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Internal Assessment
.Abdul Jaleel V
MBA in Operations Management,
ID: 3362325
Subject-Managerial Economics

1-Ordinary Demand Curve and Compensated Demand

Curve

A Compensated demand curve

 The income effect of a price change is not considered in Compensated demand function
curves.
 Substitution effect only is evaluated
 A compensated demand curve function is therefore always less elastic while comparing to
ordinary demand curves,

In compensated demand, the utility curve is fixed. Therefore, the only change in compensated
demand will be due to substitution effect. Substitution effect changes compensated demand from
A to B.

An ordinary demand function 

It gives the effect of price on demanded quantity. A variation in price makes a substitution and also
income effect.
 
 Substitution effect –Other goods become comparatively cheaper if the price of a particular
item higher,
 Income effect –with an increment in price means higher living cost, effectively it decreases
the disposable income and unable to buy much unlike before. 
  

In uncompensated demand, the utility curve is not fixed. Therefore, changes in uncompensated
demand will be due to substitution effect (A-B) and income effect (B--C).
 
 
Detailed comparison of Demand Function Curves
 
The Hicksian demand curve is the demand curve that represents the connection between price and
quantity demanded, subject to the consumer maintaining a specific level of utility while allowing
expenditure to vary.

Conversely, the Marshallian demand curve is the demand curve that represents the relation
between price and quantity demanded, subject to a budget constraint while allowing utility to
differ.
An individual's demand curve shows the relationship between item costs and demand. The more
the price, the less will purchase, that is why the demand function 
slopes negative.
 
This simple relationship is the Marshallian ordinary demand curve function - if you want to predict
how much consumers will purchase at a fixed price; this is the correct curve.
 
For some purposes, I need to recognize that 2 different things happen when the price of something
changes.
 
The first one - if something gets more expensive, less likely to buy it and more likely to buy
something else. 
Corresponding notion is that of the two demand curves:

The Uncompensated (Marshallian) demand curve functions deals with how demand variation occurs 

 Corresponding notion is that of the two demand curves:

The diagram given below depicts the t wo demand curves together. 

Derivation of Compensated curves and Non compensated Ordinary Curve

 
The Marshallian Uncompensated Ordinary Demand Function Curve:
 

 
The Hicksian Compensated Demand Function Curve:
The Slutsky Compensated Demand Function Curve:

Difference Between Hicks Curve and Slutsky Curve

 2- Opportunity Cost and Decision Making

Opportunity Cost Theory and decision making in resources allocation

 Opportunity cost theory has been defined as arising from a “foregone opportunity that has been
sacrificed” where the sacrifice of making a choice is called “opportunity cost” (Samuelson 1967, p.
447). The notion of cost as an obstacle to decision making in the face of multiple options is not new
and there are researchers who have dealt with the theory of opportunity cost more extensively (For
example, see Solomons 1966; Becker 1968; Buchanan 1969; Becker et al. 1974; Hoskin 1983;
Northcraft and Wolf 1984; Horngren and Foster 1987; March 1987; Zimmerman 1995; Vera-Munoz
1998). Drawing from these streams of literature, Chenhall and Morris (1991) posit that opportunity
cost is a concept that is fundamental to choosing what 25 items should be included in the analysis
of resource allocation decision. Therefore, opportunity cost can be seen as arising from alternative
future uses of existing assets. From an accounting standpoint, opportunity cost is defined as the
maximum alternative earning that might have been obtained if a productive good, service, or
resource had been applied to some alternative use (Horngren 1972, p. 948). Balakrishman et al.
(2004) argue that opportunity cost is central to a resource allocation decision because it uncovers
the next best alternative. Therefore, firms should use cost allocations to attribute the cost of shared
resources to decision alternatives. The full spectrum of available options for consideration in any
resource allocation decisions can only be achieved when all the opportunity costs associated with
each option are explicit

Opportunity Cost is a macroeconomic term that relates to scarcity of resources. Scarcity of resources – be that time
or money – means that we have to make decisions about how we use what we have. Because we have to choose,
we can only have the benefits of one option, and have to forego the benefits of the other. The benefits of the
foregone option are the Opportunity Cost.

“Opportunity cost is the cost of a foregone alternative. If you chose one alternative over another, then the cost of
choosing that alternative is an opportunity cost. Opportunity cost is the benefits you lose by choosing one
alternative over another one.”
Here are some of the benefits of knowing opportunity costs

           OPPORTUNITY COST = RESULT OF OPTION A – RESULT TO OPTION B

Where A is Lost Option and B is the Chosen Option

Classification of Opportunity Cost

3-Advertisement roles, Consequences, Market Expansion

and Redistribution

The different aspects of advertising are

1. General Roles of Advertising
2. Market Expansion, sales and Re-distributional effect of Advertisement
3. Consequence and Negative effects of Advertising
4. Tips to reduce negative effects.
General Roles of Advertising

 (1) New products Introduction in the market

 It is very difficult for an organization to make any proportional impact without advertisement over
the prospective of consumers. Immediate response and publicity is generated by ads in Market.

(2) Educates
 Ads educate the people about new services or products –Ads on use and operation of new
products enables consumer to upgrade their idea and knowledge. It has helped them in utilizing
modern techniques of life and altering previous habits. It improved the standard of living.

 (3) It sustains press and Media –

It gives a major source of revenue to the publishers of print media and visual media. The circulation
of publication increased and people will get them at low prices.

(4) Reputation of the advertiser 

 Advertising helps a business company to explain its gains and its efforts to satisfy the public.
Increased good will and reputation will help for completion in the field.

 (5). Reinforcement
By reinforcement people will get the feeling that they are better served and reassure consumers
that their decision is wise buying a product or service. 

(6). Reminder – 
It helps the firm to keep the brand name always fresh within human mind.

 (7) Supporting Salesmen:

For sales men the advertising reduces the effort to reach the customers efficiently.

(8) Motivating Distributors:

Distributors also get motivated by the advertisements since it is easy to reach the product to
customers.

(10) It Builds Customer Loyalty:

It generates demand and also retain the customers; They make the feeling that the customer
paying less than the original value.

 (11) Promotion Mix is the Strongest Component:

Product, promotion, place, and price mix are important. But promotion mix can do a lot. 

Market Expansion and Redistribution effects of Advertisement

The modern facilities and methods of advertisements completely changed the marketing and
redistribution of market. The market and sales becomes universal and any product can be
purchased from any more with same price. It activated completion and caparison of quality of
products.
Also some products or brands are kicked out from the market due to insufficient methods
employed in advertisement strategy. Also multinational companies with high budget for
advertisement pushed out small scale producers.
The following are the different aspects which are related to the same argument.
1.Social Media Marketing and Direct selling
Social media is the strongest way for advertisement now. The real contacts become low and the
social media connection becomes high. People may contact his friends through social media only
for business purposes or for selling their items at some times.

2. Helps in Future Growth of the Business:

It assists for future development of the business with new production units and strategies.
Advertising is a creative activity with research and development give way for understanding the
future demands of oscillating consumer characteristics. Thus whenever changes coming, market
target also expands, , redistribution  occurs. 
 
(3) Encourage and assists in mass production 
It encourages production of items on large scale basis since the enterprise knows that, with
advertising it will be able to supply the products to a large-scale market. Cost of production reduces
with huge production and market expansion.

 (4) R&D (Research and Development) is stimulated by Ads

 Research and development is must in modern scenario and it is applicable also in advertisement.
Every firm tries to overcome the competitive product of the other company. It needs more quality
and attraction. So R& D is must and no firm can be sustained in modern market without new
inventions.

(5 Increasing Sales Turnover, profit maximization

All companies allocate huge cost for ads since it helps to increase the demand and so profit or the
market expansion and redistribution occurs by advertisement.
The aim of any firm is maximize benefits.

(7) Cost Effective:
Advertisement is a selling tool. It communicates with masses within less time and directly reduce
the expenses of other activities.

(8). Persuasion 
 Persuasion is major tool for development and market expansion of product and firm. The
comparative advertising generates persuasion. A good advertising campaign assists in getting the
new customers both in the national and the international market by persuading the consumer to
purchase their products.

(9). Competitive weapon – it is powerful tool in competitive market

(9) Stimulating Primary Demand:

The advertisement for some products will encourage the use of row materials used for the product
and get good returns in that field and its demand increases.
Negative Effects of Advertising
1.On Society
Potential to create unrealistic expectation is on of negative aspect of adverting. It influences our
thoughts beyond our control and make wider cultural change of the society. work holism,
alcoholism, materialism, unhealthy lifestyle habits, unrealistic views and, political mudslinging in
advertisements negatively formulate our culture. Lies of omission are common in advertisements
2.On Children
For children, it is difficult to identify the reality from the advertisement. They believe what thy
seeing in the advertisement., It may formulate bad thinking and bias in adult hood. The unhealthy
product is widely sold out creating false claims regarding health benefits.
3.Negative Campaign Ads
Campaign ads during elections and arguments in televisions also a part of personal or political
advertisement. The insulation and bad words are common
4.Drug Ads
Drug and medical advertisements helps to create awareness within the society but the problem is
the emphasis given. Only the good side is spread keeping silence about the side effects. Even
Medical practitioners are facing issues related to this aspect of ads.
5.Body Imaging Ads
Diet, weight loss, beauty and exercise ads create false and extreme negative aspect regarding the
size, shape and color of people and the ads cerate wrong standards for health, life style and
physical body part measurements. It also generates discrimination just based on natural
parameters of human beings.
6.Gender roles
Some ads assign certain tasks to female and some other tasks to men creating discrimination based
on sex.it reinforce stereo type classification like cleaning, beauty, diet products by female while
vehicle, tools and beer by male.
7.Inferior products sales
Some sellers promote inferior items by ads and selling with high price due to false claims.
8.Bad taste
Social decay is caused by certain ads which using objectionable pictures and Foul language. Such
ads hurts feelings and so are widely criticized by the people. Means its taste is bad.
Steps to avoid Negative effects of Advertising
1.Legal government laws to control the ads .
Limiting the screen time.2.
Mute commercials ads.3.
Discussions about advertisements with their children .4 
Proper training like neuro feedback and alpha waves activation to do correct decision making .5
4-Firm Resource Allocation, Market and Consumer

In market economics, markets make mutually beneficial exchange between manufactures and
customers, to solve the economic issues. Through the interaction of free and self-directed market
forces resource are allocated. What to produce is decided by consumers, how to produce is
determined by manufactures, and the purchasing power of customer decides the end user.
Price is used as a Signal to allocate resources to the highest valued consumers. They are ready to
pay bigger amount for their highly valued products and services. The companies and manufactures
will allocate more resources for the production and supply of these services and commodities that
have a huge price keeping all other things same. The employees have to work more hours and gets
higher salaries.

This is applicable to both product markets and resource markets. Two important role of household
are (a) Supply resources (b) Demand service and commodities. Business does the opposite (a)
Supply Commodities and Services (b) Demand Resources

An inefficient allocation of resources occurs because of this price factor and the effective highest
values customer friendly allocation of the resources and services. It critically reduces the well-being
of the society.

●Societies face the fundamental economic problem of scarcity.

● in a free-market economy there needs to be a mechanism that coordinates the allocation of

resources.

 ● Prices play a key role in this process.

● If market forces are to allocate resources effectively, consumers need to be able to express their
preferences for goods and services in such a way that producers can respond.

 ● Consumers express their preferences through prices, as prices will adjust to equilibrium levels
following a change in consumer demand.

 ● Consumer surplus represents the benefit t that consumers gain from consuming a product over
and above the price they pay for that product.

● Producer surplus represents the benefit gained by firms over and above the price at which they
would have been prepared to supply a product.

 ● Producers have an incentive to respond to changes in prices. In the short run this occurs through
output adjustments of existing firms (movements along the supply curve), but in the long run firms
will enter the market (or exit from it) until there are no further incentives for entry or exit.

. “Within the “Market system” resource allocation is heavily dependent on the variations of the
price of the resources themselves. Price acts as an indicator to both the consumers and the sellers
within the market.” (Price Signals as Guides for Resource Allocation, Anon, n.d.)
To be explicit given accurate price information the sellers will use costly scare raw materials, or
resources to produce goods of high value. Likewise, only those consumers who see benefit in
consuming those higher valued goods will demand them therefore achieving balance within the
system. If the price of an easily accessible resource is low it will be given by the resource users for
use to produced goods in a lower valued tier and consumer behavior will also react accordingly.
To summarize, the change in the price of privately owned resources within a free market results
from the change in the demand and supply of the resource i.e. labor, capital, raw material. This is
supposed to create an efficient resource allocation by the resource managers through:

The productivity and efficiency are facilitated, encouraged by a better investment situation in order
to increase investment capital and profit. (Investment Climate, Anon, n.d.). 
The market system itself motivates manufactures to efficiently allocate all available resources
confirming that they are put to use without any wastage at the market price. So the market system
plays effectively and efficiently within the business environment achieving full utilization of labor,
investment capital, machine and land. By this market system facilitates, encourages a positive
investment scenario.

So a market allocation system is one that relies on consumers to allocate resources. Consumers
“write” the economic plan by deciding what will be produced by whom. The market system is an
economic democracy–citizens have the right to vote with their pocketbooks for the goods of their
choice. The role of the state in a market economy is to promote competition and ensure consumer
protection.
 In a competitive market, consumers and producers determine market price. The interaction of
supply and demand decides on resource allocation, which is defined as “the manner by which
society manages and rations its resources”. For example, if a resource/product rises in price, buyers
will use it less frequently in order to ration their income and get the most of all of their
consumption choices, and producers will try to produce more of it because the rise in price shows
scarcity in that market. Thus, in a free market economy, the price information gained from
consumers and producers determine resource allocation – people make decisions based on what is
most important and worth producing.

COMMAND ALLOCATION
State has its own power in a command allocation system depending on the people's interest. What
product to made, what standards to be implemented and hoe to make them rare strictly specified
by governments. The consumer can choose the item what he need but decision of availability of
product is determined by state.
 
MIXED SYSTEM
Actually in reality the only available market system is mixed with command allocation and Free
market allocation. The government has control in areas but there is acceptable fluctuation in-law.

Customer Portfolio Theory and Resources Allocation

Leveraging on the concepts of portfolio theory, Fiocca (1982) explores a new industrial marketing
strategy that has the customer as the core of the analysis and considers some of the important
elements of industrial marketing, such as demand and buyer/seller relationships. Following the lead
of Henderson (1979), Fiocca postulates that customer portfolio analysis consists of two-dimensional
planes with the customer’s business attractiveness on one axis and the buyer/seller relationship on
the other. Fiocca proposes a two-step customer portfolio analysis.
First step was done at a general level where the complete portfolio of customers of the supplier
company is considered. This step facilitates the identification of key customers that may need
special attention and therefore require more in-depth analysis. 
The second step focuses on an in-depth analysis of the customers identified in the first step. At this
level of analysis, the two variables are considered, which form the dimensions of a nine-cell matrix.
These variables are the customer's business attractiveness (high, medium, low), and the relative
stage of the present buyer/seller relationship (strong, medium, weak). This same principle was
extended to analyzing business strength against industry attractiveness, which is popularly known
as the GE-McKinsey matrix. Figure 5 shows an example of the GE-McKinsey Nine-Cell Matrix. 
The purpose of the analysis is to formulate appropriate marketing strategies for different customers
or groups of customers; and thus allocate the necessary resources for implementing them.
Similarly, Campbell and Cunningham (1983) extend the product portfolio matrix (Henderson 1979),
the product-positioning matrix (Hofer and Schendel 1978), 36 and the product/performance matrix
(Wind 1982) by conducting customer analysis for strategy development in industrial markets. Using
customer portfolio concepts, they suggest that companies should develop their strategy from an
analysis of existing customers. Based on their findings, they recommend that customer analysis
should focus on the current allocation of resources to different customers and customer groups and
identify the company's position with key customers relative to competition in different market
segments.
 The purpose of the analysis is to improve the allocation of scarce technical and marketing
resources between different customers to achieve the supplier's strategic objectives. In contrast to
Porter (1980), who lays stress on the need to counteract buyers' bargaining power, their
recommendation emphasizes the scope of developing relationships of mutual interdependent and
shared objectives. This study also resulted in a nine-cell matrix similar as in Fiocca (1982). Other
researchers have built on this concept. For example, Yorke (1986) also applies the theory and
suggests that customer portfolio theory is more appropriate and useful where the product
purchase is of low technology; continuously supplied the 37 perceived risk is relatively low, and the
data available on customers and competitors is more complete. 

5-Economic Survey 2020-21- Indian Economy

 
Strategy to face the Covid pandemic:
Response came from the humane principle that Human lives lost never be returned back.  
Gross Domestic Product (GDP) growth will recover from the temporary shock caused by
the Covid-19 pandemic. India’s policy response also derived from extensive research on
epidemiology.
One of the key insights was that pandemic spreads faster in higher and denser population
and intensity of lockdown matters most at the beginning of the pandemic.

Four Pillar Strategy:

India applied a unique four-pillar strategy having, financial, and long-term structural reforms,
containment and fiscal. India adopted a calibrated approach best suited for a resilient recovery
of its economy from COVID-19 pandemic impact, in contrast with a front-loaded large stimulus
package adopted by many countries

Covid pandemic affected both demand and supply:

The Rs. 1.46-lakh crore Production Linked Incentive (PLI) scheme is expected to make India an
integral part of the global supply chain and create huge employment opportunities. Demand-
side measures have been announced in a calibrated manner. 
Economic Recovery:
V-shaped Economic Recovery after Lockdown:

Starting July 2020, a resilient V-shaped recovery is underway.

Reasons:
It is supported by the initiation of a mega vaccination drive with   opens of a robust recovery
in the services sector and prospects for robust growth in consumption and investment-
shaped recovery is due to resurgence in high frequency indicators such as power demand, rail
freight, E-Way bills, Goods and Services Tax (GST) collection, steel consumption, etc. The
fundamentals of the economy remain strong as gradual scaling back of lockdowns along with
the support of Aatmanirbhar Bharat Mission have placed the economy firmly on the path of
revival.
Significance:
This path would entail a growth in real Gross Domestic Product (GDP) by 2.4% over the
absolute level of 2019-20 - implying that the economy would take two years to reach and go
past the pre-pandemic level.

Fiscal Developments

External Sector
GDP’s Estimation
India’s real 11.0% growth in FY2021-22 and nominal GDP recorded by 15.4%. These projections are
in line with International Monetary Fund estimates. India’s GDP is estimated to contract by 7.7% in
the Financial Year (FY) 2020-21, composed of a sharp 15.7% decline in the first half and a modest
0.1% fall in the second half. 
ices, manufacturing, construction were hit hardest, and have been recovering steadily. The external
sector provided an effective cushion to growth with India recording a Current Account Surplus of
3.1% of GDP in the first half of FY 2020-21.

Monetary Management and Financial Intermediation

Regulatory Forbearance:
Regulatory forbearance for banks after the Global Financial Crisis involved relaxing the norms
for restructuring assets, where restructured assets were no longer required to be classified
as Non-Performing Assets (NPAs henceforth) and therefore did not require the levels of
provisioning that NPAs attract. However, the survey points out that regulatory forbearance is
an emergency medicine, not staple diet and suggests: Instead of continuing regulatory
forbearance for years, policymakers should lay out thresholds of economic recovery at which
such measures will be withdrawn. An Asset Quality Review exercise must be conducted by
banks immediately after the forbearance is withdrawn. Legal infrastructure for the recovery of
loans needs to be strengthened. To promote judgment amidst uncertainty, ex-post inquests
must recognize the role of hindsight bias and not equate unfavorable outcomes to bad
judgment.

Foreign Investment:
Net Foreign Direct Investment (FDI) inflows of USD 27.5 billion during April-October, 2020
- 14.8% higher as compared to the first seven months of FY 2019-20.Net Foreign Portfolio
Investment (FPI) .

Debt Sustainability and Growth:

Growth leads to debt sustainability in the Indian context but not necessarily vice-versa. Debt
sustainability depends on the ‘Interest Rate Growth Rate Differential’ (IRGD), i.e., the
difference between the interest rate and the growth rate.
Service Sector

Negative IRGD in India 

Not due to lower interest rates but much higher growth rates – prompts a debate on fiscal
policy, especially during growth slowdowns and economic crises. Fiscal policy that provides an
impetus to growth will lead to lower debt-to-GDP ratio. Given India’s growth potential, debt
sustainability is unlikely to be a problem even in the worst scenarios. It is desirable to
use counter-cyclical fiscal policy to enable growth during economic downturns.

Process Reforms:
The survey highlighted excessive regulation in the country. India over-regulates the
economy resulting in regulations being ineffective even with relatively good compliance with
process. The root cause of the problem of overregulation is an approach that attempts to
account for every possible outcome. Increase in complexity of regulations, intended to reduce
discretion, results in even more non-transparent discretion. The solution is to simplify
regulations and invest in greater supervision which, by definition, implies greater discretion.

India and Sovereign Credit Ratings:

India's sovereign credit ratings do not reflect the economy's fundamentals and the global
agencies should become more transparent and less subjective in their ratings.

Defense Sector:
The allocated capital budget for defense has been fully utilized since 2016-17, reversing the
previous trends of surrender of funds.

Bare Necessities Index (BNI):

Bare Necessities Index (BNI) based on the large annual household survey data can
be constructed using suitable indicators and methodology at district level for all/targeted
districts to assess the progress on access to bare necessities. The BNI summarizes 26
indicators on five dimensions viz., water, sanitation, housing, micro-environment, and other
facilities.
Improvement in Bare Necessities:
Bare necessities have improved across all States in the country in 2018 as compared to
2012.Increase in equity is noteworthy as the rich can access private options for public goods.

 Agriculture and Food Processing

Healthcare:
Pradhan Mantri Jan Arogya Yojana (PM-JAY):
PM-JAY contributed to improvement in many health outcomes in States that implemented the
ambitious programme the Centre had launched more than two years ago to provide healthcare
access to most vulnerable sections.
National Health Mission (NHM):
NHM provided the regulations and vaccination strategy during Covid-19 emergency crisis.
Government Spending:
An increase in government spending on the healthcare sector – from the current 1% to 2.5-3%
of GDP – as envisaged in the National Health Policy 2017 could reduce out-of-pocket
expenditures.

Education:
Literacy:
India has attained a literacy level of almost 96% at the elementary school level. As per National
Sample Survey (NSS), the literacy rate of persons of age 7 years and above at the All India level
stood at 77.7% but the differences in literacy rate attainment among social-religious groups, as
well as gender still persists. Female literacy remained below the national average among social
groups of SC, ST, OBC, including religious groups of Hinduism and Islam.
Rural Enrolment:
The percentage of enrolled children from government and private schools owning a
smartphone increased enormously from 36.5% in 2018 to 61.8% in 2020 in rural India.
PM eVIDYA:
PM eVIDYA is a comprehensive initiative to unify all efforts related to digital/online/on-air
education to enable multi-mode and equitable access to education for students and teachers.
Around 92 courses have started and 1.5 crore students are enrolled under Swayam Massive
Open Online Courses (MOOCs) which are online courses relating to the National Institute of
Open Schooling.
PRAGYATA:
PRAGYATA guidelines on digital education have been developed with a focus on
online/blended/digital education for students who are presently at home due to closure of
schools.
MANODARPAN:
The MANODARPAN initiative for psychological support has been included in Atmanirbhar
Bharat Abhiyan.

Vocational Courses and Skill Development:

Vocational courses will be introduced phase-wise in schools for classes 9 to 12 to expose
students to skill development avenues, as part of the Centre's flagship skilling scheme Pradhan
Mantri Kaushal Vikas Yojana 3.0.Merely 2.4% of India's workforce in the age group of 15-59
years have received formal vocational or technical training, while another 8.9% obtained
training through informal sources. Out of the 8.9% workforce who received non-formal
training, the largest chunk is contributed by on-the-job training (3.3%), followed by self-
learning (2.5%) and hereditary sources (2.1%) and other sources (1%).Among those who
received formal training, the most opted training course is IT-ITeS among both males and
females. The Unified Skill Regulator- National Council for Vocational Education and Training
(NCVET) was operationalized recently.

Sustainable Development and Climate Change:

Social Infrastructure, Employment and Human Development:

Inequality and Growth:

Both inequality and per-capita income (growth) have similar relationships with socio-economic
indicators in India, unlike in advanced economies. Economic growth has a greater impact on
poverty alleviation than inequality. India must continue to focus on economic growth to lift the
poor out of poverty. Redistribution in a developing economy is feasible only if the size of the
economic pie grows.