UNI

T-6
(
LIVESTOCKECONOMI
CSANDMARKETI
NG)

Basi
cconcept
sofeconomi
cs
Economi
csi
sasoci
alsci
enceandi
sthest
udyoft
heeconomi
cact
ivi
ti
esofani
ndi
vi
dual
asapar
tofsoci
ety
.Thewor
deconomi
cshasbeender
ivedf
rom t
heGr
eekwor
d“Oi
kos”
and “
Nemei
n/Nomas”
. Oi
kos means househol
d and Nemei
n/Nomas means
management
.Ther
efor
e,economi
csi
sregar
dedast
her
uleswhi
chdi
rectt
her
unni
ngof
af
ami
l
yorsoci
ety
.
TheNecessi
tyofEconomi
cs
Aheal
thydemocr
acyr
equi
resci
vi
cconsci
ousnessofpeopl
e.At
axpay
ingci
ti
zenwoul
d
sur
elywantt
o know how t
heGov
tcol
l
ect
srev
enues,how i
tspendst
hecol
l
ect
ed
r
evenues,whatr
ulesgov
ernt
hepr
ocessofexpendi
tur
e,wheat
her t
her
evenuei
s
j
udi
ciousl
y spentornot
.Mor
eov
ersoci
alor
gani
ser
,act
ivi
stsorr
efor
mer
smaywantt
o
knowt
her
easonsofpr
over
typr
evai
l
ingi
nhi
s/hercount
ry.Aconsci
ous cust
omermay
wantt
oknow t
her
easonsofpr
icer
iseofessent
ialcommodi
ti
es.Ther
efor
eimpor
tant
i
ssuesl
i
ket
hesear
eanswer
edi
nthedomai
nofeconomi
cs.
DEFI
NITI
ONOFECONOMI
CS
1) Adam Smi
thi
sconsi
der
edast
hef
atherofeconomi
cs.I
nhi
sfamousbook“
An
enqui
ryi
ntot
henat
ureandcausesoft
heweal
thofNat
ions”publ
i
shedi
n1776,
he
def
inedEconomi
csast
he Sci
enceofweal
th”
. Butt
hisdef
ini
ti
on(
cal
l
edt
he
def
ini
ti
onofweal
th)wascr
it
ici
sedonmanycount
s.Soci
alsci
ent
ist
sli
keCar
yle
andRuski
nopi
nedt
hatweal
thcoul
dnotbemai
nai
m ofhumanl
i
fe.
2)Al
fr
edMar
shal
l
,aCambr
idgeeconomi
stdef
inedEconomi
csast
hest
udyofman
ki
ndi
ntheor
dinar
ybusi
nessofl
i
fe.Theabov
edef
ini
ti
onr
egar
dsononesi
deas
t
hest
udyofweal
thandont
heot
hersi
deast
hest
udyofhumanbei
ng.Al
thoughi
t
wasi
mpr
ovementonSmi
th’
sdef
ini
ti
on,y
eti
tdi
dnotear
nthedi
sti
nct
ionofbei
ng
accept
abl
edef
ini
ti
onbecauseoft
hef
actt
hati
tment
ionedaboutt
hewel
far
e
der
ivedf
rom mat
eri
algoods.Ser
vices(
non-
mat
eri
al)oft
eacheranddoct
orwer
e
notment
ioned.Mor
eov
ergoodswhi
chcoul
dnotbr
ingwel
far
etomanki
ndwer
e
al
sot
het
opi
csofeconomi
cse.
g.pr
oduct
ionofal
cohol
,dr
ug,
cigar
ett
eet
c.
3)Li
onelRobbi
nsdef
inedEconomi
csast
hesci
encewhi
chst
udi
eshumanbehav
iour
asar
elat
ionshi
pbet
weenendsandscar
cemeanswhi
chhav
eal
ter
nat
iveuses.
Thedef
ini
ti
onhi
ghl
i
ght
sthr
eei
mpor
tantpoi
nts-
--

1
 A)Humanwant
sar
eunl
i
mit
ed
B)Resour
cest
osat
isf
yhumanwant
sar
eli
mit
ed.
C)Scar
cer
esour
ceshav
eal
ter
nat
iveuses.
Thi
sdef
ini
ti
oni
scal
l
edt
hedef
ini
ti
onofscar
cit
y.

4) Samuel
sonandNor
dhausdef
ini
ti
on
Samuel
sonandNor
dhaushav
ecombi
nedt
heconceptofscar
cit
ywi
thef
fi
ciency
andputf
orwar
dthedef
ini
ti
on-
-
Accept
ingt
her
eal
i
tyofexi
stenceofscar
cit
y,t
heef
fi
cientuseofr
esour
cesbyt
he
soci
etyt
opr
oducev
aluabl
ecommodi
ti
es,
for
mthesubj
ectmat
terofeconomi
cs.
Scope ofEconomi
cs
The f
oll
owi
ng t
opi
cs ar
e usual
l
yincl
uded i
nthe scope of economi
cs-
--
Consumpt
ion,pr
oduct
ion,di
str
ibut
ion,Exchange,Money
,Income,Publ
i
cfi
nance,wel
far
e
economi
cs,
economi
csofenv
ironmentandef
fi
ciency
.
LI
VESTOCK ECONOMI
CS
I
nthel
i
ghtoft
heabov
edef
ini
ti
onofeconomi
cs,t
het
erm Li
vest
ockeconomi
cscanbe
def
inedast
hest
udyofhow peopl
einacount
ryempl
oyscar
cel
yav
ail
abl
eresour
ces
t
owar
dst
hepr
oduct
ionofl
i
vest
ockandt
hei
rpr
oduct
sfort
hebestuseofmanki
nd.
Thebestuseofmanki
ndmaybei
nter
msof
1)Foodr
equi
rementofani
mal
ori
ginl
i
kemi
l
k,meat
,egget
c.
2)Pr
ovi
dingsubst
ant
ial
empl
oymenti
nthepr
oduct
ionpr
ocessofsuchcommodi
ti
es.
3)Pr
ovi
dingst
abl
eincomei
nli
vest
ockr
elat
edbackwar
dandf
orwar
dli
nkedent
erpr
ises.
4)Mai
ntenanceofecol
ogi
cal
bal
ance
5)Respect
inghumanani
mal
rel
ati
onshi
p.
6)Sust
aini
ngi
nter
esti
nani
mal
spor
ti
ngact
ivi
ty.
7)Meet
ingt
her
equi
rementoft
heby-
product
sli
kehi
de,
ski
net
c.
8)Meet
ingofdr
aughtandt
ranspor
tpur
pose.
Appr
oacht
ost
udyt
hesubj
ectmat
terofeconomi
cs
Ther
ear
etwoappr
oaches–1)Tr
adi
ti
onal
appr
oach 2)Moder
nappr
oach.
I
ntr
adi
ti
onal
appr
oacheconomi
csi
sst
udi
edundert
hef
oll
owi
ngheads-
-1)Pr
oduct
ion2)
Di
str
ibut
ion3)Exchange4)Consumpt
ion5)Publ
i
cfi
nance6)Economi
cpl
anni
ng.
1)Pr
oduct
ion:
Studyofpr
oduct
ion,
it’
sty
pe,
fact
orsofpr
oduct
ion,
etc.
Thet
erm pr
oduct
ion or
dinar
il
y meansan act
ivi
tyofpr
oduci
ng goodsand
ser
vices,
butr
eal
l
yiti
snotso.Theor
igi
nalf
orm ofev
erymat
teri
sgi
ft
edbyt
henat
ure.I
t
2
i
squi
tei
mpossi
blef
orhumanbei
ngt
opr
oducemat
ter
.Wesi
mpl
ymaket
he nat
ure
gi
ft
edmat
termor
eusef
ul.I
nthe t
ermsofeconomi
cswecansayt
hatweaddut
il
it
yto
t
hemat
terorwecr
eat
eut
il
it
yint
her
awmat
ter
.
Pr
oduct
ioni
sthi
swayi
sthecr
eat
ionofandaddi
ti
ont
out
il
it
ies.Far
mer
spr
oduce
f
oodgr
ains,ot
herpeopl
epr
oducecl
oth,cosmet
ics,t
oot
hpast
e,f
urni
tur
e,paper
,oi
let
c.
Si
mil
arl
ywepr
oducecapi
talgoodsl
i
kemachi
ne,t
ool
s,equi
pment
.et
c.Pr
oduct
ioni
s
t
her
efor
eaddi
ti
ont
oorcr
eat
ionofeconomi
cut
il
it
iest
hroughgoodsandser
vices.The
t
erm ut
il
it
yineconomi
csmeanst
hecapabi
l
iti
esofgoodsandser
vicest
osat
isf
your
want
.
2)Consumpt
ion:useofgoodsandser
vicesf
ort
hedi
rectsat
isf
act
ionofhuman
want
siscal
l
edconsumpt
ioni
neconomi
cs.I
tinv
olv
est
heuseofal
lsor
tsofgoodsand
ser
vices.I
tincl
udeseat
ingofbr
ead,dr
inki
ngofmi
l
k,wear
ing ofshoes.Ther
efor
e,
consumpt
ioni
sthedi
rectuseofgoodsandser
vicesi
nsat
isf
yingt
hehumanwant
s.Ori
t
canbedef
inedast
hedest
ruct
ionordecr
easei
ntheut
il
it
iesofapar
ti
cul
arcommodi
ty.
Ther
eisani
mpor
tantdi
ff
erencebet
weent
heconsumpt
ionofgoodsandconsumpt
ionof
t
heser
vices.Ther
eisnot
imegapbet
weenpr
oduct
ionandconsumpt
ionofser
vicese.
g.
t
heser
vicesofdoct
or,
lay
er,
bar
ber
,danceret
c.Butwef
indt
imegapbet
weenpr
oduct
ion
andconsumpt
ionofgoods.
3)Di
str
ibut
ion:I
soneoft
hef
ourel
ement
soft
hemar
ket
ingmi
x.Di
str
ibut
ioni
sthe
pr
ocessofmaki
ngapr
oductorser
viceav
ail
abl
efort
heconsumerorbusi
nessuserwho
needsi
t,Thi
scanbedonedi
rect
lybyt
hepr
oducerorser
vicepr
ovi
derorusi
ngi
ndi
rect
channel
swi
thdi
str
ibut
orori
nter
medi
ari
es.
4)Exchange: Anexchangei
samar
ketpl
acei
nwhi
chsecur
it
ies,commodi
ti
es,
der
ivat
ivesandot
herf
inanci
ali
nst
rument
sar
eneeded.Thecor
efunct
ionofexchangei
s
t
oensur
efai
randor
der
lyt
radi
ngandef
fi
cientdi
ssemi
nat
ionofpr
icei
nfor
mat
ionf
orany
secur
it
ies t
radi
ng on t
hatexchange.I
n pur
e exchange economy al
lagent
s ar
e
consumer
s;t
her
eisnopr
oducerandal
lagent
scandoi
stot
hei
rini
ti
alendowment
s.I
n
cont
rasti
nanexchangeeconomywi
thpr
oduct
ion,
someoral
lagent
sar
efi
rmst
hatmay
al
sopr
oducenewgoods.
5)Publ
icf
inance—economi
cpl
anni
ngi
sani
nst
rumentt
oat
tai
nasetofwel
ldef
ined
obj
ect
iveswi
thi
nadef
ini
tet
imeper
iodasdet
ermi
nedbyacent
ralpl
anni
ngagency.
In
I
ndi
athepl
anwasusedt
obef
ormul
atedf
oraper
iodoff
ivey
ear
s.I
ngener
alt
hemai
n
obj
ect
iveofpl
anni
ngi
nIndi
aar
etor
aiser
ateofgr
owt
hoft
heeconomy
;tor
emov
esoci
o
-
economi
cinequal
i
ties,t
oremov
e pov
ert
y,t
o expand empl
oymentoppor
tuni
ti
es ,
to
3
r
emov
eregi
onali
nequal
i
ties,
toensur
eeconomi
cdev
elopmentwi
thoutcausi
ngdamage
t
otheenv
ironmentandsoon.
I
nmoder
nappr
oacht
woconcept
sar
e
1) Mi
croeconomi
cs and2)Macr
oeconomi
cs
I
nmi
croeconomi
cs,west
udyt
hebehav
iouroft
hei
ndi
vi
dualeconomi
cagent
sint
he
mar
ket
sfordi
ff
erentgoodsandser
vicesandt
ryt
ofi
gur
eouthowpr
icesandquant
it
ies
ofgoods and ser
vices ar
e det
ermi
ned t
hrough i
nter
act
ions ofi
ndi
vi
dual
sint
hese
mar
ket
s.I
not
herwor
ds,mi
croeconomi
csi
sabr
anchofeconomi
cst
hatst
udi
est
he
behav
iourofi
ndi
vi
dualeconomi
cuni
tsl
i
kei
ncomeofaper
son,
out
putofaf
arm,
pri
ceof
apr
oductet
c.
I
nmacr
oeconomi
cs,wet
ryt
ogetanunder
standi
ngoft
heeconomyasawhol
eby
f
ocussi
ngourat
tent
iononaggr
egat
emeasur
esuchast
otalout
put
,empl
oymentand
aggr
egat
epr
icel
evel
.Her
ewear
eint
erest
edi
nfi
ndi
ngouthow t
hel
eveloft
hose
aggr
egat
emeasur
esi
sdet
ermi
nedandhow t
hel
evel
soft
heseaggr
egat
emeasur
es
changeov
ert
ime.Someoft
hei
mpor
tantquest
ionst
hatar
est
udi
edi
nmacr
oeconomi
cs
ar
easf
oll
ows
1)Whati
sthel
evel
oft
otal
out
puti
ntheeconomy
?
2)HOW I
STHETOTALOUTPUTDETERMI
NED?
3)Howdoest
het
otal
out
putgr
owov
ert
ime?
I
not
her wor
ds,macr
oeconomi
csst
udi
esaneconomi
csy
stem asawhol
eI.
eit
t
akesi
ntoaccountov
eral
laggr
egat
eandav
eragesofaneconomy
.EgNat
ionali
ncome,
GDP,
Pri
cel
evel
etc.
Footnot
e:-
Economyi
sthest
udyofpr
oduct
ionanddi
str
ibut
onofgoodsandser
vicesi
nasoci
ety
.
Somebasi
cconcept
s.
Weal
th:Al
lgoodsar
enotweal
th.I
nor
dert
ober
egar
dedasweal
thgoodsmustpossess
f
ourchar
act
eri
sti
cs
1) Ut
il
it
y 2)Scar
cit
y3)Tr
ansf
erabi
l
ityand4)Ext
ernal
i
ty.
Sunl
i
ghti
sabundant
.Si
mil
arl
ytal
entofSachi
nTendul
karorpat
ri
oti
sm ofMahat
ma
Gandhi
arenotr
egar
dedasweal
th.
Want
:Thedesi
ref
ort
hesat
isf
act
ionf
rom acommodi
tyi
sknownaswant
.Inot
herwor
ds
t
henecessi
tyf
ort
heuseofacommodi
tyi
scal
l
edwant
.
Wel
far
e:I
tisoft
wot
ypes:Economi
cwel
far
eandnon-
economi
cwel
far
e.Economi
c
wel
far
ecanbeachi
evedt
hrought
hemedi
um ofmoney
.Non-
economi
cwel
far
eismor
al
4
orsoci
alwel
far
ewhi
chcannotbemeasur
edi
nter
msofmoney
.Economi
csmai
nlydeal
s
wi
theconomi
cwel
far
e.
Pr
ice:Themoneyv
alueofanycommodi
tyi
sit
spr
ice.I
not
herwor
dst
heexchangev
alue
ofacommodi
tyi
sit
spr
ice.
Demand:Thedesi
ref
oraconsumerf
orapar
ti
cul
arcommodi
tycanbet
ermedas
demandonl
yift
hatdesi
rei
sbackedbyt
hepowert
opur
chasei
t.
Suppl
y:Thepar
toft
hepr
oducedgoodswhi
char
ebr
oughtt
othemar
ketf
ort
hepur
pose
ofsel
l
ingi
sknownassuppl
y.
Mar
ket
:ingener
almar
ketr
efer
stoapl
acewher
egoodsar
eboughtandsol
d.Buti
n
economi
cs mar
ket does not mean a par
ti
cul
ar pl
ace.Her
e mar
ket means an
ar
rangementwher
ebuy
ersandsel
l
ersbuyandsel
lgoodsdi
rect
lyori
ndi
rect
lye.
g.st
ock
mar
ket
,onl
i
nemar
ket
.
Capi
tal
:Themeansandappl
i
anceswhi
chhel
pinpr
oduct
ionar
eknownascapi
tal
.In
ot
herwor
ds,
thatpar
tofpr
oduct
ionwhi
chhel
pinf
urt
herpr
oduct
ioni
sknownascapi
tal
.
Sav
ing:Thepor
ti
onofi
ncomewhi
chi
snotusef
orconsumpt
ioni
sknownassav
ings.
Sav
ingsi
sagoodmeansofcapi
tal
for
mat
ion.
I
nvest
ment
:whencapi
tal
isusedf
ort
hepur
poseofpr
oduct
ion,
iti
scal
l
edi
nvest
ment
.
Nat
ionali
ncome:Themoneyv
alueofal
lgoodsandser
vicesi
nacount
ryi
naf
inanci
al
y
eari
sknownasNat
ional
income,
Percapi
tai
ncome:Thepercapi
tai
ncomeofacount
rycanbef
oundoutbydi
vi
dingt
he
t
otal
nat
ional
incomebyt
het
otal
popul
ati
on.
Per capi
ta i
ncome = Nat
ional i
ncome/ popul
ati
on of t
he
count
ry. .
Val
ue:
Iti
sdef
inedast
hepur
chasi
ngofat
hingi
nter
msofot
hert
hings.
Asset
:Any
thi
ngwhi
chi
sint
hepossessi
onori
sthepr
oper
tyofabusi
nessi
scal
l
edasset
.
I
not
herwor
ds,any
thi
ngwhi
chenabl
esabusi
nessent
erpr
iset
ogener
atepr
ofi
tinf
utur
e
i
sanasset
.Asset
smayofdi
ff
erentt
ypes-
--
1)Cur
rentasset
:cur
rentasset
sar
ethoseasset
swhi
char
emeantf
orsal
eor
whi
chcanbeconv
ert
edi
ntocashwi
thi
noney
ear
.Assucht
heseasset
sar
eal
socal
l
ed
shor
tter
m assetoract
iveassetorf
loat
ingassetorci
rcul
ati
ngasset
.
2)Tangi
bleasset
:thoseasset
swhi
chcanbeseenort
ouched.
egl
and,
bui
l
dinget
c.
3)I
ntangi
bleasset
:whi
chdonothav
ephy
sicalexi
stence—e.
g.goodwi
l
l,pat
ent
,
t
rademar
k.
4)Wast
ingasset
:ar
ethoseasset
swhi
chgetexhaust
edt
hroughuseorwor
ked
5
e.
g.mi
nebecomesv
aluel
essoncet
hewhol
eoft
hecoal
isexhaust
ed.
5)Cont
ingentasset
:Acont
ingentasseti
sapossi
bleassett
hatar
isesf
rom past
ev
ent
sandt
heexi
stenceofwhi
chwi
l
lbeconf
ir
medonl
ybyt
heoccur
renceofoneor
mor
euncer
tai
nev
ent
snotwhol
l
ywi
thi
nthecont
roloft
heent
erpr
ise.Eg.cour
tcasef
or
compensat
ionf
il
edbyt
hecompanyagai
nstot
her
.
` 6)Fi
cti
ti
ousasset
: ar
ethoseasset
swhi
chcannotber
eal
i
sedi
ncashorno
f
urt
herbenef
itcanbeder
ivedf
rom t
heseasset
s.
GOODSANDSERVI
CES
Al
lcommodi
ti
eswhi
chhav
eut
il
it
yar
ecal
l
edgoods.
Goodsmusthav
etr
ansf
erabi
l
ityi
.eowner
shi
pofgoodsmaybechangedwhenev
er
r
equi
red.
Goodsmustbemat
eri
alandv
isi
ble.I
tmeansgoodsmusthav
eexi
stence.
Goodsar
eal
socapabl
eofbei
ngst
ored.
Ther
efor
e,wecanconcl
udet
hatgoodsar
ethecommodi
ti
eswhi
char
escar
ce,usef
ul,
t
ransf
erabl
e,mat
eri
al,
visi
bleandcabl
eofbei
ngst
ored.
Ser
vicesar
enon-
mat
eri
algoods.Theydonothav
eanyexi
stence.Ser
vicesdonothav
e
anyphy
sicalconst
ruct
ioni
.ef
orm,si
ze,shape.Theycannei
therbeseennort
ouched.
Ser
vicescansi
mpl
ybef
elt
.
Ser
vicesar
enon-
mat
eri
algoodswhi
chdonothav
ephy
sicalconst
ruct
ion,i
ncapabl
eof
bei
ngseen,
touchedandst
ored.
Di
ff
erencebet
weenGoodsandser
vices
Poi
nts of Goods Ser
vices
di
ff
erence
Exi
stence Hav
e phy
sical exi
stence Hav
e no phy
sicalconst
ruct
ion
,
gotshape,
for
m andsi
ze l
i
kef
orm,
shapeorsi
ze.
Tr
ansf
erabi
l
ity Can be t
ransf
err
ed f
rom Cannotbet
ransf
err
ed
oneper
son t
o anot
heror
onepl
acet
oanot
her
.
Vi
sibi
l
ity Ar
evi
sibl
e i
nvi
sibl
e
Ti
mel
ag Ther
e may be t
ime l
ag Not
imel
ag
bet
ween pr
oduct
ion and
consumpt
ion.
St
ori
ng Goodsmaybest
ored Al
lser
vicescannotbest
oredi
.
g

6
 medi
cal
ser
vices.

Cl
assi
fi
cat
ionofgoods:
Goodsmayeconomi
cgoodsornon-
economi
cgoods.Ai
r,sunl
i
ght
,moonl
i
ght
,rai
nar
e
non economi
c goods or f
ree goods. Commodi
ti
es whi
ch hav
e t
he f
oll
owi
ng
char
act
eri
sti
csar
eknownaseconomi
cgoods—
1)Scar
cit
y—Economi
cgoodsar
escar
ce.Wemustpaysomet
hingei
theri
ncash
orki
ndf
orobt
aini
ngt
hesecommodi
ti
es.
2)Tr
ansf
erabi
li
ty—Economi
cgoodsar
etr
ansf
erabl
e.Theyhav
eexchangev
alue.
3)Ut
il
it
y—Economi
cgoodsar
ecapabl
eofsat
isf
yinghumanwant
s.
Al
lcommodi
ti
eshav
ingscar
cit
y,t
ransf
erabi
l
ityandut
il
it
yar
eknownaseconomi
cgoods.
Economi
cgoodscanf
urt
herbecl
assi
fi
edi
ntoconsumergoodsandcapi
tal
goods.
Consumergoods:Thesegoodsar
epr
oducedf
ort
hef
inalconsumpt
ionbyconsumer
s
andmayl
oset
hei
rut
il
it
ywhenev
erconsumed.E.
g.br
ead,but
teret
c.Consumergoods
mayal
sol
oset
hei
rut
il
it
yasnor
mal
wearandt
earj
ustasf
urni
tur
e,t
elev
isi
on.
1)Si
ngl
euseconsumergoods:Theseconsumergoodsar
eusedonce.Theyar
e
meantf
orsi
ngl
euse.Thei
rut
il
it
yisl
ostwhenev
er t
heyar
econsumed.e.
g
appl
e,pet
rol
etc.
2)Dur
abl
euseconsumergoods:Thesegoodsar
eusedr
epeat
edl
y.Ther
eis
usualnor
mall
ossi
nthev
alueoft
hesegoods.I
not
herwor
dswecansayt
hat
t
hesegoodsar
esubj
ectt
odepr
eci
ati
onandnor
malwearandt
eare.
gfur
nit
ure,
cl
oth,
radi
o,washi
ngmachi
ne.
3)Semidur
abl
egoods:Thesegoodsar
eusedf
oraboutoney
ear
.Thesegoods
ar
eofr
elat
ivel
ysmal
lval
ueascompar
edt
odur
abl
egoods.e.
gcl
oth,f
urni
tur
e
,
el
ect
ri
cal
goods.
Pr
oducergoodsorcapi
talgoods:Goodsusedi
nthepr
oduct
ionormanuf
act
uri
ngof
ot
hergoodsar
eknownascapi
tal
goods.e.
gmachi
ne,
tool
s,equi
pmentet
c.
1) Non–dur
abl
eorsi
ngl
eusecapi
talgoods:Thesear
eusedonl
yoncei
nthe
pr
oduct
ionpr
ocess.Theyl
oset
hei
rfor
m andut
il
it
ywi
thev
erysi
ngl
euse.E.
g.r
aw
mat
eri
al,
coal
,fuel
.Et
c.
2) Mul
ti
ple usecapi
talgoods:Thesegoodsgoonpr
oduci
ngmor
eandmor
e
goodsf
orl
ongerper
iod.E.
gpl
ant
,machi
ne,
tool
s,equi
pmentet
c.
Besi
dest
heabov
ecl
assi
fi
cat
iont
her
ear
esev
eral
othercl
assi
fi
cat
ion-
--
1) Economi
cVSnoneconomi
cgoods
7
 2)Vi
sibl
eVSnon-
visi
blegoods.
3)Dur
abl
egoodsVSper
ishabl
egoods
4)Tr
ansf
erabl
eVSnon-
tr
ansf
erabl
egoods.
5)Per
sonal
VSI
mper
sonal
goods.
6)Pr
ivat
eVSpubl
i
cgoods.
7)Necessi
tyVsl
uxur
ygoods.
Consumpt
ion:I
tisdef
inedast
hedest
ruct
ionorusi
ngupoft
heut
il
it
ycont
ainedi
nthe
mat
terort
hecommodi
ti
esandser
vicest
osat
isf
yhumanwant
s.E.
g.eat
ingf
oodst
uff
,
wear
ingcl
otheset
c.
Char
act
eri
sti
csofconsumpt
ion—
1)Usi
ngoff
reegoodsandser
vicesi
snotconsumpt
ioni
neconomi
cs.Usi
ngupof
economi
c goods commandi
ng some pr
ice i
s consi
der
ed as consumpt
ion i
n
economi
cs.
2)Byconsumpt
iont
her
eisnodest
ruct
ionofmat
terbutonl
yut
il
it
yispar
tisdest
roy
ed.
3)Ut
il
it
yisnotal
way
sdest
roy
edi
nasi
ngl
eactofconsumpt
ionexcepti
nthecaseof
si
ngl
eusegoods.Ot
her
wisei
ndur
abl
eusegoodst
heut
il
it
yisdest
roy
edorusedup
i
nsev
eral
act
sofconsumpt
ion.
4)Mer
edest
ruct
ionofut
il
it
yisnotconsumpt
ion.I
tshoul
dsat
isf
ysomehumanwant
s
t
oqual
i
fyf
ort
het
erm ofconsumpt
ion.
TYPESOFCONSUMPTI
ON
1)Fi
nalconsumpt
ionordi
rectconsumpt
ion:Thi
sref
erst
othosegoodswhi
char
e
di
rect
lyconsumedort
heconsumpt
ioni
saf
inalactasi
nthecaseofconsumpt
ion
off
ood,
clot
het
c.
2)I
ndi
rectconsumpt
ion:Thi
sref
erst
oconsumpt
ionofgoodsandser
viceswhi
char
e
usedt
opr
oduceot
hergoodsasi
nthecaseofr
awcot
ton,
machi
ne,
tool
set
c.
3)Wel
far
eordest
ruct
iveconsumpt
ion:Whengoodsar
eusedt
osat
isf
ysomewant
s
whi
char
einr
eal
i
tywast
efuli
nthel
ongr
unEg.excessi
veal
cohol
i
cdr
ink,useof
nar
cot
ic.
WANTS
Or
igi
nofhumanwant
s:I
tsor
igi
nisasol
dashumanexi
stence.I
nol
denday
s
want
swer
efew.Butduet
oci
vi
li
zat
ion,
want
shav
emul
ti
pli
ed.Want
sar
iseduet
ovar
ious
desi
resf
orsecur
it
y,af
fect
ion,
recogni
ti
on,
adv
ent
ure,
necessi
ti
es,
comf
ort
s,l
uxur
iesand
t
osat
isf
ycer
tai
ncust
omsandcul
tur
alwant
s.
I
ngener
alwant
smaybedef
inedasdesi
resofconsumer
stoobt
ainanduse
8
v
ari
ousgoodsandser
viceswhi
chgi
vepl
easur
eandsat
isf
act
ion.Howev
er,
mer
ewi
shor
desi
ret
ohav
egoodsandser
vicesi
ntheeconomi
csensei
snotawant
.
Ther
efor
e,want
scan bedef
ined ast
hoseef
fect
ivedesi
resf
orgoodsand
ser
viceswhi
char
eassoci
atedwi
tht
hef
oll
owi
ngt
hreeessent
ial
s—
1)Desi
ret
oacqui
regoodsandser
vices.
2)Abi
li
tyt
opayf
ort
hedesi
redgoods.
3)Wi
ll
ingnesst
opayf
ort
hosegoods.
Char
act
eri
sti
csofwant
s:
1)Want
sar
eunl
i
mit
ed:Assoonasonewanti
ssat
isf
iedanot
herwantcomesup
i
nit
spl
ace.Want
svar
yint
hei
rint
ensi
ty.
2)Want
sdi
ff
eri
nimpor
tance:
Somear
eur
gentandsomear
elessur
gent
3)Want
sar
esat
iabl
e:Asi
ngl
ewantcanbesat
isf
iedatapar
ti
cul
art
ime.I
fa
per
soni
shungr
yhecansat
isf
yhi
shungerf
ull
ybyt
aki
ngsuf
fi
cientf
ood.
.
4)Wantar
erecur
rent
:Want
sgetr
epeat
edatsomei
nter
val
.
5)Want
sar
eal
ter
nat
ive:
Aper
soncansubst
it
utecof
feei
nthepl
aceoft
ea.
6)Want
sar
ecompl
ement
ary
:Tosat
isf
ypar
ti
cul
arwantweneedsev
eral
thi
ngs
7)Want
stendt
obecomehabi
ts.
Cl
assi
fi
cat
ionofwant
s
Ther
ear
etwot
ypesofcl
assi
fi
cat
ions—
1)Pr
imar
ywantandsecondar
ywant
—Pr
imar
ywant
sref
ert
onecessi
ti
esofl
i
fel
i
kef
ood
,
wat
er,cl
othi
nget
c.Secondar
ywant
sref
ert
othosewant
sot
hert
hannecessi
ti
esof
l
i
fe.
2)Necessi
ti
es,
comf
ort
sandl
uxur
ies—Necessi
ti
esofl
i
fear
efood,
wat
er,cl
othi
nget
c
>Butusi
ngaf
ani
nsummeri
sacomf
ort
.Ont
heot
herhandv
erycost
lycar,pal
ati
al
bungl
ows ar
eexampl
esofl
uxur
ies.
Luxur
iesmaybecl
assi
fi
edi
ntohar
mful and
har
mless.
gci
gar
ett
e,excessi
vedr
inki
ngofal
coholar
ehar
mfull
uxur
ies.Ont
heot
her
handwear
ingcost
lycl
othi
shar
mlessl
uxur
y.
Weal
th
I
nor
dinar
ylanguaget
het
erm weal
thr
efer
stomoney
,pr
oper
tyorr
iches.But i
n
economi
csweal
thmeansal
lthosegoods whi
chsat
isf
yhumanwant
s,whi
char
escar
ce
i
nrel
ati
ont
odemandandwhi
chcommand exchangev
alueorpr
ice i
nthemar
ket
.I
n
shor
t,i
tmeansal
lthoseeconomi
cgoodswhi
char
eboughtorsol
dint
hemar
ket
.
Char
act
eri
sti
csofweal
th
1)Ut
il
it
y:Theymusthav
epowerorcapaci
tyt
osat
isf
yhumanwant
s.
9
 2)Scar
cit
y:Theyar
escar
cei
nnat
urecompar
edt
othei
rdemand.
3)Tr
ansf
erabi
li
ty:Theycanbet
ransf
err
edf
rom oneper
sont
oanot
herorf
rom one
pl
acet
oanot
her
.
4)Ext
ernalt
oman:
Itmustbeext
ernalt
omanandnoti
ntr
insi
ctohumanbei
ngs,e.g
gol
d,f
urni
tur
e,l
andet
c.
Non-
weal
thski
l
l,i
ntel
l
igence,abi
l
ityar
enott
ransf
erabl
e.Butwhenwecal
cul
ate
weal
thofacount
rywei
ncl
udet
heseal
thought
heyar
enott
ransf
erabl
e.
Cl
assi
fi
cat
ionofweal
th
1)Per
sonalori
ndi
vi
dualweal
th:A commonhumanbei
ngr
equi
rest
heseweal
th-
cl
othes,
books,
scoot
er.
2)Busi
nessweal
th:Thi
sisusedf
orf
urt
herpr
oduct
ionofgoodsandser
vicese.
g
Far
ms,
indust
ri
es,
machi
neet
c.
3)Soci
alweal
thorcol
lect
iveweal
th:Publ
i
croad,
par
ks,
playgr
ounds,
publ
i
ctr
anspor
t
et
car
esoci
alweal
th.
4) Nat
ionalweal
th:Thi
sisownedbyt
hest
ateorGov
t.e.
gmount
ain,
riv
er,
landet
c.
5)Cosmopol
it
anweal
th:I
tist
hei
nter
nat
ionalweal
thl
i
kemount
ain,
riv
eret
c.t
hatcr
oss
v
ari
ousboundar
iesofdi
ff
erentcount
ri
esoft
hewor
ld.
Ut
il
it
y
Ut
il
it
yisdef
inedast
hepowerorcapaci
tyofacommodi
tyorser
vicet
osat
isf
ysome
humanwant
s,e.
gfood,
fur
nit
ure.
Pr
oduct
ionmeanscr
eat
ionandaddi
ti
ont
out
il
it
iesi
nthecommodi
ty.Ut
il
it
ymaybeof
t
hef
oll
owi
ngt
ypes—
1) For
m ut
il
it
y:Wecr
eat
eut
il
it
ybyt
ransf
ormi
ngandmul
ti
ply
ingt
hef
ormsorshape
oft
hemat
ter
.Themodi
fi
ed shapeorf
orm becomesmor
eusef
ult
hani
tsor
igi
nal
f
orm e.
gmaki
ngf
urni
tur
efr
om woodbycar
pent
er,st
ainl
ess ut
ensi
l
sfr
om met
al
et
c
2)Pl
aceut
il
it
y:Undert
hismet
hodofpr
oduct
iont
hev
alue,usef
ulnessandut
il
it
yof
t
he commodi
tyi
ncr
eases wi
tht
he change ofi
ts pl
ace.I
n act
ualpr
act
ice
commodi
ti
esar
etr
ansf
err
edt
othosepl
aceswher
etheyar
escar
ceandneedede.
g
v
eget
abl
espr
oducedi
nremot
evi
l
lagear
etr
anspor
tedt
oci
ti
est
ogai
nhi
gher
i
ncome.I
neconomi
csshi
ft
ingofcommodi
ti
esf
rom onepl
acet
oanot
herwi
tha
v
iew t
oincr
easet
hei
rut
il
it
yiscal
l
edpr
oduct
ion.Si
mil
arl
ytr
anspor
ti
ngofgoods
f
rom mi
l
lsandf
act
ori
esar
eal
soexampl
esofpr
oduct
ion.
3)Ti
meut
il
it
y:Ut
il
it
yisaddedt
ocommodi
ti
esbyst
ori
ngt
hem.Commodi
ti
esar
e
10
 st
ored dur
ing har
vest
ing per
iod when t
heyar
e suppl
i
ed i
n pl
ent
y.These ar
e
r
eleasedwhent
her
eisscar
cit
ye.
gcol
dst
orageofdi
ff
erentv
eget
abl
es.
4)Possessi
onut
il
it
y:Ev
erycommodi
tyhasdi
ff
erentut
il
it
yfordi
ff
erentper
sons.A
par
ti
cul
arcommodi
tymaybenecessar
yforsomeone,comf
ortand l
uxur
yfor
ot
her
sandev
enusel
essf
orcer
tai
nper
son.I
fthepossessi
onoft
hear
ti
clei
s
changedf
rom t
hosewhodonotneedi
ttot
hosewhour
gent
lyneedi
t ut
il
it
yis
cr
eat
ed.
Transf
erofgoodsf
rom sel
l
ert
opr
oduceraddsi
tsut
il
it
yandt
husi
sasor
t
ofpr
oduct
ion.
5)Knowl
edgeut
il
it
y:Apar
ti
cul
art
hingwi
l
lbeusef
ulf
ort
heper
soni
fhehasknowl
edge
aboutt
hecommodi
ty.Ther
ear
ecer
tai
nmachi
nesandequi
pment
swhi
char
eusel
ess
f
orusi
fwecannotoper
ate.
.Ifweat
tai
nknowl
edgeofoper
ati
ngt
hesemachi
nes,i
t
wi
l
lbemor
eusef
ult
ous.At
tai
ningknowl
edgeaddst
otheut
il
it
yandassuchi
tisa
met
hodofpr
oduct
ion.
Char
act
eri
sti
csofut
il
it
y
1)Ut
il
it
yisdi
ff
erentf
rom usef
ulness:I
nor
dinar
yusageut
il
it
yandusef
ulnessmayseem
t
obesame.Buti
neconomi
cst
heyar
edi
ff
erente.
gal
cohol
,poi
son,opi
um et
chav
e
ut
il
it
yal
thought
ohumanbei
ngt
heyar
eusel
ess.Butt
heyhav
ethei
rownut
il
it
yas
t
heysat
isf
yhumanwant
s.
2)
Uti
li
tyhasnoet
hicalv
alueormor
alsi
gni
fi
cance:At
hingmaybegoodorbad butas
l
ongast
her
eissomecapaci
tyt
osat
isf
ysomewantt
het
hingi
ssai
dto hav
eut
il
it
y
e.
gpor
nogr
aphy
.
3)Ut
il
it
yandsat
isf
act
ionar
edi
ff
erent
:Ut
il
it
yist
hepowert
osat
isf
ythewantofsome
per
son.Sat
isf
act
ioni
sther
eal
i
sat
ionorf
eel
i
ngoneget
saf
terconsumi
ngsome
goodsorser
vices.
4)Ut
il
it
yisdi
ff
erentf
rom pl
easur
e:Ther
ear
emanycommodi
ti
esandser
vicest
hatdo
notgi
vepl
easur
ewhenconsumed.ButThei
rconsumpt
ionmaybehi
ghl
ybenef
ici
al
f
ort
hosewhoconsumei
te.
gbi
tt
erpi
l
ls.
5) Ut
il
it
yissubj
ect
ive:Ut
il
it
yofacommodi
tyi
ssubj
ect
ive.I
tvar
iesf
rom per
sont
o
per
sone.
gmeathasgr
eatut
il
it
ytonon-
veget
ari
anbutnout
il
it
ytov
eget
ari
an.
Asset
Any
thi
ngwhi
chi
sint
hepossessi
onori
sthepr
oper
tyofani
ndi
vi
dualorbusi
nessi
s
cal
l
edasset
.Iti
ncl
udesanyamountr
ecei
vabl
efr
om ot
her
s.I
not
herwor
dsany
thi
ng
whi
chenabl
esabusi
nessent
erpr
iset
ogener
atebenef
iti
nfut
urei
sanasset
..Thus
cash,
bankbal
ance,
stock,
fur
nit
ure,
machi
ner
y,l
and,
bui
l
dingar
easset
s.
11
Ther
ear
edi
ff
erentt
ypesofasset
s:
1)Fi
xedasset
:Fi
xedasset
sar
ethoseasset
swhi
char
ehel
dforcont
inuoususei
nthe
busi
nessf
ort
hepur
poseofpr
oduci
nggoodsorser
vicesandar
enotmeantf
or
r
esal
e.gl
and,
bui
l
ding,
plant
,machi
ner
y,mot
orv
ehi
cle,
fur
nit
ure.
2)Cur
rentasset
:ar
ethoseasset
swhi
char
emeantf
orr
esal
eorwhi
chcanbeconv
ert
ed
i
ntocashwi
thi
noney
ear
.Assucht
heseasset
sar
ecal
l
edshor
tli
vedoract
iveasset
s.
Cur
rentasset
sar
eal
soknownasf
loat
ingasset
s,ci
rcul
ati
ngasset
s ast
heamount
andnat
ureofsuchasset
skeepschangi
ngcont
inuousl
ye.
gdebt
orsar
econv
ert
ed
i
ntocashwi
th-
inar
easonabl
eti
me.St
ocki
scont
inuousl
ysol
d,bi
l
lsr
ecei
vabl
ear
e
al
soconv
ert
edi
ntocash.
3)Tangi
bleasset
s:Tangi
bleasset
sar
ethoseasset
swhi
chcanbet
ouchedandhav
e
phy
sical
exi
stenceeg.l
and,
machi
ner
y,bui
l
ding.
4)I
ntangi
bleasset
s–ar
ethoseasset
swhi
chdonothav
eaphy
sicalexi
stenceand
whi
chcannotbeseenorf
elt
.E.
ggoodwi
l
l,pat
ent
s,t
rademar
k,copyr
ight
.
5)Li
qui
dasset
s:ar
ethoseasset
swhi
chcanbeconv
ert
edi
ntocashwi
thi
nashor
t
per
iode.
gCashi
nhand,
cashi
nbank,
debt
ors,
bil
l
srecei
vabl
e.I
not
herwor
dscur
rent
asset
sexceptst
ockandpr
epai
dexpensesar
ecal
l
edl
i
qui
dasset
s.
6)Wast
ingasset
:ar
ethoseasset
swhi
chgetexhaust
edt
hroughbei
ngusedorwor
ked
egmi
nebecomesv
aluel
essoncet
hewhol
eoft
hecoal
isexhaust
ed.
7)Cont
ingentasset
s:A cont
ingentasseti
sapossi
bleassett
hatar
isesf
rom past
ev
ent
sandt
heexi
stenceofwhi
chwi
l
lbeconf
ir
medonl
ybyt
heoccur
renceornon
occur
renceofoneormor
euncer
tai
nfut
ureev
ent
snotwhol
l
ywi
thi
nthecont
roloft
he
ent
erpr
isee.
gcour
tcasef
orcompensat
ionf
il
edbyt
hecompanyagai
nstot
her
,the
companydoesnotknow wi
thcer
tai
nty whet
hert
hecasewi
l
lbei
nfav
ouroft
he
companyornot
.
Capi
tal
Capi
tali
soneoft
hef
act
orsofpr
oduct
ion.I
tdi
ff
ersf
rom l
andont
hegr
oundt
hatl
andi
s
gi
ftofnat
ure.Butcapi
tali
smanmade.Capi
tali
scr
eat
edbymanandi
susedf
or
f
urt
herpr
oduct
ion.Capi
taldoesnotmeanmer
epr
oduct
ion.I
tmeansweal
tht
hati
s
usedf
orpr
oduci
ngaddi
ti
onalweal
th.I
tref
erst
oal
lmanmadeweal
thorgoodswhi
ch
ar
eusedf
orf
urt
herpr
oduct
ionofweal
th.I
tincl
udescash,manmader
aw mat
eri
als,
t
ool
s,i
mpl
ement
s,machi
nes,v
ehi
cles,f
urni
tur
e,bui
l
dinget
c.whi
char
emanmade
andnotf
ree gi
ft
sofnat
ure.Her
eonenot
ewor
thypoi
nti
shumancapi
tal
.Human
bei
ngsar
eal
soatsomepoi
ntoft
imeconsi
der
edascapi
talTher
efor
ecapi
talcanbe
12
 oft
wot
ypeshumancapi
talandphy
sicalcapi
tal
.Phy
sicalcapi
tal
smaybeofv
ari
ous
t
ypes:
1)Tool
s,machi
nes,
bui
l
dingcanbeusedf
orpr
oduct
ionpur
posef
ormanyy
ear
sandar
e
cal
l
edf
ixedcapi
tal
.
2)Ont
heot
herhandr
aw mat
eri
alsandmoneyi
nhandar
ecal
l
edwor
king
capi
tal
.
Humancapi
tal–Peopl
easr
esour
cei
sawayofr
efer
ri
ngt
ocount
ry’
swor
kingpeopl
e
i
nter
msoft
hei
rexi
sti
ngpr
oduct
iveski
l
lsandl
i
abi
l
iti
es.Looki
ngatt
hepopul
ati
onf
rom
t
hispr
oduct
iveaspectemphasi
sesi
tsabi
l
ityt
ocont
ri
but
etot
hecr
eat
ionoft
hegr
oss
nat
ionalpr
oduct
.Li
keot
herr
esour
cespopul
ati
onal
soi
sar
esour
ce-ahumanr
esour
ce.
Thi
sist
heposi
ti
vesi
deofal
argepopul
ati
ont
hati
sof
tenov
erl
ookedwhenwel
ookonl
y
att
henegat
ivesi
de,consi
der
ingonl
ythepr
obl
emswi
thf
ood,educat
ionandaccesst
o
heal
thf
aci
l
iti
es.Whent
heexi
sti
nghumanr
esour
cei
sfur
therdev
elopedbybecomi
ng
mor
eeducat
edandheal
thywecal
li
thumancapi
talf
ormat
iont
hataddst
othepr
oduct
ive
poweroft
hecount
ryj
ustl
i
kephy
sical
capi
tal
for
mat
ion.
I
nvest
menti
nhumancapi
talf
ormat
ion(
thr
ougheducat
ion,t
rai
ning,medi
calcar
e)
y
iel
dsar
etur
njustl
i
kei
nvest
menti
nphy
sicalcapi
tal
.Thi
scanbeseendi
rect
lyi
nthe
f
orm ofhi
gheri
ncomeear
nedbecauseofhi
gherpr
oduct
ivi
tyoft
hemor
eeducat
edort
he
bet
tert
rai
nedper
sonsaswel
lashi
gherpr
oduct
ivi
tyofheal
thi
erpeopl
e.
Justasacount
rycant
urnphy
sicalr
esour
cel
i
kel
andi
ntophy
sicalcapi
tall
i
ke
f
act
ory
,si
mil
arl
yitcanal
sot
urnhumanr
esour
cel
i
kest
udent
sint
ohumancapi
tall
i
ke
doct
ors,engi
neer
s.Soci
eti
esneedsuf
fi
cienthumancapi
tali
nthef
ir
stpl
acei
nthef
orm
ofcompet
entpeopl
ewhohav
ethemsel
vesbeeneducat
edandt
rai
nedaspr
ofessor
sand
ot
herpr
ofessi
onal
s.Thi
smeanst
hatweneedi
nvest
mentonhumancapi
talt
opr
oduce
mor
ehumancapi
tal
outofhumanr
esour
ces.
I
nfacthumancapi
tali
sinonewaysuper
iort
oot
herr
esour
cesl
i
kel
andandot
her
phy
sical
resour
ces.Humanr
esour
cecanmakeuseofl
andandot
herr
esour
ces.Landand
ot
hercapi
tal
cannotbecomeusef
uloni
tsown.
Di
ff
erencebet
weenphy
sicalandhumancapi
tal
:
Phy
sicalcapi
tal Humancapi
tal

13
1)I
tist
angi
bleandcanbesol
deasi
l
yin 1)I
tisi
ntangi
bleand notsol
dint
he
t
hemar
ketl
i
keanyot
hercommodi
ty mar
ket
.Onl
yser
viceofhumancapi
tali
s
2)I
tissepar
abl
efr
om i
tsowner
. sol
d.
3) I
tis compl
etel
y mobi
l
e bet
ween 2)I
tisi
nsepar
abl
efr
om i
tsowner
.
count
ri
es except some ar
ti
fi
cial t
rade 3)I
tis notper
fect
ly mobi
l
e bet
ween
r
est
ri
cti
ons.
. count
ri
esasmov
ementi
srest
ri
ctedby
4)Bot
hcapi
taldepr
eci
atewi
tht
imebut nat
ional
i
tyandcul
tur
e.
cont
inuous use ofphy
sicalcapi
tall
i
ke 4)I
ncaseofhumancapi
taldepr
eci
ati
on
machi
nel
eadst
odepr
eci
ati
onandchange t
akes pl
ace wi
th agi
ng but can be
oft
echnol
ogymakesi
tobsol
ete. r
educedbyheal
thcar
eandeducat
ion.
5)Nat
ureofbenef
it
sfl
owi
ngf
rom phy
sical 5)Humancapi
talbenef
it
snotonl
yit
s
capi
tali
s di
ff
erentf
rom t
hatofhuman ownerbutt
hesoci
etyi
ngener
ale.
gan
capi
tal
. Phy
sical capi
tal cr
eat
es onl
y educat
ed per
son can ef
fect
ivel
ytake
pr
ivat
ebenef
it
. par
tin a democr
ati
c pr
ocess and
cont
ri
but
e t
o t
he soci
o-economi
c
pr
ogr
essoft
henat
ion.
Ther
efor
ehuman
capi
talcr
eat
esbot
hpr
ivat
eanssoci
al
benef
it
s.

HumanCapi
tal
sandHumanDev
elopment
Human capi
talconsi
der
s educat
ion and heal
th as a means t
oincr
ease l
abour
pr
oduct
ivi
ty.HumanDev
elopmenti
sbasedont
hei
deat
hateducat
ionandheal
thar
e
i
ntegr
alt
ohumanwel
l
bei
ngbecauseonl
ythenpeopl
ehav
etheabi
l
ityt
oreadandwr
it
e
andabi
l
ityt
oleadal
ongandheal
thyl
i
fe.
Humancapi
talt
reat
shumanbei
ngasameanst
oend,anendbei
ngt
hei
ncr
easei
n
pr
oduct
ivi
ty.
I
nthehumandev
elopmentper
spect
ivehumanbei
ngsar
eendsi
nthemsel
ves
HumanCapi
talf
ormat
ion
1. I
nvest
menti
neducat
ioni
sconsi
der
edasoneoft
hemai
nsour
cesofhuman
capi
tal
.Ther
ear
esev
eralot
hersour
cesl
i
kei
nvest
menti
nheal
th,ont
hej
obt
rai
ning,
mi
grat
ionandi
nfor
mat
ionar
etheot
hersour
ceofhumancapi
tal
for
mat
ion.
2. HumanCapi
tal
andEconomi
cgr
owt
h
Weknow t
hatt
hel
abourski
l
lsofaneducat
edper
sonar
emor
ethant
hatofan
uneducat
edper
sonandt
hatt
hef
ormergener
atemor
eincomet
hant
hel
att
er.
14
 Economi
c gr
owt
h makes t
oincr
ease i
nrealnat
ionali
ncome ofa count
ry.
Nat
ural
l
ythecont
ri
but
ionofaneducat
edper
sont
oeconomi
cgr
owt
hismor
ethant
hat
ofani
l
li
ter
ate per
son.
I
faheal
thyper
soncoul
dpr
ovi
deuni
nter
rupt
edl
aboursuppl
yforal
ongerper
iodoft
ime,
t
henheal
thi
sal
soani
mpor
tantf
act
orsf
oreconomi
cgr
owt
h.
(
Capi
talf
ormat
ioni
sthei
ncr
easei
nthest
ockofcapi
tal
.Inv
est
menti
snecessar
yfor
capi
talf
ormat
ion.Thatpar
tofi
ncomewhi
chi
snotconsumedbutsav
edf
ori
nvest
ment
i
ssav
ing.
)
Thr
ough educat
ion,heal
thcar
e,on t
he j
ob t
rai
ning, j
ob mar
keti
nfor
mat
ion,
mi
grat
ioni
ncr
easesi
ndi
vi
dual
’
sincomegener
ati
ngcapaci
ty.Thi
senhancedpr
oduct
ivi
ty
ofhumanbei
ngorHumancapi
talcont
ri
but
essat
isf
act
orynotonl
ytowar
dsi
ncr
easi
ng
l
abourpr
oduct
ivi
tybutal
sost
imul
atesi
nnov
ati
venessandcr
eat
esabi
l
ityt
oabsor
bnew
t
echnol
ogi
es.

Money
Ev
olut
ionofmoney
:ther
ear
efi
vest
agesi
ntheev
olut
ionofmoney
.Theyar
e:
1.Bar
tersy
stem
2.Ani
mal
standar
d
3.Met
all
i
cst
andar
d
4.Coi
nage
5.Papermoney
Bar
tersy
stem maybeconsi
der
edast
hef
ir
stst
agei
ntheev
olut
ionofmoney
.Iti
s
t
ruet
hatt
her
ewasnouseofmoneyi
nthebar
tersy
stem.Butt
her
ewascommodi
ty
moneyascommodi
ti
esactast
hemedi
um ofexchangei
nthatsy
stem.Howev
ert
he
bar
tersy
stem br
okedownbecauseofi
tsi
nher
entdef
ici
enci
es.
I
nthesecondst
ageofev
olut
ionofmoneyani
mal
swer
eusedasmoney
.Inpar
ti
cul
ar
goat
swer
eusedasmedi
um ofexchange.Butt
her
ewer
eser
iousdi
ff
icul
ti
esl
i
kel
ackof
homogenousani
mal
s-heal
thy
,si
ck,
whi
te,
black,
etc.
The3r
dst
agewasmet
all
i
cst
andar
ds.Gol
dandsi
l
verwer
eusedasmoney
.Gol
dand
si
l
ver
,bei
ngv
aluabl
emet
als,wer
eaccept
anceast
hemedi
um ofexchange.Butt
her
e
wasal
so pr
obl
em.Ther
ewasaquest
ionwhet
hergol
d orsi
l
verwasf
akeorr
eal
.
Mor
eov
er,
itwasnotsaf
etocar
ryv
aluabl
emet
alsf
rom onepl
acet
oanot
herpl
ace.
Thus,camet
hef
our
thst
agei
ntheev
aluat
ionofmoney
.Thi
sist
hest
ageofcoi
nage.
Gol
dandSi
l
vercoi
nswer
emi
ntedoutofgol
dandsi
l
verbar
s.I
nthi
scaseconst
ant
15
suppl
yofgol
dandsi
l
verwasapr
obl
em andast
radeandcommer
cebegant
ospr
eadi
t
becamei
nconv
eni
entt
ocar
ryl
argeamount
sofsuchcoi
nsf
rom onepl
acet
oanot
her
pl
ace.
Becauseoft
hispr
obl
em coi
nagehadt
oyi
eldpl
acet
opapermoney
.Papermoney
her
aldedt
ofi
ft
hst
agei
ntheev
olut
ionofmoney
.Papermoneyhast ages-1stpaper
wost
moneywasconv
ert
ibl
eint
ogol
dorsi
l
verofequi
val
entv
alue.I
twast
henconv
ert
ibl
eor
r
epr
esent
ati
vepapermoney
.Inst
aget
wo-papermoneyi
tsel
fcamet
obeaccept
edas
money
.Itwasnol
ongeracl
aim agai
nstgol
dorsi
l
ver
.Thi
smoneyi
sinconv
ert
ibl
eornon
-
repr
esent
ati
vepapermoney
.Today
’smoneycomesundert
hiscat
egor
y.
Char
act
eri
sti
csofMoney
1.Moneymusthav
egener
alaccept
abi
l
ity
.Itmustbeaccept
abl
easamedi
um of
exchange.
2.Money musthav
e cogni
zabi
l
ity
.Ther
e shoul
d be absol
utel
y no di
ff
icul
tyi
n
i
dent
if
yingmoney
3.Moneymusthav
edur
abi
l
ity
.Ifmoneyi
sper
ishabl
eli
kesmi
l
k,egg,f
ish,i
tcannot
best
ored.
4.Moneymusthav
ehomogenei
ty.I
not
herwor
ds,moneyofequi
val
entv
aluemust
bei
dent
if
iedi
nal
lrespect
,ifonet
enr
upeenot
eisl
i
kear
ibboni
nsi
zeandgr
eat
er
asbi
gast
hesi
zeofr
efr
iger
atorsour
cet
her
ewi
l
lbepr
obl
em
5.Moneymusthav
eli
qui
dit
y.Li
qui
dit
yofmoneymeans di
rectand i
mmedi
ate
conv
ert
ibi
l
ityofmoneyi
ntogoodsandser
vicest
hatt
hehol
derofmoneycount
s.
I
nfactcompar
edt
oot
herasset
s,t
hedegr
eeofl
i
qui
dit
yismaxi
mum i
ncaseof
money
.
6.Moneymusthav
etr
ansf
erabi
l
ity
.Int
oday
’smoni
tor
yandbanki
ngsy
stem i
tisnot
ev
ennecessar
ytophy
sical
l
ytr
ansf
ermoneyt
oset
tl
etr
ansact
ion.
7.Moneymusthav
edi
vi
sibi
l
ity
.Iti
sthev
aluemoneymaybeconv
ert
edi
ntol
awv
alue
money
8.Moneymusthav
est
abi
l
ityofv
alue-i
fval
ueofmoneycont
inuest
ofal
lal
lthet
imes,
moneywi
l
lfai
ltoactast
hest
oreofv
alue.
Funct
ionofmoney
1.Moneyper
for
mst
hef
unct
ionofmedi
um ofexchange
2.Moneyact
sasast
andar
dofmeasur
ementofv
aluesandgoodsandser
vices
3.Moneyact
sasast
andar
dofdef
err
edpay
ment
-(
def
err
edpay
ment
sar
epay
ment
s
madel
ateronandnotatt
hepoi
ntoft
imewhent
hepr
oductorser
vicei
sdel
i
ver
ed
16
 t
othe cust
omer
).I
tist
aki
ng commodi
ti
es on cr
edi
t.Account
s ofal
lsuch
pay
ment
s ar
e expect
ed i
nter
ms ofmoney
.The account
s oft
ransact
ion i
s
mai
ntai
nedi
nthef
orm ofmoney
.
4.Moneyf
unct
ionsast
hest
oreofv
alue.
Ty
pesor cl
assi
fi
cat
ionofmoney
I
nabr
oadsensemoneyi
soft
wot
ypes-moneyofaccountandmoneypr
oper
.Money
ofaccounti
smer
elyaconcept
,orabst
racti
dea.I
tdoesnotunder
gochange.Money
pr
operchangesi
tsel
ffr
om t
imet
oti
me.Commodi
tymoney
,ani
malmoney
,met
all
i
c
moneyandpapermoneyar
eal
lmoneypr
operatdi
ff
erentpoi
ntsoft
ime.Money
pr
operi
sofdi
ff
erentt
ypes.Thesear
e-
1.Commodi
tymoney
:int
hebar
tersy
stem commodi
tywast
hemedi
um ofexchange.
I
twasbot
hmoneyofaccountandmoneypr
oper
.
2.Ani
malmoney
:Ani
mal
swer
eusedasmoney
,par
ti
cul
arl
ygoat
s.Goat
swer
ethe
medi
um ofexchange.I
twasmoneypr
operaswel
lasmoneyofaccount
.
3.Met
all
icmoney
:Incour
seoft
ime,
gol
dandsi
l
vercamet
obeusedast
hemedi
um
ofexchange.I
twast
hest
ageofmet
all
i
cmoney
.Itwasal
somoneyofaccount
.
4.Papermoney
:Ithasr
epl
acedmet
all
i
cmoneyasi
tiseasyt
ocar
ry.Ear
li
eron,
papermoneywasconv
ert
ibl
eorr
epr
esent
ati
vepapermoneyasi
twasconv
ert
ibl
e
i
nto gol
d orsi
l
verofequi
val
entv
alue.Today
’s papermoney howev
eri
s
i
nconv
ert
ibl
eornon-
repr
esent
ati
vepapermoneyasi
tisnol
ongerconv
ert
ibl
eint
o
gol
dorsi
l
ver
.Iti
snol
ongeracl
aim agai
nstgol
dorsi
l
ver
;iti
smoneyi
nit
sown
r
ight
.Iti
susedast
hemedi
um ofexchangeandaccount
sar
eal
somai
ntai
nedi
n
t
hef
orm ofpapermoney
.Thus,i
tisal
sobot
hmoneyofaccountandmoney
pr
oper
.
5.Legalt
endermoney
:whent
hegener
alaccept
abi
l
ityofmoneyasamedi
um of
exchangei
ssuppor
tedbyt
hel
awoft
hel
andi
tisl
egalt
endermoney
.Ref
usalt
o
accepti
tast
hemedi
um wi
l
lbev
iol
ati
onoft
hel
aw.I
tisoft
wot
ypes-l
i
mit
edand
unl
i
mit
edl
egal
tender
.
6.Non-
legalt
endermoney
:Whent
hegener
alaccept
abi
l
ityofmoneyasamedi
um of
exchangehasnol
egalsuppor
titbecomesnon-
legalt
endermoney
.Ref
usalt
o
acceptt
hismoneywi
l
lnotmeananyv
iol
ati
onoft
hel
awoft
hel
and.
7.Fi
atmoney
:Fi
atmeanst
heaut
hor
it
yort
hepoweroft
hest
ate.Moneysuppor
ted
byt
hef
iatoft
hest
atei
sfi
atmoney
.
8.Tokenmoney
:Whent
hef
acev
alueorwr
it
tenv
alueorembossedv
alueofmoney
17
 i
shi
ghert
hani
tsi
ntr
insi
cormet
all
i
cval
ue,
itbecomest
okenmoney
.
9.Chequemoney
:Achequei
snotl
egalt
endermoney
.Ani
ndi
vi
dualmayr
efuset
o
acceptpay
menti
ncheque.Ther
eisnov
iol
ati
onoft
hel
awoft
hel
and.Achequei
s
acl
aim agai
nstmoney
.Achequei
sencashedatt
hecount
eroft
hebank.
10.
Standar
dmoney
:Iti
sauni
tofmoney
.Thev
aluesofot
heruni
tsofmoneyar
e
r
elat
edt
oit
.InI
ndi
a,t
heRupeei
sthest
andar
dmoney
.Onepai
sai
sauni
tandi
tis
oneper
centof100pai
se.
11.
Hotmoney
:Moneyt
hatgoesoutoft
hecount
ryi
nthef
aceofsoci
o-economi
c
di
sor
deranduncer
tai
ntyi
nthecount
ryi
shotmoney
.Iti
sal
soknownasner
vous
money
.
12.
DearMoney
:itr
esul
tsf
rom cent
ralbanki
ngact
ion.Whenf
orexampl
e,I
ndi
a’
s
Cent
ral
Bank,
theReser
veBankofI
ndi
a(RBI
)rai
sesi
tsr
ateofi
nter
estt
hemember
bankswi
l
lbor
rowl
essf
rom t
heRBI
.Int
hei
rtur
n,t
hememberbankswi
l
lrai
set
hei
r
r
atesofi
nter
estasar
esul
tofwhi
cht
hebor
rower
swi
l
lbor
row l
essf
rom t
he
memberbanks.
13.
Easyorcheap money
:when t
heCent
ralBankr
educest
hei
nter
estr
atet
he
memberbanks bor
row mor
efr
om t
he Cent
ralBankand l
end mor
etot
hei
r
bor
rower
s.Moneyt
husbecomescheaper
.
14.
Blackmoney
:Iti
snotadi
sti
nctt
ypeofmoney
.Anymoneycanbecomewheni
tis
gener
atedt
hrougheconomi
cof
fence.Forexampl
e,t
axev
asi
oni
saneconomi
c
of
fence.
15.
Highpowermoney
:Outoft
het
otalmoneysuppl
yint
hecount
ryt
hatpar
twhi
chi
s
undert
hedi
rectcont
roloft
hecount
ry’
sCent
ralBanki
shi
gh-
powermoney
.By
meansoft
hismoneyt
heCent
ralBankcani
ncr
easeordecr
easet
hemoneysuppl
y
i
nthecount
ry.
Fact
orsofPr
oduct
ion
ThePr
imar
yobj
ect
iveofev
eryeconomyi
stomakenecessar
ygoodsandser
vice
av
ail
abl
etoi
tsi
nhabi
tant
s,sot
hatt
heycansat
isf
ythei
rwant
s.I
nor
dert
oachi
evet
his
obj
ect
ive ev
eryi
ndi
vi
dualorgr
oup ofi
ndi
vi
dual
s engage t
hemsel
ves i
n economi
c
act
ivi
ti
esandpr
oducegoodsandser
vices.Thei
nhabi
tant
soft
heeconomyconsume
goodsandser
vices.Want
s,asweknow,
areunl
i
mit
edandr
ecur
ri
ngi
nnat
ure,
sowef
eel
t
henecessi
tyoft
hesameandnew goodst
osat
isf
yourwant
s.I
nor
dert
omeett
hese
want
s,goods and ser
vices ar
efur
therpr
oduced and consumed.Thi
s pr
ocess of

18
consumpt
ionandpr
oduct
iongoesonagai
nandagai
n.I
not
herwor
dswecansayt
hat
pr
oduct
ioni
sanunendi
ngact
ivi
tyorcont
inuouspr
ocessbecausewant
sar
eendl
ess.
Pr
oduct
ion i
sther
esul
tofef
fect
ive cont
ri
but
ion ofl
and,l
abour
,capi
taland
ent
erpr
ise.Al
lthesef
act
orsofpr
oduct
ionhav
etowor
ktoget
herandcont
ri
but
ethei
r
wor
thf
orbet
terandmor
epr
oduct
ion.I
nthi
swaypr
oduct
ionpr
ocessi
sthei
ntegr
ati
onof
l
and,
labour
,capi
tal
andent
erpr
isef
ort
hepur
poseofpr
oduci
nggoodsandser
vices.
1)Land-I
nor
dinar
ylanguagel
andmeanssoi
lort
hesur
faceoft
heear
th.I
neconomi
cs
l
andr
efer
stoal
lthef
reegi
ft
sofnat
ure–ont
hesur
faceoft
heear
th(
soi
lbel
ow t
he
sur
face oft
he ear
th,e.
g.mi
ner
als and abov
ethe sur
face oft
he ear
th e.
g.-t
he
at
mospher
e,t
her
aysofsunandsoon)
.
I
tist
obenot
edt
hatal
thoughl
andcov
ersal
lthegi
ft
sofnat
ure,y
ett
hest
udyof
t
hesegoodswi
l
lnotbeapar
toft
hesubj
ectmat
terofeconomi
cs,whi
char
efr
eegoods
andwhi
ch,t
her
efor
e,donotcr
eat
eanyeconomi
cpr
obl
em orpr
obl
em oft
hechoi
ce.
Hencel
andi
neconomi
cswi
l
lmeant
hosegoodswhi
char
enotcr
eat
edbyhumanl
abour
andy
etar
eli
mit
edi
nsuppl
y.I
nthi
ssensel
andi
sweal
th.Landhasut
il
it
y.
Accor
dingt
omoder
neconomi
csonl
ysuchnat
uralr
esour
ceswhi
chcanbeowned
bymenandwhi
chcany
iel
dincomear
eincl
udedi
nland.
Char
act
eri
sti
csofl
and
1.Landi
sthegi
ftofnat
ureassuchi
thasnocostofpr
oduct
ion.
2.Thesuppl
yofl
andi
sunl
i
mit
ed.
3.Landdi
ff
ersi
nqual
i
ty.
4.Landl
ocat
esgeogr
aphi
cal
mobi
l
ity
.
5.The l
aw ofdi
mini
shi
ng r
etur
n ort
he l
ow ofi
ncr
easi
ng costi
s par
ti
cul
arl
y
appl
i
cabl
einr
espectof l
and
I
mpor
tanceofLand
Landassumesi
mpor
tancef
ort
hef
oll
owi
ngr
eason–
1.Pr
oduct
ionofagr
icul
tur
alcr
ops.
2.Rai
singofl
i
vest
ock.
3.Pr
oduct
ionofi
ndust
ri
ali
zedgoods.
4.Forext
ract
ionofmi
ner
als,
pet
rol
eum,
preci
ousmet
als,
wat
er.
5.Fort
ranspor
t.
6.I
tinf
luencesl
i
fest
yle,
income,
standar
dofl
i
vingofpeopl
eindi
rect
ly.
Pr
oduct
ivi
tyofl
andi
sinf
luencedby–

19
 1.Nat
ural
fact
orsl
i
ker
ainf
all
,coast
li
ne,cl
i
mat
e.
2.Humanf
act
or–har
dlabour
,appl
i
cat
ionoft
echnol
ogy
.
3.Locat
ionf
act
ors–si
tuat
ioni
nci
tyur
banorr
ural
area.
2)Labour
:labouri
sthephy
sicalandment
alexer
ti
onofani
ndi
vi
dualwhi
chl
eadt
o
gener
ati
onofi
ncome.Labouri
snecessar
ytopr
oducebot
hmat
eri
alandnon-
mat
eri
al
goods.Howev
er,Adam Smi
th makes a di
sti
nct
ion bet
ween pr
oduct
ivel
abourand
unpr
oduct
ivel
abour
.Accor
dingt
ohi
m pr
oduct
ivel
abourcr
eat
esmat
eri
algoodsand
unpr
oduct
ivel
abourcr
eat
esnon-
mat
eri
algoods(
ser
vices)
.Butt
hisconcepthasnot
been accept
ed byt
he l
atereconomi
stbecause pur
chasi
ng poweri
s necessar
yto
pur
chasebot
hmat
eri
alandnon-
mat
eri
algoods.Bot
hmat
eri
alandnon-
mat
eri
algoods
gener
atewel
far
e.
Char
act
eri
sti
csofLabour–
1.Thel
abourcannotbesepar
atedf
rom t
hel
abour
er.
2.Labourcannotbest
oredup.Labouroncel
ost
,isl
ostf
orev
er.
3.Thebur
gai
ningpowerofl
abouri
sweak.Ther
eisnoscopef
orsuppl
yofl
abour
unl
esst
her
eisdemandf
orl
abourf
rom i
tspr
oducer
s.
4.Labouri
sinf
luencednotonl
ybywagesPai
dfori
t,butal
sobyot
herf
act
orsl
i
ke
wor
kenv
ironment
,thel
engt
hofwor
kinghour
s,r
ecr
eat
ionandsoon.
5.Thesuppl
yofl
abourt
endst
ofal
last
hewager
ater
isesl
eadi
ngt
ori
sei
nthe
st
andar
dofl
i
ving.
6.Thecont
ri
but
ionofl
abourt
othepr
ocessofpr
oduct
ioni
sinf
luencedbyt
wo
f
act
ors
A.Thesi
zeofpopul
ati
on.
B.Ef
fi
ciencyofl
abour
.
7.Labourdi
ff
ersi
nef
fi
ciency
.
8.Labouri
smuchl
essmov
abl
ethancapi
talandot
hergoodsduet
othef
actt
hat
l
abouri
sahumanbei
nganddev
elopsf
eel
i
ngsofl
oveandat
tachmentandsohe
cannoteasi
l
ymov
efr
om onepl
acet
oanot
her
.
3)Capi
tal–capi
tali
sthepr
oducedmeansofpr
oduct
ion.I
tdi
ff
ersf
rom l
andont
he
gr
oundt
hatl
andi
sthegi
ftofnat
urebutcapi
tali
smanmade.Capi
talmeansweal
tht
hat
i
susedf
orpr
oduci
ngaddi
ti
onalweal
th.I
tref
erst
oal
lmanmadeweal
thorgoodswhi
ch
ar
eusedf
orf
urt
herpr
oduct
ion.Thesegoodsar
ecal
l
edcapi
talgoods.Ther
efor
ecapi
tal
i
ncl
udescash,manmader
aw mat
eri
al,t
ool
s,i
mpl
ement
s,machi
nes,v
ehi
cles,f
urni
tur
e,
bui
l
dinget
c.
20
Char
act
eri
sti
csofweal
th–
i
. Capi
tal
iscr
eat
edbymen;
iti
snotagi
ftofnat
ure.
i
i
. Thesuppl
yofcapi
tal
ismor
eel
ast
ict
hansuppl
yofl
and.
i
i
i. Al
lcapi
tali
sweal
thbecauseal
lchar
act
eri
sti
csofweal
thl
i
keut
il
it
y,scar
cit
y,
t
ransf
erabi
l
ityandext
ernal
i
tyar
epr
esenti
ncapi
tal
.
i
v. Capi
tal
ispr
oduct
ive.Theuseofcapi
tal
incr
easespr
oduct
ion.
v
. Thesuppl
yofcapi
tal
isasour
ceofi
ncome.
v
i. Capi
talgr
ows outofsav
ings.(
Sav
ing i
sthatpar
tofi
ncome whi
ch i
s not
consumed.Sav
ingi
sconv
ert
edt
ocapi
tal
.)
v
ii
. Capi
tal
ist
empor
ary
.
v
ii
i. Capi
tal
issepar
abl
efr
om oneownerandi
smobi
l
efr
om onepl
acet
oanot
her
.
i
x. Capi
tal
canbev
ari
abl
efact
orasi
tcanbei
ncr
easedordecr
eased.
x. I
tisanexhaust
ibl
efact
orasi
tcanbeusedupi
nthepr
ocessofpr
oduct
ion.
xi
. Al
lcapi
tali
saweal
thbutal
lweal
thi
snotcapi
tal
.Onl
ythatweal
thi
scapi
talwhi
ch
i
susedf
orpr
oduct
ion.
Cl
assi
fi
cat
ionof capi
tal
Ther
ear
esev
eral
basesofcl
assi
fi
cat
ion–
A.Ont
hebasi
sofdegr
eeofdur
abi
l
itycapi
tal
iscl
assi
fi
edi
nto
i
. Fi
xedcapi
tal
and
i
i
. Ci
rcul
ati
ngcapi
tal
orwor
kingcapi
tal
Fi
xedcapi
talr
efer
stodur
abl
egoodsl
i
kebui
l
ding,machi
ner
yet
c.whi
chcanbe
usedf
ormanyy
ear
s.Ci
rcul
ati
ngcapi
talorwor
kingcapi
talr
efer
stot
hosegoodswhi
ch
canbeusedonl
yoncei
nthatf
orm.Fuel
,rawmat
eri
alsar
eci
rcul
ati
ngcapi
tal
.
B.Basedont
hescopef
oral
ter
nat
ive–
i
. Sunkcapi
tal
i
i
. Fl
oat
ingcapi
tal
Sunkcapi
talr
efer
stot
hatcapi
talwhi
chcanbeusedonl
yforspeci
fi
cpur
pose.
Ther
eisnoal
ter
nat
iveuse.Rai
l
wayl
i
nes,pr
int
ingmachi
neet
c.cannotbeusedf
or
any
thi
ngot
hert
hanf
orwhatt
heyar
emeant
.
Fl
oat
ingcapi
tal
ref
erst
othatcapi
tal
whi
chcanbeputt
oal
ter
nat
iveuse.Cash,
fuel
et
c.Ont
hebasi
sofowner
shi
p
i
. Mat
eri
alcapi
tal
–li
kebui
l
ding,
machi
ner
yet
c.
i
i
. Per
sonal
capi
tal
–li
keski
l
ls,
int
ell
i
gence,
exper
ienceofwor
ks.
C.Ont
hebasi
sofexpr
essi
on
21
 i
. Moneycapi
tal
–capi
tal
isexpr
essedi
nter
msofmoney
.
i
i
. Real
capi
tal
–capi
tal
isexpr
essedi
nter
msofbui
l
ding,
machi
ner
y.
ORGANI
SATI
ONORENTERPRI
SE
Or
gani
zat
ion i
s an i
mpor
tant f
act
or of pr
oduct
ion.The or
gani
ser or t
he
ent
repr
eneurort
hecapt
ainoft
hei
ndust
ryi
sonewhomobi
l
isest
het
hreeot
herf
act
ors
–Land,
LabourandCapi
tal
andmakeuseoft
hef
act
orsi
naco-
ordi
nat
edmannerandt
oa
def
ini
tepl
an.I
nrecentt
ime,
ther
eisnoendofmul
ti
pli
cat
ionofwant
s.Newcommodi
ti
es
ar
eent
eri
ngt
hemar
ketatr
api
dpace.Thescal
eofpr
oduct
ionhasexpandedandhas
becomemor
ecompl
ext
hanev
erbef
ore.I
nthi
schangedci
rcumst
ancesi
nmostoft
he
cases,i
tisnol
ongerpossi
blef
orani
ndi
vi
dualt
ocar
ryoutt
hepr
oduct
ionpr
ocesswi
th
hi
sownl
and,
labourandcapi
tal
.Inst
ead,
hehast
opul
lresour
cesf
rom di
ff
erentsour
ces.
Hemobi
l
izesl
and,l
abourand capi
tal
,ut
il
izest
hesei
nput
sin cer
tai
n pr
opor
ti
ont
o
pr
oduceagi
venamountoft
heout
put
.Hehast
o becomet
heco-
ordi
nat
ororor
gani
ser
orent
repr
eneurwhoact
sint
hel
i
ghtofapr
oduct
ionf
unct
ionwhi
chhehassel
ect
edf
or
hi
msel
f.
Funct
ionsofent
repr
eneur–
Thesear
edi
vi
dedi
ntot
wo– i
)Int
ernal
.
i
i
)Ext
ernal
.
Asi
nter
nal
funct
ions,
theor
gani
serhast
otakeanumberofsi
gni
fi
cantdeci
sions–
whatcommodi
tyi
stobepr
oducedwhenandwhatamount
,whatt
echni
queofpr
oduct
ion
wi
l
lbeappl
i
ed,
whatwi
l
lbet
hesi
zeoft
hepr
oduct
ionuni
t,howt
odeci
det
hel
ocat
ionof
t
heuni
t,whatmet
hodswi
l
lbeadopt
edt
omobi
l
isecapi
talf
ort
heuni
tandsoonar
e
someoft
hecr
it
icaldeci
sionwhi
cht
heor
gani
serhast
otakeasapar
tofhi
sint
ernal
f
unct
ion.
Theext
ernalf
unct
ionsoft
heor
gani
serar
enol
essi
mpor
tant
.Theent
repr
eneur
hast
obearuncer
tai
nti
es.Thedemandoft
hecommodi
ty,t
hepr
iceofr
awmat
eri
alsand
t
hei
rsuppl
y,t
het
ast
eandpr
efer
enceofconsumer
sandsoonar
enotconst
ant
.Int
he
pr
esence of uncer
tai
nti
es t
he ent
repr
eneur t
akes t
he deci
sion t
o pr
oduce.The
ent
repr
eneuri
sani
nnov
ator
.Ont
hebasi
sofnewdev
elopmenti
nsci
enceandt
echnol
ogy
hemakesanat
temptt
oinnov
atenewmet
hodofpr
oduct
ion,newcommodi
ti
esandnew
mar
ket
s.I
tist
heuncer
tai
ntyf
act
ort
hatdi
sti
ngui
shest
heent
repr
eneurf
rom t
hesal
ari
ed
manager
.Whi
l
ethe sal
ari
ed manageri
s notr
equi
red t
o bearany uncer
tai
ntyi
n
pr
oduct
ion,
theent
repr
eneurhast
obearal
otofsuchuncer
tai
nti
es.

22
 Theear
ningoft
heent
repr
eneuri
ssubj
ectt
owi
def
luct
uat
ion.I
fhi
sdeci
sionsgo
wr
onghewi
l
lincurheav
ylosses.Her
einl
i
esabasi
cdi
sti
nct
ionbet
weent
heent
repr
eneur
ont
heonehandandt
her
estoft
hef
act
orsofpr
oduct
ionont
heot
her
.whi
l
eincaseof
ot
herf
act
orsofpr
oduct
ioni
ncome i
sal
way
sposi
ti
ve,i
ncaseofent
repr
eneurt
he
i
ncomemayt
urnt
obenegat
ive.
I
tisal
sot
obenot
edt
hatt
hei
ncomeoft
heor
gani
seri
sar
esi
duali
ncome
i
.e.af
termaki
ngpay
ment
stol
and,l
abourandcapi
tal
,what
everr
emai
nsi
sthe
i
ncomeoft
heor
gani
ser
.
I
nshor
tfunct
ionsoft
heor
gani
serar
e–i
)Pl
anni
ng
i
i
)Execut
ion
i
i
i)Managementandsuper
visi
on
i
v)Mar
ket
ing
v
)Innov
ati
on
v
i)Ri
skbear
ing
Pl
anni
ng–Theent
repr
eneurhast
opl
anbef
orehandt
hepr
oduct
,thev
olume,
time,
pl
ace,
techni
queet
c.connect
edt
othebusi
nessent
erpr
ise.
Execut
ing– Ent
repr
eneurhast
orai
secapi
tal
,acqui
rel
and,const
ructbui
l
ding,
i
nst
allmachi
ner
y,buy machi
ner
y,buy r
aw mat
eri
al,empl
oy per
sonneland st
art
pr
oduct
ion.
ManagementandSuper
visi
on–Af
tert
hest
artofpr
oduct
ion,ent
repr
eneurmust
managet
oseet
hatr
ightper
soni
sgi
venr
ightj
ob,t
her
emustbepr
operdeci
sionof
l
abour andpr
opersuper
visi
ont
oseet
hatt
her
ewi
l
lbenowast
ageofr
esour
cesand
ensur
epr
operut
il
isat
ionofl
abourf
orceaswel
lasmat
eri
alsi
npr
oduct
ion.
Mar
ket
ing–Oncet
hepr
oduct
sar
ereadyt
heyhav
etobe mar
ket
edbyadopt
ing
bestmar
ket
ingt
echni
queandt
hroughpr
operadv
ert
isement
.Cont
actwi
thwhol
esal
ers
andr
etai
l
ersmustbeest
abl
i
shedort
heent
repr
eneurmustest
abl
i
shhi
sownr
etai
l
net
wor
k.
I
nnov
ati
on– Ent
repr
eneurmusti
ntr
oducei
nnov
ati
ons.Hemusti
ntr
oducenew
pr
oduct
stosat
isf
ythechangi
ngneedsoft
heconsumer
s,i
ntr
oducenew t
echni
queof
pr
oduct
ion,
newr
awmat
eri
alsi
npr
oduct
ionanddi
scov
ernewuse.
Ri
skbear
ing–Ther
iskconcer
nedwi
tht
hewhol
ebusi
nessmustbebor
nebyt
he
ent
repr
eneur
.
Qual
it
iesofsuccessf
ulent
repr
eneur–

23
 i
. Knowl
edgeoft
het
rade
i
i
. Leader
shi
p
i
i
i. PowerofJudgement
i
v. Cour
age
v
. Goodsal
esmanshi
p
v
i. Forsi
ght
v
ii
. I
ntel
l
igence
Ty
pesofBusi
nessOr
gani
zat
ionorBusi
nessEnt
erpr
ises–
Busi
nessor
gani
zat
ionsar
eoft
hef
oll
owi
ngt
ypes–
i
. Sol
epr
opr
iet
orshi
p
i
i
. Par
tner
shi
p
i
i
i. Joi
ntst
ockcompany
4. Co-
oper
ati
vesoci
ety
v
. Publ
i
csect
orcompany
.
Sol
epr
opr
iet
orshi
p-Si
ngl
eownerent
erpr
isei
scal
l
edsol
epr
opr
iet
orshi
pbusi
ness
orent
erpr
ise.Smal
lbusi
nessl
i
ker
unni
ngasmal
lli
vest
ockuni
t,pet
tyshop,smal
lhot
el,
ser
vice cent
re ar
e exampl
es ofsol
e pr
opr
iet
orshi
p.I
nthi
sty
pe ofbusi
ness t
he
pr
opr
iet
orshi
pownscont
rol
sandenj
oysal
lthepr
ofi
tsofhi
sbusi
ness.Heal
sobear
s
t
otal
riskoft
hebusi
ness.
Par
tner
shi
p–whenev
erf
air
lyl
argesumsofcapi
tal
arer
equi
red,
singl
eownermay
notbeabl
etopr
ovi
dei
t.I
nsuchcasesmor
ethanoneper
sonupt
oamaxi
mum t
en
per
soni
ncaseofbanki
ngent
erpr
ises and upt
oamaxi
mum oft
went
yper
soni
not
her
non-
banki
ngent
erpr
isescanj
oint
oget
her
,andcont
ri
but
etot
hecapi
taloft
hebusi
ness
andshar
ethepr
ofi
tsonaagr
eed t
erms.Thi
siscal
l
edpar
tner
shi
por
gani
zat
ion.Her
e,
t
her
ear
echancesofmi
sunder
standi
ngamongpar
tner
sandt
her
emaybenopr
oper
cont
rol
.Somet
imesonepar
tnermayt
ryt
ocheatt
heot
herpar
tnerandul
ti
mat
elyl
eadi
ng
t
othecol
l
apseatpar
tner
shi
p.Ther
ear
etwot
ypesofpar
tner
shi
p–
a)Gener
alpar
tner
shi
p
2)Li
mit
edpar
tner
shi
p
I
ngener
alpar
tner
shi
pli
abi
l
ityofpar
tner
shi
pisunl
i
mit
ed.Thi
sty
pei
scommoni
n
I
ndi
a.
I
nli
mit
edpar
tner
shi
p,t
hel
i
abi
l
ityofsomespeci
alpar
tner
sisl
i
mit
edonl
ytot
he
ext
entoft
hei
rcapi
talcont
ri
but
ion.Butl
i
abi
l
ityi
sunl
i
mit
edt
ooneormor
eoft
he ot
her

24
par
tner
s.Si
ncet
hel
i
mit
edpar
tner
sli
abi
l
ityi
sli
mit
ed,hi
sri
ght
sar
eal
sor
est
ri
ctedand
t
heycannott
akepar
tint
hemanagementoft
hebusi
ness.
Joi
ntst
ockcompany–I
tisacompanyl
i
mit
edbyshar
eshav
ingaper
manentpai
d
upornomi
nalshar
ecapi
taloff
ixedamounthel
dandt
ransf
erabl
easst
ockandf
ormed
ont
hepr
inci
pleofhav
ingi
nit
smember
sonl
ythehol
der
soft
hoseshar
esorst
ockand
noot
herper
sons.
Aj
ointst
ockcompanyhasi
tssepar
atel
egalexi
stenceapar
tfr
om t
hemember
s
const
it
uti
ng i
t.A company has per
pet
uit
y,l
i
mit
ed l
i
abi
l
ity
,unl
i
mit
ed member
shi
p,
par
ti
cul
arl
yinpubl
i
cli
mit
edcompany(
mini
mum i
ssev
en)
.Howev
eri
napr
ivat
eli
mit
ed
companyt
hemaxi
mum member
shi
pisf
if
ty(
50)excl
udi
ngt
heempl
oyeemember
soft
he
companyandt
hemi
nimum i
stwo(
2).Whi
l
etheshar
e-hol
der
sar
etheowner
soft
he
company
,themanagementoft
hecompanyi
sent
rust
edt
oaboar
dofdi
rect
ors.Shar
es
canbet
ransf
err
edf
rom onehol
dert
oanot
herwi
thoutconsul
ti
ng.Li
abi
l
ityi
sli
mit
edonl
y
t
otheper
sonal
proper
tyoft
heshar
e-hol
der
s.Ther
ear
eanumberofst
atut
oryr
egul
ati
ons
t
othecompany
.
Co-
oper
ati
vesoci
eti
es–Aco-
oper
ati
vesoci
etyi
sav
olunt
aryor
gani
zat
ionf
ormed
mai
nlyt
opr
omot
eeconomi
cint
erest
sofi
tsmember
s.Member
shav
eequalr
ight
s.Aco-
oper
ati
vesoci
etyhast
hemot
toof “
eachf
oral
landal
lforeach”
.Exampl
esofco-
oper
ati
vesoci
eti
esar
epr
imar
ymi
l
kco-
oper
ati
vesoci
eti
esatv
il
lagel
evel
,mi
l
kuni
onat
di
str
ictl
evel
etc.
Publ
icsect
orcompany– anycompanyunder
takenandr
unbyl
ocal
,st
ateor
cent
ralgov
tiscal
l
edpubl
i
csect
orunder
taki
ngorcompany
.Publ
i
csect
orcompanyi
srun
mai
nlyt
obr
ingaboutr
api
deconomi
cdev
elopmentandt
ofi
ndhugeamountofcapi
tal
needed f
orl
arge pr
oject
sli
ke r
ail
way
s,shi
p bui
l
ding,et
c e.
g Bhar
atel
ect
roni
cs,
Hi
ndusht
anMachi
net
ool
s,Bhar
atheav
yEl
ect
ri
calLi
mit
ed.
Demand
Meani
ng–Demandi
snotamer
edesi
ref
oracommodi
tyoraser
vice.Demandi
sadesi
re
orwantsuppor
tedbynecessar
ypur
chasi
ngpowere.
g.abeggar
’swantofamor
selof
f
oodi
snotdemandast
hebeggardoesnotpossesst
henecessar
yamountofmoneyt
o
buyi
t.
Demandi
sal
way
sdemandatapr
ice.Demandf
oracommodi
tywi
l
lbewi
thr
efer
encet
o
pr
iceoft
hecommodi
tyi
.edemandatapr
iceatapoi
ntoft
ime.Atdi
ff
erentt
imest
he
demandwi
l
lbedi
ff
erent
.

25
LawofDemand:Thel
awofdemandst
atest
hat
,ot
hert
hingsbei
ngequal
,ast
hepr
iceof
t
hecommodi
tyr
ises, t
hedemandf
ort
hecommodi
tyf
all
sandast
hepr
iceoft
he
commodi
tyf
all
sthedemandf
ort
hecommodi
tyr
ises.Thedemandf
orcommodi
tyand
i
tspr
icear
einv
ersel
yrel
ated.
Thedemandf
unct
ion

Dx=⨍(
PxPyP2YT)

Dx=t
hedemandf
orcommodi
ty
Px =Pr
iceofcommodi
tyx
Py=Pr
iceofcommodi
tyy
Pz=Pr
iceofcommodi
tyz
Y=I
ncomeoft
hei
ndi
vi
dual
.
T=Tast
esandpr
efer
encesoft
hei
ndi
vi
dual
.
Now accor
dingt
othel
aw ofdemand,t
hedemandf
orcommodi
tyxwi
l
lri
sewheni
ts
pr
icef
all
sandi
tsdemandwi
l
lfal
lwheni
tspr
icer
ises,pr
ovi
dedot
hert
hingsr
emai
n
const
antordonotchangei
.e.Px,
Py,
Pz,
YandTar
econst
ant
.
Demandschedul
e:Thel
awofdemandcanbeexpl
ainedwi
thdemandschedul
e.A
demandschedul
eshowsdi
ff
erentquant
it
iesofacommodi
tydemandedatdi
ff
erent
pr
icesdur
ingapar
ti
cul
arper
iodoft
ime.Ther
ear
etwot
ypesofdemand–I
ndi
vi
dual
demandschedul
eandmar
ketdemandschedul
e.
Ani
ndi
vi
dualdemandschedul
eshowst
hedi
ff
erentamount
sofacommodi
ty
demanded byan i
ndi
vi
dualatdi
ff
erentpr
ices.On t
he cont
rar
y,a mar
ketdemand
schedul
eshowst
hev
ari
ousamount
sofacommodi
tydemandedbyal
lindi
vi
duali
nthe
mar
ketatv
ari
ouspr
ices.I
not
herwor
ds,
amar
ketdemandschedul
emaybet
akenast
he
sum t
otalofi
ndi
vi
dualdemandschedul
esr
elat
ingt
oapar
ti
cul
arcommodi
ty.Ademand
schedul
eisshownbel
ow.
Pr
ice Quant
it
ydemanded
Rs.5 8uni
ts
Rs.4 10 -
Rs.3 12 -
Rs.2 15 -
Rs.1 20 -

Di
ff
erentt
ypesofDemand

26
 Joi
ntdemand–Joi
ntdemandi
sgener
atedwhent
woormor
ecommodi
ti
esar
e
necessar
ytosat
isf
ythesamewantofani
ndi
vi
dual
.Thedemandf
orsuchcommodi
ti
es
asi
nkandpen,mot
orcarandpet
rol
,shoeandpol
i
shandsoonar
eexampl
esofj
oint
demand.I
ncaseofj
ointdemand,ast
hepr
iceofonecommodi
tychangesl
eadi
ngt
o
changei
nit
sdemand,
thedemandf
ort
heot
hermayal
sounder
gosi
mil
archangesbuti
ts
pr
icemayr
emai
nunchanged.
Der
iveddemand–I
tisgener
atedwhendemandf
oracommodi
tyi
sder
ivedoutof
i
tsdemandf
oranot
hercommodi
tye.
g.demandf
orahouse cr
eat
esdemandf
orbr
icks,
sand,st
eelandsoon.Thedemandf
ort
hesemat
eri
alsi
sder
iveddemandasi
thas
emer
gedoutoft
hedemandf
ort
hehouse.
Composi
tedemand–Composi
tedemandi
scr
eat
edwhent
hesamecommodi
ty
i
sindemandt
osat
isf
yvar
iouswant
s.E.
g.t
hedemandf
orsheepmaybef
ori
tswool
,i
ts
meatandi
tsski
n.
Thedi
ff
erencebet
weencomposi
tedemandandj
ointdemandi
sthati
ncaseof
composi
tedemandt
hesamecommodi
tysat
isf
iesanumberofdemands.I
ncaseofj
oint
demandt
woormor
ecommodi
tyar
enecessar
ytosat
isf
ysamedemand.

Pr
iceel
ast
ici
tyofdemand–
Meani
ng–t
hel
awofdemandst
atest
hatwhent
hepr
iceofacommodi
tychanges,
i
tsdemandf
ort
hecommodi
tyal
so changesbuti
nopposi
tedi
rect
ionot
hert
hings
r
emai
ningequal
.Butt
hel
awofdemanddoesnott
ell
usbyhowmucht
hedemandf
ort
he
commodi
tychangesbecauseofchangesi
nit
spr
ice.
Pr
ice el
ast
ici
tyofdemand i
s def
ined as t
he per
cent
age change i
n quant
it
y
demandeddi
vi
dedbyt
heper
cent
age changei
npr
icee.
g.a5% r
isei
nthepr
iceofa
commodi
tyr
esul
tsi
na10%f
all
int
hequant
it
ydemanded,
theel
ast
ici
tyofdemandwi
l
lbe
10%di
vi
dedby+5%.Or
-
2(-
10/
5=-
2).Howev
ert
he(
-ve)si
gni
somi
tt
edasi
tisunder
stoodt
hatademandf
ort
he
commodi
tyi
sinv
ersel
yrel
ated t
oit
spr
ice,ot
hert
hingsr
emai
ning equal
.Thust
he
conceptofel
ast
ici
tyofdemandi
sthei
ndi
cat
oroft
hedegr
eeofr
esponsi
venessof
demandf
oracommodi
tyt
oachangei
nit
spr
ice.Whent
her
esponsei
nposi
ti
vet
he
commodi
tywi
l
lhav
eel
ast
icdemandandt
her
eisnor
esponsewhat
soev
ert
hedemandi
s
per
fect
ivel
yinel
ast
ic.
Ther
efor
e,wecanconcl
udet
hati
fav
ari
ati
oni
npr
iceofacommodi
tyal
ter
sthe
demandi
nmor
epr
opor
ti
ont
hant
hev
ari
ati
oni
npr
icei
tsdemandi
ssai
dtobeel
ast
ic.But
27
whent
hev
ari
ati
oni
npr
icecausesal
esspr
opor
ti
onat
evar
iat
ioni
ndemandt
hant
he
demandi
ssai
dtobei
nel
ast
ic.

Pr
ice Per Per
cent
age Demanded Per
cent
age Nat
ure of El
ast
ic/
uni
t v
ari
ati
on uni
t v
ari
ati
on v
ari
ati
on i
n I
nel
ast
ic
i
npr
ice i
ndemand demand
10 - 10 - - -
15 50 4 60 Negat
ive El
ast
ic
12 20 9 10 Negat
ive I
nel
ast
ic
8 20 11 10 Posi
ti
ve I
nel
ast
ic
6 40 15 50 Posi
ti
ve El
ast
ic

Fact
orsdet
ermi
ningt
heel
ast
ici
tyofdemand
1. Nat
ureofcommodi
ty–Necessi
tyorComf
ort
.
2. Subst
it
uti
on– subst
it
uteshav
emor
eel
ast
icdemand.Teaandcof
fee.The
l
essert
henumberofsubst
it
utet
heweakerwi
l
lbet
heel
ast
ici
tyofdemand.
3.Compl
ement
ari
es – Compl
ement
ari
eswi
l
lhav
elessel
ast
icdemand.These
commodi
ti
esar
einj
ointdemand.
Thet
woormor
ecommodi
ti
essat
isf
ythesame
demandoft
hei
ndi
vi
dual
orgr
oupofi
ndi
vi
dual
s.Whent
hepr
iceofpet
rolf
all
sbut
t
hepr
iceofmot
orcari
sconst
ant
,thedemandf
orpet
rolf
ordr
ivi
ngpur
posemay
notr
ise.I
tsdemandwi
l
lbei
nel
ast
ic.
4.Mul
ti
pleusesofcommodi
ty–l
eadt
omor
eel
ast
ici
tywher
easi
fthecommodi
ty
hasa si
ngl
euset
heel
ast
ici
tyi
snar
rower
,e.
g.el
ect
ri
cit
ywhi
chi
susedf
or
v
ari
ouspur
poses.Whent
hepr
icef
all
sther
ewi
l
lbesubst
ant
iali
ncr
easei
nit
s
demandbecauseoft
hev
ari
etyofuses.Thedemandwi
l
lther
efor
e,beel
ast
ic.
5.El
ast
ici
tydependsont
heamountofi
ncomeofspent
.Theel
ast
ici
tyofdemand
ofacommodi
tyi
saf
fect
edbyt
heamountofi
ncomespentbyt
heconsumeron
t
hatcommodi
ty.
Whent
heamountspenti
sanegl
i
gibl
eamountofhi
sincome,
the
change i
nthe pr
ice oft
he commodi
ty wi
l
lnotaf
fectt
he demand oft
he
commodi
tyi
.e.demandwi
l
lbei
nel
ast
ic.
Thet
ermsi
ncr
easeanddecr
easei
ndemandar
edi
ff
erentf
rom t
het
ermsof
ext
ensi
onandcont
ract
ionofdemand.
Ext
ensi
onofdemandr
efer
stoenhancementofdemandi
nrel
ati
ont
oreduct
ioni
n

28
pr
ice,wher
easi
ncr
easeofdemandr
efer
sreali
ncr
easei
ndemandduet
ofact
orsot
her
t
hanpr
icei
.e.t
her
eisi
ncr
easei
ndemandofcer
tai
ncommodi
tyi
rr
espect
iveofal
ter
ati
on
i
npr
ice.
Si
mil
arl
ycont
ract
ionofdemandr
efer
stor
educt
ioni
ndemandi
nrel
ati
ont
ori
sei
n
pr
icewher
easdecr
easei
ndemandr
efer
stoar
ealdecr
easei
ndemandduet
ofact
or
ot
hert
hanpr
icei
.e.t
her
eisdecr
easei
ndemandi
rr
espect
ivei
nvar
iat
ioni
npr
ice.
Suppl
y
Suppl
yist
hatpar
toft
het
otal
product
ionof acommodi
typr
oducedi
smar
ket
abl
e
(
canbet
akent
omar
ketbutt
heent
ir
eamountmaynotbemar
ket
ede.
g.t
het
otal
pr
oduct
ionofpaddyi
s200qui
ntal
s,oft
hisonl
y180qui
ntal
scomet
othemar
ket
.Restof
t
heout
puti
.e.20qui
ntal
sist
hest
ockr
etai
nedbyt
hepr
oducer
.Whent
hesol
eobj
ect
ive
ofmai
ntai
ningt
hest
ocki
stoear
npr
ofi
t,t
hest
ockbecomeshoar
ding.Suppl
yist
hust
he
mar
ket
edamountoft
heout
putofacommodi
typr
oduced.Hencei
tisnotal
way
str
uet
o
sayt
hati
ncr
easedpr
oduct
ionwi
l
lleadt
oincr
easedsuppl
yast
heent
ir
eaddi
ti
ont
o
out
putmaybehoar
dedGi
vent
het
otalout
putofacommodi
tyt
hesmal
l
eri
stheamount
hoar
dedt
hel
argerwi
l
lbet
hesuppl
yoft
hecommodi
ty.Hencei
tisal
socl
eart
hatt
her
e
ar
edi
ff
erencesbet
weensuppl
y,hoar
dingandst
ock.
Lawofsuppl
y:t
hel
awofsuppl
yst
atest
hat
,ot
hert
hingbei
ngequal
,ast
hepr
ice
ofacommodi
tyr
ises,
thesuppl
yoft
hecommodi
tyr
ises,
ast
hepr
iceoft
hecommodi
ty
f
all
s,t
hesuppl
yal
sof
all
s.Thel
awofsuppl
yst
atest
hatt
hesuppl
yofacommodi
tyand
i
tspr
icear
euni
dir
ect
ional
.Itmayber
ecal
l
ed t
hati
n caseofl
aw ofdemand t
his
r
elat
ionshi
pisi
nver
se.
Thel
awofsuppl
ycanbeexpl
ainedwi
tht
hehel
pofsuppl
yschedul
e.Thesuppl
y
schedul
eshowst
hedi
ff
erentquant
it
iesatv
ari
ouspr
ices.Ther
ear
etwot
ypesofsuppl
y
schedul
e–i
ndi
vi
dualsuppl
yschedul
eandmar
ketsuppl
yschedul
e.Thei
ndi
vi
dualsuppl
y
schedul
eshowsdi
ff
erentquant
it
iesofacommodi
tysuppl
i
edbyani
ndi
vi
dualsuppl
i
erat
di
ff
erentper
iod.Ont
heot
herhandt
hemar
ketsuppl
yschedul
eshowsdi
ff
erentquant
it
ies
oft
hecommodi
tysuppl
i
edatdi
ff
erentpr
icesbyal
lthesuppl
i
ersi
nthemar
ket
.An
exampl
eoft
hesuppl
yschedul
eisgi
venbel
l
ow–
Pr
ice Quant
it
ydemanded
Rs.2 10uni
ts
Rs.3 15 -
Rs.4 20 -

29
 Rs.5 25 -

Di
ff
erentt
ypesofsuppl
y
Joi
ntsuppl
yand composi
te suppl
y– i
tisa case ofj
ointsuppl
ywhen t
he
pr
oduct
ionofonecommodi
tyl
eadst
hepr
oduct
ionofanot
hercommodi
tye.
g.t
oget
her
wi
thl
ogssawdusti
sal
soobt
ainedf
rom t
hesawmi
l
l.Ont
heot
herhand,i
tbecomesa
caseofcomposi
tesuppl
ywhenonecommodi
tyi
sobt
ainedf
rom mor
ethanonesour
ces
ofsuppl
ye.
g.t
her
ear
evar
ioussour
cesofsuppl
yofl
i
ght–hy
delpower
,bi
ogas,
nat
ural
gas,
coal
andsoon.
El
ast
ici
tyofsuppl
y–I
tsmeani
ng–el
ast
ici
tyofsuppl
yist
heper
cent
agechangei
n
t
hesuppl
yofacommodi
tyi
nresponset
o aper
cent
agechangei
nthepr
iceofa
commodi
ty.Thesuppl
yoft
hecommodi
tyandi
tspr
icear
euni
dir
ect
ionalbutt
hesuppl
y
ofal
lcommodi
ti
esdoesnotr
espondi
nthesomewayt
oagi
venchangei
nthei
rpr
ice.I
n
caseofcer
tai
ncommodi
ti
es,ar
esponseofsuppl
ymaybeweakandi
not
hercasest
he
r
esponsemaybest
rong(
elast
icsuppl
y)
I
not
herwor
ds,el
ast
ici
tyofsuppl
yref
erst
other
ateatwhi
cht
hesuppl
yofa
commodi
tyv
ari
eswheni
tspr
icev
ari
es.
Suppl
yissai
dtobeel
ast
ici
fav
ari
ati
oni
npr
icecausesmor
ethanpr
opor
ti
onat
e
v
ari
ati
oni
nsuppl
y.
Suppl
yissai
dtoi
nel
ast
ici
fav
ari
ati
oni
npr
icecausesal
esspr
opor
ti
onat
e
v
ari
ati
oni
nsuppl
y.
Suppl
yisel
ast
icf
orcommodi
ti
esl
i
kegol
d,si
l
ver
,fur
nit
ure.
Suppl
yisi
nel
ast
ict
osuchgoodswhi
char
eper
ishabl
ee.
g.v
eget
abl
efi
shmi
l
ket
c.
Fact
orsdet
ermi
ningt
heel
ast
ici
tyofsuppl
y
i
. Ti
mef
act
or–el
ast
ici
tyofsuppl
yofacommodi
tyi
sgr
eat
eri
nthel
ongt
hani
nthe
shor
tper
iod.
i
i
. Thepr
esenceofanal
ter
nat
ivemar
ketf
ort
hecommodi
tyaf
fect
stheel
ast
ici
tyof
suppl
yoft
hecommodi
ty.Thecommodi
tymaybeshi
ft
edf
rom onemar
ketwher
e
t
hepr
iceoft
hecommodi
tyhasdecl
i
ned,t
othemar
ketwher
ethepr
icehasgone
up.
i
i
i. Theav
ail
abi
l
ityofi
nput
swi
l
laf
fectt
heel
ast
ici
tyofsuppl
yoft
heout
put
.Ina
si
tuat
ionwher
ethei
nput
sort
her
esour
cesort
hef
act
orsofpr
oduct
ionar
eeasi
l
y

30
 av
ail
abl
e,out
putcaneasi
l
ybei
ncr
eased,t
husmaki
ngt
hesuppl
yofcommodi
ty
mor
eel
ast
icwheni
nputsuppl
yisr
igi
d,i
twi
l
lbedi
ff
icul
ttor
aiseout
putand
el
ast
ici
tywi
l
lbel
ess.
i
v. El
ast
ici
tyofsuppl
yisi
nfl
uencedbyt
henat
ureofuseoft
hei
nput
sasi
nput
shav
ing
mul
ti
pli
cit
yofusewi
l
lcausegr
eat
erel
ast
ici
tyofsuppl
yascompar
edt
oinput
s
wi
thsi
ngl
eusee.
g.st
eelasani
nputhasmul
ti
pli
cit
yofuse.I
tcanbeusedt
o
pr
oducei
ndust
ri
algoods,
consumergoods,
sci
ent
if
icanddef
ensegoods.Suchas
i
nputwi
thmul
ti
pli
cit
yofusecanbeshi
ft
edf
rom onear
eaofpr
oduct
iont
oanot
her
andt
hist
ransf
erabi
l
itywi
l
lmakesuppl
yoft
hecommodi
tymor
eel
ast
ic.
v
. Thedur
abi
l
ityofacommodi
tycanaf
fecti
tsel
ast
ici
tyofsuppl
y.Per
ishabl
egoods
wi
l
lhav
elowel
ast
ici
tyofsuppl
yast
heycannotbepr
eser
vedf
orl
ong.
v
i. Ther
ateofeconomi
cgr
owt
handdev
elopmentofacount
rywi
l
lhav
esi
gni
fi
cant
i
nfl
uenceont
heel
ast
ici
tyofsuppl
yofout
put
.
Ext
ensi
on,
cont
ract
ion,
incr
easeanddecr
easeofsuppl
y
The t
erms ext
ensi
on and cont
ract
ion ofsuppl
yref
ert
o enhancementand
r
educt
ioni
nsuppl
yofacommodi
tyi
nrel
ati
ont
oenhancementandr
educt
ionofpr
ice
r
espect
ivel
y.
Thet
ermsi
ncr
easeanddecr
easeofsuppl
yref
erst
oreali
ncr
easeanddecr
easei
n
suppl
yofacommodi
tyi
rr
espect
iveatpr
ice.

THEORI
ESOFPRODUCTI
ON

Pr
oduct
ioni
sdef
inedast
het
ransf
ormat
ionofi
nput
sint
oout
put
.Thet
erm pr
oduct
ioni
s
usedt
odenot
ethepr
oduct
ionofbot
hgoodsandser
vices.

Pr
oductorout
putr
efer
stot
hev
olumeofgoodspr
oducedbyaf
ir
m dur
ingspeci
fi
ed
per
iodoft
ime.Thev
olumeofgoodsshoul
dbest
udi
edwi
thr
efer
encet
otot
alpr
oduct
,
mar
ginal
productandav
eragepr
oduct
.

Pr
oductf
unct
ion:

I
texpl
ainst
her
elat
ionshi
pbet
weenf
act
ori
nput
sandout
putundergi
vent
echnol
ogy
.
Accor
dingt
oWat
son‘
Product
ionf
unct
ioni
sthenameofr
elat
ionbet
weenphy
sical
i
nput
sandphy
sical
out
putofaf
ir
m.’
Itcanbeexpr
essedasf
oll
ows:
31
 X=f(
L,K,
S)

Her
e,X=y
iel
d(pr
oduct
ion)
L=Labour
,K=Capi
tal
,S=Land

I
tmakespr
oduct
ionaf
unct
ionofl
abourcapi
talandl
and.Pr
oduct
ionf
unct
ionexpl
ainsi
n
whatpr
opor
ti
on,f
act
ori
nput
sshoul
dbecombi
nedt
oincr
easet
hepr
oduct
ion.Fact
or
i
nput
sar
ecl
assi
fi
edasf
ixedf
act
orsandv
ari
abl
efact
ors.Fi
xedf
act
orsar
enotr
elat
edt
o
t
hel
evelandv
olumeofpr
oduct
ion.Thecostoft
hesef
act
orsr
emai
nfi
xedwhet
hert
he
v
olumeofpr
oducti
smor
eorl
essorev
enzer
o.Var
iabl
efact
orsar
ethosef
act
orswhi
ch
ar
edi
rect
lyr
elat
edt
othev
olumeofout
putsuchasl
abour
,fuelandr
aw mat
eri
als.The
costoft
hesef
act
orswi
l
lbemor
e,whent
heout
puti
smor
e.I
twi
l
lbel
esserwhenout
put
i
slesserorz
erowhenout
puti
szer
o.Thedi
sti
nct
ionbet
weenf
ixedandv
ari
abl
efact
ori
s
r
est
ri
ctedt
oshor
tper
iodonl
y.I
nthel
ongr
unal
lfact
orsar
esupposedt
obev
ari
abl
e.

Conceptofper
iodi
npr
oduct
ion
Thepr
oducer
stakedeci
sionr
egar
dingt
hecombi
nat
ionoff
act
orsofpr
oduct
iont
aki
ng
i
ntoconsi
der
ati
ont
het
imef
act
or.Pr
ofessorMar
shal
lint
roducedel
ementoft
imei
nthe
conceptofpr
oduct
ionandt
husmadev
aluabl
econt
ri
but
iont
othepr
icet
heor
y.The
per
iodcanbecat
egor
isedasunder:
1.Mar
ketper
iod(
fewday
s)
2.Shor
tper
iod(
fewmont
hs)
3.Longper
iod(
year
s)

1.Mar
ketper
iodorv
eryshor
tper
iod:
I
tisav
eryshor
tper
iodwher
einf
act
orsofpr
oduct
ionandcost
sremai
nfi
xed.Thi
sisdue
t
othef
actt
hatt
hepr
oducerdoesnothav
esuf
fi
cientt
imet
omaket
hef
reshadj
ust
ment
oft
hef
act
orsofpr
oduct
ion.I
nthi
swayhecannei
theri
ncr
easet
hepr
oduct
ionnor
decr
ease.I
nsuchper
iodsuppl
yremai
nsf
ixedandt
hedemandpl
aysav
eryi
mpor
tant
r
olei
nthef
ixat
ionofpr
ice.

2.Shor
tper
iod:
I
nthi
sper
iodev
eryf
act
orofpr
oduct
ioncannotbechangedaspert
hedesi
reoft
he
32
pr
oducer
s.Changei
nski
l
ledl
abour
,machi
nes,or
gani
sat
ionandscal
eofpr
oduct
ioncan
notbemade.Howev
er,changei
nunski
l
ledl
abour
,raw mat
eri
als,f
uel
,andnumberof
shi
ft
scanbemade.I
nthi
sper
iodwehav
efi
xedandv
ari
abl
efact
orsandal
sof
ixedand
v
ari
abl
ecost
s.I
ncaseofl
awofpr
oduct
ionv
ari
abl
epr
opor
ti
onappl
i
es.

4.Longper
iod:
5.Thepr
oducerhassuf
fi
cientt
imei
nthi
sper
iod,sohecanef
fectchangei
nev
ery
f
act
orofpr
oduct
ion.Al
lthef
act
orsofpr
oduct
ionar
evar
iabl
e,sot
hecostal
so
r
emai
nvar
iabl
e.Pr
oduct
ion i
nthi
s per
iod i
s made on l
arge scal
e,so t
he
pr
oduct
ionuni
tsenj
oyt
heeconomi
esofl
argescal
epr
oduct
ion.I
nlongper
iod,
l
awsofr
etur
nsappl
y.I
nthebegi
nni
ngl
awofi
ncr
easi
ngr
etur
ns,
aft
erwar
dsl
awof
const
antr
etur
nsandf
inal
l
ylaw ofdi
mini
shi
ngr
etur
nsi
sappl
i
cabl
e.I
mpor
tant
f
eat
urei
nthi
sper
iodi
sthatchangei
nbot
hthef
ixedandv
ari
abl
efact
orscanbe
made.
Conceptoft
otalpr
oduct
,mar
ginalpr
oductandav
eragepr
oduct:
Tot
alpr
oduct:
I
tref
erst
otot
alv
olumeofgoodsandser
vices(
elect
ri
cit
y)pr
oduceddur
ingspeci
fi
ed
per
iodoft
imegener
all
yay
ear
.Iti
sthet
otal
phy
sicalout
putcor
respondi
ngt
oeachsetof
i
nput
s.I
not
herwor
ds,
iti
sthesum t
otal
ofmar
ginal
product
s.
TP=MP
Av
eragepr
oduct:
Whenwedi
vi
det
otalout
putbyt
hequant
it
iesofav
ari
abl
efact
ors,wegetav
erage
pr
oduct
.
TP
AP= No. of uni
ts of a v
ari
abl
e
f
act
ors

TP
or
L

Her
e,L=Labouri
.e.no.ofv
ari
abl
efact
or.
Mar
ginalpr
oduct:
Ther
ateatwhi
cht
otal
producti
ncr
easesi
sknownasmar
ginal
product
.Mar
ginal
product

33
i
stheaddi
ti
ont
otot
alpr
oductbyt
heempl
oymentofanaddi
ti
onal
uni
tofaf
act
or.
MPn=TPn+1–TPn
TP
or
Q
MP =Mar
ginal
product
TPn =Tot
alpr
oductofnuni
tsofaf
act
or
=Change
TPn+1=Tot
alpr
oductofn+1uni
tsofaf
act
or
Q =Quant
it
y

I
tcanbeex
plai
nedwi
thahel
pofaschedul
e:
Schedul
eshowi
ngt
otal
product
,av
eragepr
oductamar
ginal
product

Lawsofv
ari
abl
epr
opor
ti
onsorl
awsofr
etur
ns:
Thef
act
orsofpr
oduct
ioncanbecl
assi
fi
edasf
ixedf
act
orsandv
ari
abl
efact
ors.I
nshor
t
per
iod,f
ixedf
act
orscannotbechanged.I
ntr
oduct
ionofv
ari
abl
efact
orswi
l
lgoon
changi
ngt
hepr
opor
ti
onbet
weenf
ixedf
act
orsandv
ari
abl
efact
ors.Ther
efor
e,i
tiscal
l
ed
l
aw ofv
ari
abl
epr
opor
ti
on.Whenwei
ntr
oduceaddi
ti
onaldosesofv
ari
abl
efact
ors,we
f
indt
hef
oll
owi
ngt
hreebehav
iouroft
hepr
oduct
.
1.I
ncr
easei
npr
oductati
ncr
easi
ngr
ate(
incr
easi
ngr
etur
nst
ovar
iabl
efact
ors)
2.I
ncr
easei
npr
oductatconst
antr
ate(
const
antr
etur
ntov
ari
abl
efact
or)
3.I
ncr
easei
npr
oductatdecr
easer
ates(
dimi
nishi
ngr
etur
ntov
ari
abl
efact
or)

Ther
efor
e,Pr
of.Mar
shal
il
lust
rat
edt
hef
oll
owsl
aws:
1)Lawofi
ncr
easi
ngr
etur
nsorl
awofdecr
easi
ngcost
.
2)Lawofconst
antr
etur
norl
awofconst
antcost
.
3)Lawofdecr
easi
ngr
etur
norl
awofi
ncr
easi
ngcost
.

I
fonef
act
ori
svar
iabl
eandot
herf
act
orsar
efi
xedt
hef
ir
m’spr
oduct
ionf
unct
ionexhi
bit
s
t
hel
aw ofv
ari
abl
epr
opor
ti
on.I
not
herwor
ds,l
aw ofv
ari
abl
epr
opor
ti
on(
orr
etur
nto
v
ari
abl
efact
ors)st
atest
her
elat
ionshi
pbet
weent
heuni
tsofav
ari
abl
efact
or,keepi
ng
ot
herf
act
orsconst
ant
,andchangesi
nquant
it
iesofout
put
.
I
fthenumberofuni
tsofav
ari
abl
efact
ori
sincr
eased,how out
putchangesi
sthe

34
concer
noft
hisl
aw.
Thel
awofv
ari
abl
epr
opor
ti
oni
srel
atedt
otheshor
tper
iod.Thi
slawhast
hreest
ages.
 I
ncr
easi
ngr
etur
n,const
antr
etur
nanddi
mini
shi
ngr
etur
n.
1.When wi
tht
he i
ncr
ease i
nthe uni
ts ofa v
ari
abl
efact
or,mar
ginalpr
oduct
i
ncr
eases,
iti
sincr
easi
ngr
etur
n.
2.Whenwi
tht
hei
ncr
easei
ntheuni
tsofav
ari
abl
efact
or,mar
ginalpr
oductr
emai
ns
const
ant
,iti
sconst
antr
etur
n.
3.When wi
tht
he i
ncr
ease i
nthe uni
ts ofa v
ari
abl
efact
or,mar
ginalpr
oduct
decr
eases,
iti
sthest
ageofdi
mini
shi
ngr
etur
n.
Thev
ari
ousst
agesoft
hel
awofv
ari
abl
epr
opor
ti
oncanbeexpl
ainedwi
tht
hehel
poft
he
f
oll
owi
ngschedul
e.
Thel
aw ofi
ncr
easi
ngr
etur
nsst
atest
hataswegooni
ncr
easi
ngt
heuni
tofl
abour(
a
v
ari
abl
efact
or)i
nani
ndust
ry,t
het
otalr
etur
nort
otalout
putwi
l
lgooni
ncr
easi
ngatan
i
ncr
easi
ngr
atemor
ethant
hepr
opor
ti
onofi
ncr
easei
ntheuni
tsofl
abourandmar
ginal
out
put(
mar
ginalpr
oduct
)wi
l
lgooni
ncr
easi
ngupt
oacer
tai
nper
iod,i
.e.upt
oopt
imum
ut
il
isat
ionoff
act
orsofpr
oduct
ion.Fur
therasl
ongast
hel
aw ofi
ncr
easi
ngr
etur
nisi
n
oper
ati
ont
heav
eragecostperuni
tofpr
oduct
ionwi
l
lgoondecr
easi
ngwi
thev
ery
addi
ti
onaluni
tofi
ncr
easei
nout
put
.Wecanal
sochangel
abourandcapi
talatt
hesame
t
ime.
Thel
awofi
ncr
easi
ngr
etur
nismor
eappl
i
cabl
etomanuf
act
uri
ngi
ndust
ryt
hananyot
her
t
ypepr
oduct
ionl
i
keAgr
icul
tur
e.Becausei
nmanuf
act
uri
ngi
ndust
rybyusi
ngmachi
ne,
t
echnol
ogyet
c.wecanmaxi
misepr
oduct
ionbyi
ncr
easi
ngl
abour
.

Thel
awofconst
antr
etur
nsorl
awofconst
antcost
:
Thel
awofconst
antr
etur
nst
atest
hatwi
thev
eryaddi
ti
onal
inputofl
abourandcapi
tal
the
t
otalout
putwi
l
lincr
easeonl
yint
hesamepr
opor
ti
ont
othatofaddi
ti
onali
nputofl
abour
andcapi
tal
.Fur
ther
,itst
atest
hatwi
thev
eryaddi
ti
onofl
abourt
hemar
ginalr
etur
non
addi
ti
onalr
etur
noraddi
ti
onalout
putwi
l
lremai
nconst
antandav
eragecostofpr
oduct
ion
peruni
twi
l
lremai
nconst
ant
.
Thi
slawi
sappl
i
cabl
ewher
eext
ract
iveandmanuf
act
uri
ngt
ypesofpr
oductar
ecombi
ned
i
.e.whenmi
l
kpr
oduct
ioni
scombi
nedwi
thi
ndust
ri
alt
ypeofpr
oduct
ionofmi
l
kpowder
,
t
hel
awofconst
antr
etur
nwi
l
lbeoper
ati
ve.
Anot
herex
ampl
e:sugarcanepr
oduct
ionandmanuf
act
uri
ngofsugar
.

35
Thel
awofdecr
easi
ngr
etur
n:
Thel
aw st
atest
hatwi
tht
heempl
oymentofev
eryaddi
ti
onaluni
tofl
abourandcapi
tal
,
t
her
eisl
esst
hant
hepr
opor
ti
onat
eincr
easei
nret
urncompar
edt
othepr
opor
ti
onofi
nput
.
Thecostperuni
tofpr
oduct
ioni
ncr
easeswi
thev
eryaddi
ti
onal
uni
tofcapi
tal
andl
abour
.
Fur
thert
het
otalout
putgoesoni
ncr
easi
ngal
thoughi
nlesspr
opor
ti
ont
othei
nputupt
oa
cer
tai
nst
agesandl
ateronev
ent
het
otal
out
putgoesondecr
easi
ng.
Thi
slaw ofdecr
easi
ngr
etur
nismor
eappl
i
cabl
etoext
ract
ivet
ypesofpr
oduct
ionl
i
ke
l
i
vest
ockpr
oduct
ion,
agr
icul
tur
epr
oduct
ion,
mini
ng,
fishi
nget
c.

Lawofr
etur
ntoscal
e:
Ther
elat
ionshi
pbet
weenquant
it
iesofout
putandt
hescal
esofpr
oduct
ioni
nthel
ong
r
un,whenal
lthei
nput
sar
eincr
easedi
nthesamepr
opor
ti
on,i
scal
l
edl
awofr
etur
nst
o
scal
e.I
nor
dert
omeetal
ong-
runchangei
ndemand,t
hef
ir
mincr
easesi
tsscal
eof
pr
oduct
ionbyi
ncr
easi
ngt
hequant
it
iesofal
lthef
act
ors(
input
s)ofpr
oduct
ion.
I
ncase,al
linput
sar
eincr
easedi
nthesamepr
opor
ti
onandt
hescal
eofpr
oduct
ioni
s
expandedt
heef
fectonout
putmayt
aket
hreef
orms.I
not
herwor
ds,
thel
awofr
etur
nst
o
scal
ehav
ethr
eest
ages–i
ncr
easi
ngr
etur
n,const
antr
etur
nsanddi
mini
shi
ngr
etur
n.

1)I
ncr
easi
ngr
etur
n:
Ev
eryf
ir
mtr
iest
oear
nmor
eandmor
epr
ofi
tbymul
ti
ply
ingi
tsout
put
.Inor
dert
o
i
ncr
easet
hepr
oduct
ionaddi
ti
onaldosesofal
lthef
act
orsofpr
oduct
ioni
.e.scal
eof
pr
oduct
ioni
sincr
eased.I
nit
ial
l
ypr
oduct
ioni
ncr
easesatf
ast
err
atet
hani
ncr
easei
nthe
i
nput
.Iti
sev
identf
rom t
hef
oll
owi
ngschedul
ethatbyappl
yi
ngaddi
ti
onaldoseofl
abour
andcapi
tal(
doubl
i
ngl
abourandcapi
tal
,out
puti
ncr
easesf
rom 10uni
tst
o25uni
ts.I
t
showst
hati
nputi
ncr
easedby100%,
wher
easout
puti
ncr
easedby150%.I
nthesameway
bydoubl
i
ngt
hedoseofuni
t,f
urt
herpr
oduct
ioni
ncr
easedf
rom 25t
o60showi
ngt
hat
i
nputi
ncr
easedby100%butout
puti
ncr
easedby140%.(
35/
25x100)
.

Schedul
eshowi
ngr
etur
ntoscal
e:
I
tshowst
heoper
ati
onofl
aw ofi
ncr
easi
ngr
etur
n.Assuchl
aw ofi
ncr
easi
ngr
etur
nto
scal
eincomeobt
aini
ngout
putathi
gherper
cent
aget
hant
heper
cent
agei
ncr
easei
nthe
i
nputbyi
ncr
easi
ngofscal
eofpr
oduct
ion.

36
2.Const
antr
etur
ntoscal
e:
I
fthescal
eofpr
oduct
ioni
sfur
theri
ncr
eased,i
tisf
oundt
hatbot
hinputandout
put
i
ncr
easeatequalr
atesi
.e.att
hesameper
cent
age.I
tiscl
earf
rom t
hef
oll
owi
ngt
abl
e
t
hatbyappl
yng3rd,
i 4thand5thdoseofal
lfact
orsofpr
oduct
ion,
thei
ncr
easei
ntheout
put
i
sconst
anti
.e.att
hesame100%.

3.Lawofdecr
easi
ngr
etur
ntoscal
e:
Obt
aini
ngi
ncr
easei
ntheout
putataper
cent
agel
owert
hant
heper
cent
agei
ncr
easei
n
i
nputi
stheoper
ati
onofl
awofdi
mini
shi
ngr
etur
ntoscal
e.I
nourf
oll
owi
ngschedul
e,we
f
indt
hatbyappl
yng5th,6thand7thdosesofi
i nputwor
th100%each,out
puti
ncr
easesat
l
essert
han100% i
neachcase,showi
ngoper
ati
onoft
hel
aw ofdecr
easi
ngr
etur
nto
scal
e.

Di
ff
erencebet
weenr
etur
nwi
thv
ari
abl
efact
orandr
etur
ntoscal
e:
Sl
.No. Poi
nts of Ret
urnt
oav
ari
abl
efact
or Ret
urnt
oscal
e
di
ff
erence
1. Per
iod Laws of v
ari
abl
e Laws ofr
etur
nto scal
e
pr
opor
ti
on appl
yint
he appl
yint
olongper
iod
shor
terr
un
2. Changei
nfact
ors Ther
e i
s change i
n Ther
eis change i
n al
l
v
ari
abl
efact
oronl
y f
act
ors.
3. Change i
n f
act
or The r
ati
o bet
ween The r
ati
o bet
ween
r
ati
o v
ari
abl
efact
orandf
ixed v
ari
abl
efact
orand f
ixed
f
act
orchange f
act
ordoesnotchange
4. Changei
nscal
eof Ther
eisnochangei
nthe Scal
e of pr
oduct
ion
pr
oducti
on scal
eofpr
oduct
ion changes

MARKETI
NG
ConceptofMar
ket
:or
dinar
il
ythet
erm mar
ketr
efer
stoapl
acewher
egoodar
e
pur
chasedandsol
d,suchasSuperBazar
,Ur
duBazari
nDel
hi,FancyBazari
nGuwahat
i
et
c.Butnow aday
smar
keti
snotr
est
ri
ctedt
ospeci
fi
cpl
acebecauseweknow t
hat
cer
tai
ncommodi
ti
eshav
enat
ionalandi
nter
nat
ionalmar
ket
.Thet
erm mar
ketshoul
dnot
i
gnor
ethedemandandsuppl
yofsuchcommodi
ti
es.

37
 Mar
keti
sder
ivedf
rom t
heLat
inwor
d“Mar
cat
us”meani
ngt
rade,mer
chandi
se,
wav
e,t
raf
fi
corpl
aceofbusi
ness.Buti
neconomi
csmar
ketneednotbeapl
acebuti
t
maybeanar
eaorr
egi
onmeantf
orpot
ent
ialexchangebet
weengr
oupofbuy
ersand
sel
l
ersi
nter
est
edi
nnegot
iat
ingt
het
ermsofpur
chaseandsal
eofgoodsandser
vice
suchnegot
iat
ionsmaybedonef
ace-
to-
faceatacer
tai
npl
aceormaybedonet
hrough
al
termeansofcommuni
cat
ionsuchasmai
l
,phone,
cabl
e,t
elev
isi
onort
hroughbusi
ness
mi
ddl
eman.
Ther
efor
e,mar
ketmaybedef
inedasanar
rangementofest
abl
i
shi
ngef
fect
ive
r
elat
ionshi
pbet
weenbuy
ersandsel
l
ersoft
hecommodi
ti
es.

Mar
ket
ing-Tr
adi
ti
onal
l
ymar
ket
inghasdef
inedasf
oll
ows-
“
Mar
ket
ingi
ncl
udesal
lact
ivi
ti
est
hatdi
rectt
hef
low ofgoodsandser
vicesf
rom
pr
oducer
stot
heconsumer
s”.Thi
sdef
ini
ti
oni
spr
oductor
ient
edasi
tdoesnotconsi
der
t
heneedsoft
hecust
omer
s.
Moder
ndef
ini
ti
onofmar
ket
ingar
ebasedont
hephi
l
osophyt
hat“
Sat
isf
act
ionof
cust
omer
sist
hebasi
cpur
poseofbusi
ness”
Accor
dingt
oPhi
l
ipKot
her
-Mar
ket
ingi
sasoci
alpr
ocessbywhi
chi
ndi
vi
dual
sand
gr
oupsobt
ainwhatt
heyneedandwantt
hroughcr
eat
ing,
off
eri
ngsandf
reel
yexchangi
ng
pr
oduct
sandser
vicesofv
aluewi
thot
her
s.
Thi
simpl
i
esmat
chi
ngofpr
oduct
swi
tht
hemar
ket
sthi
srequi
resdet
ermi
ningt
he
r
equi
rement
sofpot
ent
ialcust
omer
sandsuppl
yi
ngt
hesepr
oduct
swhi
chmeett
hei
r
r
equi
rement
.
Thepr
esentdaymar
ket
ingi
sconsumer
sor
ient
edr
athert
hanpr
oductor
ient
ed.

I
MPORTANTFEATURESOFMARKET
Mar
ketmusthav
e-
1.Commodi
tyt
obeboughtandsol
d.
2.Buy
ersandsel
l
ersoft
hecommodi
ty
3.Ar
ea,
inwhi
chbuy
ersandsel
l
ersl
i
ve.
4.Cl
osecont
actbet
weenbuy
ersandsel
l
ers.
I
nthi
sway
,thet
erm mar
keti
ncl
udest
heent
ir
ear
eawher
ebuy
ersandsel
l
erscont
act
eachot
hert
opur
chaseandsel
lcommodi
ti
esatcer
tai
npr
ice.
Cl
assi
fi
cat
ionofmar
ket
s
Ther
ear
esev
eral
basesonwhi
chmar
ket
sar
ecl
assi
fi
ed.
38
 A. Ont
hebasi
sofgeogr
aphi
cal
area
i
. Local
mar
ket
i
i
. Regi
onal
orpr
ovi
nci
almar
ket
i
i
i. Nat
ional
mar
ket
i
v. I
nter
nat
ional
mar
ket
B. Ont
hebasi
soft
imeel
ement
s
i
. Ver
yshor
tper
iodmar
ket
-Thi
sexi
stsf
orav
eryshor
tper
iodl
i
keadayort
wo
andappl
i
esf
orhi
ghl
yper
ishabl
egoodsl
i
kemeat
,mi
l
ket
c.
i
i
. Shor
tper
iodmar
ket
-foramont
horf
ew mont
hse.
g.pr
oper
typr
ocessedor
pr
e-ser
vedpr
oduct
sli
kemi
l
kpowder
,eggpowder
.
i
i
i. Longper
iodmar
ket
-int
hist
ypet
her
eissuf
fi
cientt
imef
oradj
ust
ingsuppl
yas
i
nthecaseofnon-
per
ishabl
egoods.Li
kei
ron,
cement
,gol
d,si
l
ver
.
C. Ont
hebasi
sofv
olumeofsal
e
i
. Whol
esal
emar
ket
-her
egoodsar
esol
dinbul
kbywhol
esal
erst
oret
ail
ers.
i
i
. Ret
ail
mar
ket
-goodsar
esol
dinsmal
lquant
it
iest
othef
inal
consumer
s.
D. Ont
hebasi
sofl
egal
i
ty
i
. Openmar
ket
i
i
. Bl
ackmar
ket
E. Ont
hebasi
soft
ypeofsel
l
eri
nthemar
ket
i
. Pr
imar
ymar
ket
-pr
imar
ypr
oducer
ssel
lthei
rpr
oduct
stowhol
esel
l
er.
i
i
. Secondar
ymar
ket
-whol
esal
ers sal
ethei
rpr
oduct
sto semi
-whol
esal
eror
r
etai
l
ers.
i
i
i. Ter
minal
mar
ket
-ret
ail
erssel
ltof
inal
cust
omer
s.
F. Ont
hebasi
sofcommodi
ti
esandser
vices.
i
. Commodi
tymar
ket–sal
eofmat
eri
algoods.
i
i
. Capi
tal
mar
ket
-itmaybet
hef
oll
owi
ngt
ypes-
a)Capi
tal
mar
ketpr
oper
-Her
ebankspr
ovi
decapi
tal
loanst
opr
oducer
s.
b)Moneymar
ket
-Bank l
end shor
tter
m l
oan t
o consumer
s and al
ter
banker
s
c)St
ockmar
ket
-her
emar
ket
ingofst
ocksandst
orest
akepl
ace.
d)For
eign exchange mar
ket
-her
e cur
renci
esofdi
ff
erentcount
ri
esar
e
exchanged.
i
i
i. Ser
vicemar
ket
-mar
ket
ingofser
vicesl
i
ket
ranspor
tser
vice,communi
cat
ion
ser
vice,
insur
anceser
vice,
var
iouspr
ofessi
onser
vice.
39
 i
v. Labourmar
ket
-humanr
esour
cesser
vicel
i
kest
affr
ecr
uit
mentagenci
eswhi
ch
wi
l
lpr
ovi
dehumanr
esour
ceorl
abourt
ovar
iousempl
oyeesconst
it
utel
abour
mar
ket
.
G. Ont
hebasi
sofnat
ureandmodeofbusi
ness-
i
. Spotmar
ket-goodsar
ephy
sical
l
ytr
ansf
err
edf
rom banker
stosel
l
ers.
i
i
. Fut
ure mar
ket
-Buy
ers and sel
l
ers make cont
ractf
ormaki
ng del
i
ver
yand
pay
mentorf
utur
edat
e.
H. Ont
hebasi
sofr
egul
ati
ons
i
. Regul
atedmar
ket
-whi
char
eregul
atedbyst
atut
esorl
egalmecasur
esofst
ate
orcent
ral
want
.
i
i
. Unr
egul
atedmar
ket
-i
nthi
sty
peofmar
ketf
orcesl
i
kedemandandsuperar
e
oper
ati
vei
nmar
ket
ingpr
ocess.
I
. ont
hebasi
sofcompet
it
ion
i
. Per
fect Compet
it
ion Mar
ket – I
nthi
sty
pe t
her
e ar
e numer
ous
compet
it
ion and mar
keti
s cont
rol
l
ed onl
ybyf
orces ofsuppl
yand
demand.
i
i
. I
mper
fectCompet
it
ionMar
ket–Thi
sisamar
ketsi
tuat
ionwher
ether
eis
absol
utel
ynocompet
it
ionamongsel
l
ersand….Er
act
ingamonopol
y
si
tuat
ion.
Mar
ket
-St
ruct
ure
Mar
ketst
ruct
urehashi
stor
ical
l
yemer
gedi
ntwosepar
atet
ypesofdi
scussi
on
economi
cs-t
hatofAdam Smi
thort
heonehandandt
hatatKar
lMar
xort
heot
herhand.
Adam Smi
thi
nhi
swr
it
ingoneconomi
csst
ressedt
hei
mpor
tanceofLassezf
air
e
pr
inci
ples out
li
ning ofdomi
nantpol
i
ticalmechani
sm ofcont
rol
,whi
l
e Kar
lMar
x
di
scussed t
he wor
kings oft
he mar
keti
nthe pr
esence ofa cont
rol
l
ed economy
somet
imesr
efer
redt
oascommandeconomy
.Bot
hty
pesofmar
ketst
ruct
urehav
ebeen
i
nhi
stor
ical
evi
dencet
hr he20thand21stcent
oughoutt ury
.
Thedi
scussi
onsofmar
keteconomyi
nfr
eeeconomi
csasdescr
ibedbyAdam
Smi
thi
sof
tenqual
i
fiedi
nter
msofpat
ter
nsofmar
ketor
gani
zat
ionwhi
chser
vet
he
buy
ersandsel
l
ersi
nanypar
ti
cul
arf
orm oft
hemar
ketpl
ace.Somet
ypesofmar
ket
st
ruct
uremaybedescr
ibedusi
ngsev
eralr
ecur
rentt
ypesofdescr
ipt
iveor
gani
zat
ional
mechani
sm whi
chmayormaynotdomi
nat
eanypar
ti
cul
armar
ketov
ert
imeorat
par
ti
cul
arpoi
ntoft
ime.
I
thasal
readybeendi
scussedt
hatont
hebasi
sofcompet
it
ionmar
ket
smaybe
40
 i
. Per
fectCompet
it
ionmar
ket
i
i
. I
mper
fectCompet
it
ionmar
ket
.
i
i
i. Monopol
y
i
)Per
fectCompet
it
ionmar
ket–Themar
keti
nwhi
cht
her
eisper
fectcompet
it
ionamong
buy
ersandsel
l
ersi
scal
l
edper
fectcompet
it
ionmar
ket
.Int
hismar
ketev
erysel
l
ersel
l
s
hi
scommodi
tyatauni
for
m pr
ice.
i
i
)TheI
mper
fectcompet
it
ionmar
keti
scl
assi
fi
edas
a)Monopol
i
sti
ccompet
it
ion
b)Ol
i
gopol
y
c)Duopol
y.

Monopol
ist
iccompet
it
ioni
sami
xerofmonopol
yandcompet
it
ion.I
nthi
smar
ket
si
tuat
ion,bot
hel
ement
sofmonopol
yandcompet
it
ionar
epr
esent
.Her
efi
rmspr
oduce
di
ff
erent
ialpr
oductwhi
char
ecl
osesubst
it
utesbutnotsubst
it
ute.Assuchmonopol
i
sti
c
compet
it
ioni
samar
ketsi
tuat
ioni
nwhi
chbot
hmonopol
i
sti
cel
ementandcompet
it
ion
el
ement
sar
epr
esent
.
Ol
igopol
ycompet
it
ionmar
keti
samar
ketsi
tuat
ioni
nwhi
cht
her
ear
eonl
yaf
ew
sel
l
ers,mor
ethant
wo,oft
hecommodi
ty.Ev
erysel
l
erhasaper
cept
ibl
eef
fectonot
her
sel
l
ersandhei
nfl
uencest
hemar
ket
.Thati
swhyi
thasbeencal
l
edascompet
it
ion
amongf
ew.
Duopol
y-i
fther
ear
efewsel
l
ersoft
hecommodi
tyi
nthemar
ket
,thesi
tuat
ioni
s
knownasduopol
y.Ev
erysel
l
erhast
okeepi
ntoconsi
der
ati
ont
hepol
i
ciesoft
heot
her
sel
l
ers,whi
l
edet
ermi
ningt
hepr
iceoft
hecommodi
ty.Thepol
i
ciesandact
ivi
ti
esatone
f
ir
m af
fectt
hepr
icesoft
heot
herf
ir
ms.I
nsuchsi
tuat
ionpr
icedoesnotr
emai
nst
abl
e.
FewTer
ms–
Monopsony–whent
her
eisasi
ngl
ebuy
eri
namar
ket
.
Ol
igopsony–amar
ketwher
emanysel
l
erscanbepr
esentbutmeet
onl
yfewbuy
ers.

Thesi
tuat
ionofper
fectcompet
it
ioni
simagi
nar
y.Thesesi
tuat
ionsar
enotf
ound
i
nther
eall
i
fe.Sot
heeconomi
stdev
elopedt
heconceptofi
mper
fectcompet
it
ion.The
conceptwasdev
elopedbyMr
.Robi
nson.Accor
dingt
ohi
m buy
ersandsel
l
ershav
e
i
mper
fectknowl
edgeofmar
ketsi
tuat
ionr
egar
dingpr
icesandcommodi
ti
es.Pr
oducer
adopt
sthepol
i
cyofpr
oductdi
ff
erent
iat
ion.Fi
rmshav
efr
eeent
ryandexi
t.Theymayf
air
41
t
oindust
ry,
whenev
ert
heywantandcanal
sol
eav
ethei
ndust
ryatt
hei
rdi
sposal
.

i
i
i)Monopol
y–t
hewor
dmonopol
yhasbeender
ivedf
rom t
woGr
eekwor
ds“
monos”and
“
pol
os”
.Monosmeanssi
ngl
eandpol
osmeanssel
l
er.Sot
hewor
dmonopol
ymeansa
si
ngl
esel
l
er.Monopol
yist
hatmar
ketsi
tuat
ioni
nwhi
chaf
ir
m hast
hesal
eri
ghtov
er
pr
oduct
ion.Orsal
eoft
hepr
oductandi
thasnocompet
it
ioni
nthemar
ketandnocl
ose
subst
it
utef
ori
t.
Thei
mper
fectcompet
it
ion st
ruct
urei
squi
tei
dent
icalt
other
eal
i
sti
cmar
ket
condi
ti
on wher
e some monopol
i
sti
c compet
it
ions,monopol
i
sts,ol
i
gopol
i
sts and
duopol
i
stsexi
standdomi
nat
ethemar
ketcondi
ti
ons.Theel
ement
sofmar
ketst
ruct
ure
i
ncl
udet
henumberandsi
ze,di
str
ibut
ionoff
ir
ms,ent
rycommodi
ty,andt
heext
entof
di
ff
erent
iat
ion.
Thesesomewhatabst
ractconcer
nst
endt
odet
ermi
nesomebutnoti
ndet
ail
sofa
speci
fi
cconcr
etemar
ketsy
stem wher
ebuy
ersandsel
l
ersact
ual
l
ymeetandcommi
tto
t
rade.Compet
it
ioni
susef
ulbecausei
trev
eal
sact
ualcust
omerdemandandi
nducest
he
sel
l
ert
opr
ovi
deser
vicequal
i
tyl
evel
sandpr
icel
evel
sthatbuy
erswant
,ty
pical
l
ysubj
ect
t
othesel
l
ers’f
inanci
alneedt
ocov
eri
tscost
.Inot
herwor
dscompet
it
ioncanal
i
gnt
he
sel
l
ers’
int
erestwi
tht
hebuy
ers’
int
erestandcancauset
hesel
l
ert
orev
ealhi
str
uecost
s
andot
herpr
ivat
einf
ormat
ion.

PROCESSI
NGANDVALUEADDI
TION
I
ngener
aladdi
ngv
aluei
sthepr
ocessofchangi
ngort
ransf
ormi
ngapr
oductf
rom
i
tsor
igi
nalst
atet
oamor
eval
uabl
est
ate.Manyr
awcommodi
ti
eshav
eint
ri
nsi
cval
uei
n
t
hei
ror
igi
nalst
atee.
g.f
iel
dcor
ngr
own,har
vest
edandst
oreonaf
arm andt
henf
edt
o
l
i
vest
ockont
hatf
arm hasv
alue.I
nfactv
aluei
susual
l
yaddedbyf
eedi
ngi
ttoanani
mal
whi
cht
ransf
ormst
hecor
nint
oani
malpr
otei
normeat
.Thev
alueofachangedpr
oduct
i
saddedv
alue,suchaspr
ocessi
ngwheati
ntof
lour
.Iti
simpor
tantt
oident
if
ythev
alue
addedact
ivi
ti
est
hatwi
nsuppor
tthenecessar
yinv
est
menti
nresear
ch,pr
ocessi
ngand
maki
ng.
Abr
oaddef
ini
ti
onofv
alueaddi
ti
oni
stoeconomi
cal
l
yaddv
aluet
oapr
oductby
changi
ng i
ts cur
rentpl
ace,t
ime and f
rom one setof char
act
eri
sti
cs t
o ot
her
char
act
eri
sti
cst
hatov
ermor
epr
efer
redi
nthemar
ketpl
ace.
Asaspeci
fi
cexampl
eamor
enar
row def
ini
ti
onwoul
dbet
oeconomi
cal
l
yadd
v
aluet
oanagr
icul
tur
alpr
oduct(
suchaswheat
)bypr
ocessi
ngi
tint
oapr
oduct(
suchas
42
f
lour
)def
ined by cust
omer
s.Pr
oducer
sinv
olv
ed i
n addi
ng v
alue shoul
dthi
nk of
t
hemsel
vesasmember
sofaf
oodcompanyt
hatpr
ocessesandmar
ket
spr
oduct
sto
cust
omer
s.
Fi
nanci
ng–I
tist
hepr
ocessofpr
ovi
dingf
undsf
orbusi
nessact
ivi
ti
es,
maki
ngpur
chases
ori
nvest
ing.Fi
nanci
ali
nst
it
uti
onsuchasbanki
sint
hebusi
nessofpr
oduci
ngcapi
talt
o
t
hebusi
ness,consumer
sandi
nvest
orst
ohel
pthem achi
evet
hei
rgoods.Theuseof
f
inanci
ngi
svi
tali
nanyeconomi
csy
stem,asi
tal
l
owscompani
est
opur
chasepr
oduct
s
outoft
hei
rimmedi
ater
eal
.
Ri
skBear
ing–Anew busi
nessal
way
sinv
olv
esr
iskbecauseonei
nvest
smoneyt
oget
pr
ofi
tint
hef
utur
e.I
tisqui
ter
iskyt
otr
youtsomet
hingnew.I
tcannotbepossi
blet
hata
newpr
ojectmaynotbr
ingexpect
edr
etur
nsandmayr
uni
nto…… Abusi
nessf
ail
sduet
o
manyr
easonsl
i
kei
ncr
easi
ngcompet
it
ion,shor
tageofnewmat
eri
alsuppl
y,achangei
n
cust
omerpr
efer
encesorsuddencal
ami
ti
es.
I
tshoul
d be bol
d and cour
ageous t
o assume t
he r
isks.Rewar
d ofr
isk i
s
somet
imespr
ofi
t.Thati
swhyi
nor
dert
ogetr
ewar
dheshoul
dbepr
epar
edt
otaker
isk.
Anent
repr
eneurcansucceedi
fheper
sist
s,whenhef
ail
sinonev
ent
ureorpr
oject
thi
s
par
ti
cul
arel
ementshoul
dbepr
esenti
nent
repr
eneur
ssot
hatt
hebusi
nessr
unssmoot
hly
,
ef
fect
ivel
yandef
fi
cient
ly.

MI
NIMI
SATI
ONOFRI
SK
Anent
repr
eneurmi
nimi
zesorr
educest
hef
inanci
alr
iskofanewbusi
ness–
i
. Dev
elopasol
i
dpl
an–t
hef
ir
stst
ept
ohel
panent
repr
eneurr
educeshi
sfi
nanci
al
r
iskofanewbusi
nessi
stodev
elopabusi
nesspl
an.
i
i
. Per
for
m qual
i
tycont
rolt
est–heshoul
dimpl
ementcust
omerser
vicer
evi
ewsof
hi
spr
oduct
sorser
vicesbef
oreof
fer
ingt
hem i
nlar
gescal
e.
i
i
i. Keepgoodr
ecor
ds–est
abl
i
shr
ecor
dkeepi
ngsy
stem t
hatwor
ksf
rom t
hev
ery
begi
nni
ngoft
henewbusi
ness.
i
v. Li
mitl
oans–hemustst
artoutwi
thabusi
nessl
oan,makei
tasl
ow ashecan
comf
ort
abl
ymanagewhi
l
est
il
lpr
ovi
dingenoughcapi
tal
andcushi
ont
oensur
esuccess.
v
. Di
ver
sit
yincome–whenev
erpossi
bleheshoul
dtr
ytoear
nincomef
rom mor
e
t
hanonesour
ce.
v
i. Buyi
nsur
ance– heshoul
dbyi
nsur
anceagai
nstdeat
h,di
sast
erandanyot
her
t
hinghef
acescoul
dpot
ent
ial
l
yjeopar
dizehi
sbusi
ness.
v
ii
. Sav
emoney–Heshoul
dsav
emoneyasmuchashecan.
43
MARKETI
NGAGENCI
ESFORLI
VESTOCKANDLI
VESTOCKPRODUCTS
Mar
ket
ing agenci
es may be i
ndi
vi
dual
,co-
oper
ati
ve Gov
t. depar
tment or
cor
por
ati
on.Theycar
ryoutmar
ket
ingf
unct
ionsandaf
termar
ket
ingser
vice.These
cat
egor
iesofagent
scanbement
ionedf
orl
i
vest
ock.Thesei
ncl
ude– i
)on-
the-
far
m
buy
ers,
ii
)whol
esel
l
ersandi
i
i)r
etai
l
ers.
Theon-
the-
far
m buy
ersi
ncl
udev
ari
oust
ypesofagent
swhopr
ocur
eani
mal
sfr
om
f
armer
s.Theymaybesuppl
i
erst
owhol
esel
l
ers.Ont
heot
herhandwhol
esel
l
ersand
r
etai
l
erspur
chase ani
mal
sfr
om l
ocalmar
ket
s,assembl
ethem i
n some t
empor
ary
shel
terandt
ranspor
ttour
banar
eas.Thewhol
esel
l
ermayal
sobei
nvol
vedi
ntr
adeof
i
mpor
tantl
i
vest
ockt
oandf
rom nei
ghbour
ingcount
ri
es.Thewhol
esel
l
ershast
hreesub
gr
oups–
1. Whol
esel
l
eragent
2. Whol
esel
l
ert
ranspor
ter
3. Whol
esel
l
err
etai
l
er
Toget
hert
heyper
for
mimpor
tantf
unct
ionl
i
kest
ori
ng,
gradi
ng,
riskbear
inget
c.
Thewhol
esel
l
ersuppl
i
est
heur
banmar
ketf
rom wher
eret
ail
ersbuyf
orsl
aught
erand
sal
eofmeat
.
Ther
etai
l
ershav
eal
sosubgr
oups–
1. Thesedent
aryorst
all
ret
ail
erwhobuyl
i
veani
mal
sfr
om whol
esel
l
erandsel
lthem
t
ocust
omer
s.
2. Thebut
cher
swhomaybeei
theri
ndi
vi
dual
sorgr
oups(
co-
oper
ati
ve)whobuyf
rom
whol
esel
l
erorr
etai
l
erandsl
aught
ert
heani
mal
stosuppl
ymeatt
othepubl
i
c.
3. Ther
ear
esomebut
cher
swhopr
ocur
etheani
mal
sfr
om f
armer
s(home)ormar
ket
andsl
aught
ert
osuppl
ytheconsumer
s.

44