which is the market price of a
product or service. This is the point at which the quantity
supplied and quantity demanded is exactly equal and the resources
are efficiently allocated.

Supply and Demand Graph

Example 3: Jack initiated a hot dog selling business and decided to
sell 150 hot dogs per week, pricing each at $30. Other hot dog sellers
in the market had been selling hot dogs for $20, which diverted the
potential customers away. Jack was left with excess supply of hot
dogs with no buyers willing to purchase at price $30.

Example 4: Jennifer offered to pay $10 to the shopkeeper for a CD

she wanted to buy. The shopkeeper denied arguing that the costs he
incurs to produce one CD are $12 and he will be left with nothing but
a loss of $2. So the shopkeeper was only ready to accept minimum
of $20 for each CD, which is the market rate.

Summary Definition
Define Supply and Demand: Supply & Demand means the amount
of goods or services companies are willing to produce and the
amount of goods or services that consumers are willing to purchase.

Q 10 - Write Shorts notes on

Ans - Price Discrimination -

What Is Price Discrimination?

Price discrimination is a selling strategy that charges
customers different prices for the same product or service
based on what the seller thinks they can get the customer to
agree to. In pure price discrimination, the seller charges each
customer the maximum price he or she will pay. In more
common forms of price discrimination, the seller places
customers in groups based on certain attributes and charges
each group a different price.

KEY TAKEAWAYS

 With price discrimination, a seller charges customers a

different fee for the same product or service.
 With first-degree discrimination, the company charges
the maximum possible price for each unit consumed.
 Second-degree discrimination involves discounts for
products or services bought in bulk, while third-degree
discrimination reflects different prices for different
consumer groups.
Understanding Price Discrimination
Price discrimination is practiced based on the seller's belief
that customers in certain groups can be asked to pay more or
less based on certain demographics or on how they value the
product or service in question.

Price discrimination is most valuable when the profit that is

earned as a result of separating the markets is greater than
the profit that is earned as a result of keeping the markets
combined. Whether price discrimination works and for how
long the various groups are willing to pay different prices for
the same product depends on the relative elasticities of
demand in the sub-markets. Consumers in a
relatively inelastic submarket pay a higher price, while those in
a relatively elastic sub-market pay a lower price.

 
Price discrimination charges customers different prices for the
same products based on a bias toward groups of people with
certain characteristics—such as educators versus the general
public, domestic users versus international users, or adults
versus senior citizens.
How Price Discrimination Works
With price discrimination, the company looking to make the
sales identifies different market segments, such as domestic
and industrial users, with different price elasticities. Markets
must be kept separate by time, physical distance, and nature
of use.
For example, Microsoft Office Schools edition is available for a
lower price to educational institutions than to other users. The
markets cannot overlap so that consumers who purchase at a
lower price in the elastic sub-market could resell at a higher
price in the inelastic sub-market. The company must also
have monopoly power to make price discrimination more
effective.

Types of Price Discrimination

There are three types of price discrimination: first-degree or
perfect price discrimination, second-degree, and third-degree.
These degrees of price discrimination are also known as
personalized pricing (1st-degree pricing), product versioning or
menu pricing (2nd-degree pricing), and group pricing (3rd-
degree pricing).

First-degree Price Discrimination

First-degree discrimination, or perfect price discrimination,
occurs when a business charges the maximum possible price
for each unit consumed. Because prices vary among units, the
firm captures all available consumer surplus for itself, or
the economic surplus. Many industries involving client services
practice first-degree price discrimination, where a company
charges a different price for every good or service sold.

Second-degree Price Discrimination

Second-degree price discrimination occurs when a company
charges a different price for different quantities consumed,
such as quantity discounts on bulk purchases.

Third-degree Price Discrimination

Third-degree price discrimination occurs when a company
charges a different price to different consumer groups. For
example, a theater may divide moviegoers into seniors, adults,
and children, each paying a different price when seeing the
same movie. This discrimination is the most common.

Examples of Price Discrimination

Many industries, such as the airline industry, the arts and
entertainment industry, and the pharmaceutical industry, use
price discrimination strategies. Examples of price
discrimination include issuing coupons, applying specific
discounts (e.g., age discounts), and creating loyalty programs.
One example of price discrimination can be seen in the airline
industry. Consumers buying airline tickets several months in
advance typically pay less than consumers purchasing at the
last minute. When demand for a particular flight is high,
airlines raise ticket prices in response.

By contrast, when tickets for a flight are not selling well, the
airline reduces the cost of available tickets to try to generate
sales. Because many passengers prefer flying home late on
Sunday, those flights tend to be more expensive than flights
leaving early Sunday morning. Airline passengers typically pay
more for additional legroom too.

2. Impact of Technolgy in Business -

Ans -