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Forces Affecting Organization-Environment relationships | Principles Of Management

images (15)Forces Affecting Organization-Environment relationships

The major forces that affect Organization-Environment relationships are as follows:

 

 

Economic Environment :

The economic  environment of business is largely determined by the economic system of the country .A number of economic factors such as economic planning and control,national income ,industrial policies,monetary and fiscal policies,investments,savings,inflation,and international economic activities reflect economic development. The economic environment dramatically affects companies’ ability to function effectively and influences their strategic choices.

Political Environment:

Political Environment is related to management of public affairs. Political environment mainly refers to the political structure,composition of bureaucracy,and ideology of the ruling government .Political philosophy can be democratic or autocratic.Democracy provides greater role to private sector.The political system that exist in a country influence business organization.

Legal Environment:

Legal Environment refers to all the legal principles and polices that affect Organizations’ activities.It is the framework of laws ,regulations and court decision intended to encourage and control business activities.Thus, government can affect business opportunities through tax laws ,economic policies,and international trade rulings.

Socio-cultural Environment:

Socio-cultural forces consists of the attitudes ,beliefs and values of individuals and groups in society.As the values,customs and tastes change in the society ,the managers must also change his organizational pattern.As society change,our life also changes by new things. Life styles and social values promote social change.It affects product choice.

Technological Environment:

Technology consists of skills,operating methods,system and tools that are designed to make work more efficient.It also largely influences organization by creating changes in jobs,skills ,life styles ,products production methods and processes.Information technology ,automation ,computerization,and  new materials have influenced organization.

 

 

 

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Keeping Errors At Bay

Keeping Errors At Bay-Four Levels

russel

Literal Comprehension:

This essay is written by Betrand Russell which provides multiple examples of mistake that people generally commit in their day to day life. His main idea is to provide suggestions to avoid the mistakes. We need careful, serious, critical and analytical mind to get rid of these errors. This essay deals with the ideas of avoiding errors that happen in our daily life situations. We can remove many foolish opinions by observing the related facts. When observations are impossible, we have to compare our ideas with those of the others. If there are evidence and knowledge, there will be no wrong understanding. Visiting different places and observing societies of the world also helps us to purify your own opinions. Knowing others idea makes us less dogmatic. If we have one-sided idea about anything, we will not find out the truth, such situation, we will make our good points more important. Fear and prejudice of different types create obstacles from learning the truth or reality. So we should be very careful while doing any work. We should not take as granted anything without proper observation.

Interpretation:

The focus of this essay is to prevent people from committing some silly errors in day to day life.Making keen observation on subject matter having our personal experience, having a good plan and argument, self -esteem and fearlessness helps people to avoid such errors. To error is human but to do mistake is not excusable. Human make errors knowingly or having known about that error is not human. This is somewhat punishable also. We cannot find truth without proper understanding. The essay tries to tell us why human beings are unable to see the truth. They do not see the matter. They have illusion that they know everything without knowing it properly. It says that we have some mistakes generally we do not compare our idea with that of others. We unnecessarily feel pride and ignore things. Therefore, we commit crimes or errors. This is human but to do mistake knowingly cannot be human. There are solutions for errors but not the knowingly committing mistakes.

Critical Thinking:

Russell gives very concrete idea about errors and their solutions. He says how and why we do errors and how can we correct them. After reading this story I came to know and have some questions. The writer has presented a scientific way of thinking. By comparing and contrasting, we can judge our own ideas. I agree with many things which the essayist says but there are some questions in my mind.

  • Who can remain without doing any error?
  • How can one know that it is error and this not?
  • Can we change our mind not to doing errors?
  • Why people cannot find out the fact easily?
  • How we can compare such things to those of the others?
  • What are the forms of the truth?
  • How to know that whose idea is right or wrong? 

Assimilation:

Generally, we think right whatever we do. This essay gave me lots of ideas about errors and their types as well as their remedies (solution). I started to realize my mistakes in my life as I sometimes used to stubborn and think everything right. I started to honour other’s ideas. I also came to know why people mistake while making ideas. A wise man should look at the things from different sides. We should be comparative and multidimensional perspectives should be used. I came to know that we can do errors in every work every time but that is only found out after its proper judgment.

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Mr. Know-All

Mr. Know-All-Four levels

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Literal Comprehension:

When the First World War ended, the writer ‘Somerset Maugham ‘ decided to go to Japan from America by ship. It was very difficult to get a good seat in the ship. But he managed to get in cabin seat in the ship. His cabin partner , max Kelada , was much talkative. At first the writer thought that he was a Negro but later he came to know that he was also an English man. However, he hated his chatty nature. He introduced with everyone in the ship and conducted a lottery action. He said that he had good knowledge of everything. So they called him ‘mr. know all’. Although alcohol was strictly prohibited to carry, he uttered writer to have cocktail “mix wine”. Once the writer, Mr. kelada, Mr and Mrs Ramsays got chanced to have dinner in the same table. Mr. ramsays was in the consular service posted at Kobe, Japan. He had spent one year in alone in japan because his salary was very low. Now he had come to take his wife with him. Mr. kelada said that he was going to japan to examine pearls. He saw a pearls chain around mrs ramsays neck and said that they were original. When Mr. Ramsays told him to guess the price, he said that they could cost upto 30,000 dollars.but when Mr. Ramsay said that they were false, he didn’t believe and they had bet of one hundred dollars. When Mr. Kelada was going to check the pearls, Mrs ramsay looked nervous. Although the pearls were original , Mr. kelada said that they were false to save Mrs. Ramsays. The next day when she returned his money, the writer was surprised to know the reality. He also know that Mr. kelada was really mr. know all. Then he began to like Mr. kelada.

Interpretation: 

This story may be trying to tell us about the writer’s attitude towards non-whites.The writer may be trying to show humanity and nature of women. Outer cover can never represents the inner reality. Although Mr. kelada is hated by all, he is proved to be the best example of humanity. He became fool and lost money and prestige but he saved the happy married life of Mr and Mrs Ramsay. This story also shows the duel character of women.

Critical thinking: 

Although this story gives the moral lession. Some ideas of the writer are not convincing. After reading this story we can ask some questions.

  • If alcohol was not allowed to carry how did Mr. kelada offet cocktail to the writer?
  • Did Mr. kelada know everything? Then why did people hate him?
  • Is a passenger allowed to carry all kinds of wines with him?
  • Does anyone dislike the other because of color?
  • Does anyone give up his money even after winning the bet?
  • Can we find such Mr. Know all in this world?
  • Don’t we find a frank and friendly person good during a long journey?
  • Should a husband really suspect on the behavior of his wife?

Assimilation: 

Before I read the story, I used to make friendship with as many people as I met. I enjoyed talking with them about what I know.But I did not study their view whether they liked my talk or not.I am very much affected by this story. After reading this story, I know that we can’t judge people from their appearance. This story also taught me that it is not easy to understand the character and secrecy of women. Now I won’t believe in women easily.

 

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The Burden of Skepticism

The Burden of Skepticism-Four Levels

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Literal Comprehension:
Skepticism is found in every day life. If we have to buy a used car we examining it even if we do not have any ideas about the car. If we buy it without examining, we know that we may have to be sorry for it. In some cases we use skepticism, but in politics and commercials we do not use it. So we cheated a little. But if we do not use it in the case of medicine we have we have to bear a great loss.

Interpretation:
If we study the whole history of mankind, we find that they have always accepted some kind of popular belief system. The reason for this is that all human needs are never fulfilled. These unfulfilled needs may be satisfied by these beliefs. It is natural for us to have a desire to take our dead relatives. And we would be happy when we learn that our spirit does not die and our existence will not come to an end forever.

Critical Thinking:
There are many channels who claim that they can contact with the spirit of a person long- long ago. But these spirits do not answer any specific questions and they answer only general and vague (unclear) questions. Their specific answer would have helps us a lot to know about the society of the past.
  • Why does the writer completely neglected the possibility of the existence of spirit /god? Can he prove what he is saying?

Assimilation:
Skepticism is dangerous. So it is not taught in school. Skepticism and openness to new ideas are equally necessary for human progress. If we are too open, we will not be in opposition to tell a difference between what is good and what is bad. But, on the other hand, if we are too skeptical, no new ideas will find any place. Scientist forms new ideas in to their minds in the form of hypothesis and examining them closely. If their ideas are proved correct they will be accepted. If they are proved false later on, the scientists will accept that they have made a mistake. But religious and political leaders never accept what is against their principles, however wrong their ideas may be.

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Role of price mechanism

Role of price mechanism in full utilization of productive resources in free enterprise economy

  1. Explain the role of “Price mechanism” in assuring proper allocation and full utilization of productive resources in free enterprise economy.

Ans) Price mechanism refers to the process of price determination by the interaction between demand and supply forces without any external interference. That price will come to prevail in the market at which demand for a commodity is equal to its supply. Such a price is called equilibrium price. Operation of price mechanism in a market is explained with the help of the following figure. In this figure, price  per unit of the commodity is shown on Y-Axis and quantity demanded and supplied are shown on X-axis.

At OP1 price ,supply (P1B) is more than demand (P1A), ie; there is AB excess supply .In this situation there will be a tendency for the price to fall ,as there will arise competition among the sellers.

On the contrary, at OP2 price, demand (P2G) will be more than supply (P2F) ie; there will be excess demand equal to FG. In this situation, there will be a tendency for the price to rise ,as it will lead to competition among the buyers.

At OP price, demand is equal to supply. Thus, OP price is called equilibrium price. At this price, demand for a commodity is equal to its supply.

Role of price mechanism:

The price mechanism solves the problem of allocation of resources which is associated with what ,how and for whom to produce.

  • What to produce?

         In a free market economy,producers are guided by profit motive. When price of a commodity increases with the increase in demand ,the profits  increase and this would encourage the production of this commodity.Producers would shift resources from the production of other commodities to this commodity.Therefore,the price mechanism would automatically solve the problem what to produce.

  • How to produce?

          It is the question of choice of production technique .There are generally two techniques of production available:

  1. Labour-intensive technique (in which more of labour is used than capital)
  2. Capital-intensive technique (in which more of capital is used than labour)

      If capital is available at alower rate, firms adopt capital-intensive technique of production.If labour is available at lower rate,firms adopt labour intensive techniques.

Therefore, it is the price of labour or the price of capital that will help the producer in deciding whether they should choose capital intensive or labour intensive technique.

  • For whom to produce?

       In a market economy,the producers must produce for those who have the ability and willingness to pay the highest price.The income of the consumers determines the ability to pay ie; there is a direct relationship between income and consumption pattern. Hence,both the ability and willingness to pay determines who gets the available commodities.

  • Fuller Utilization of the factors

         It is through price-mechanism that fuller utilization of the factors is attained in a capitalist economy .Volume of full employment depends upon the volume of production which in its turn ,depends upon the level of investment. Amount of investment  depends upon saving.Equality between saving and investment is brought about by change in price of capital ie; rate of interest.If at any given time ,total savings are large and condition of unemployment prevails in the economy ,the rate of interest will fall.Due to fall in the rate of interest there will be increase in investment.Increase in investment will result into increase in production and the condition of less than fuller utilization of the factors will become possible. Classical economists were of the view that under condition of less than full employment of labour,price of labour, ie; wage will fall. Fall in wage rate will stimulate demand and condition of full employment of labour will be achieved . In this way,price mechanism will help to achieve fuller utilization of the factors.

 

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Microeconomics- Business Decision making

Microeconomics- Business Decision making

  • a)Explain the role of microeconomics in business decision making.

Ans) The role of microeconomics in business decision making can be explained as under:

1) Optimal resource utilization:

The productive resources are scarce in the economy and microeconomics tells how the productive resources are allocated in the production of various goods and services .It also helps to find out ,what to produce, how much to produce and for whom to produce.

2) Demand analysis:

With the help of microeconomic analysis ,the business firms try to forecast the demand for their product. As we know ,the demand for the firm’s product would change in response to change in price of the firm’s product ,prices of other goods ,which may be substitute or complementary,consumer’s income ,his testes and fashion ,his expectations about future changes in price ,changes in the age composition  of population ,change in total population etc. These are the determinants of demand ,a study of which is essential for forecasting future demand for the product as well as the present sales.

3) Cost analysis:

Cost analysis is an important area of microeconomics .There are many theories to explain different condition of cost in microeconomics such as fixed cost and variable cost,average cost and marginal cost,short-run cost and long-run cost. These all help the business manager to compare cost of production of different periods and thereby to evolve suitable policies in controlling costs and deriving suitable profits.

4) Optimal production decision:

The production decision is concerned with proper product mix.What factors are to be combined in what manner to produce a given product ? Microeconomics deals with different production techniques that help to find out the optimal production decision.

5) Pricing policy:

We know that pricing of the product is the chief function of a firm. This depends upon the cost of production and at the same time price of substitutes and the nature of competition. Price affects profits which in turn determine the existence and the growth of the firm.The microeconomic analysis provides the business manager a thorough knowledge of the theories of production and pricing in order to make sure that the firm gets profits continuously.

Thus ,the role of microeconomics is both positive and normative .It not only tells us how the economy operates but also how it should be operated to promote general welfare.

 

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Cardinal Utility Approach

Cardinal Utility Approach

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Very Short Questions

  • Define utility.

Ans) Utility is defined as the wants satisfying capacity of a commodity .In other words,it is the satisfaction obtained from the consumption of commodity.

  • What do you mean by cardinal utility approach?

Ans) Cardinal Utility approach is the method of analyzing utility which believes that utility is a quantitative concept i.e, utility can be measured numerically .Its unit of measurement is Utils.

  • List any four assumptions of cardinal utility analysis.

Ans) The  four assumptions of cardinal utility analysis are as follows:

  1. The consumer is rational.
  2. Utility can be measured in cardinal number.
  3. Marginal utility of money remains constant.
  4. Units of consumption are suitable.

 

  • Define the total utility.

Ans) Total utility is the total satisfaction obtained from the consumption of a given units of a commodity .It is obtained by the summation of marginal utility.

  • Define the marginal utility.

Ans) Marginal utility is the addition made to the total utility from one additional unit of consumption.

  • Define the concept of ordinal utility approach.

Ans) Ordinal utility approach is the method of analyzing utility as a subjective phenomenon. According to this approach,utility cannot be expressed quantitatively. However,ranking is possible.

  • Define indifference curve.

Ans) Indifference curve is defined as the locus of all combinations of two goods which yields the same level of satisfaction to the consumer.It is also called equal satisfaction curve. It is downward slopping and convex to the origin.

  • Write any four assumptions of indifference curve analysis.

Ans) The four assumptions of indifference curve analysis are as follows:

  1. Rational consumer.
  2. Ordinal measurement of utility.
  3. Diminishing marginal rate of substitution.
  4. Transitivity and consistency.

 

  • Make a list of properties of indifference curve(IC).

Ans) The list of properties of indifference curve are as follows:

  1. An IC slopes downward from left to right.
  2. An IC is convex to the origin.
  3. ICs never intersect each other.
  4. Higher the indifference curve,higher will be level of satisfaction.

 

  • Define the meaning of marginal rate of substitution (MRS).

Ans) Marginal rate of substitution is the rate at which one commodity is substituted for another so that total satisfaction remains the same. It is the slope of indifference curve.

  • Why does marginal rate of substitution diminish?

Ans) The marginal rate of substitution diminish because of the following reasons:

  1. Goods are not perfect substitute for each other.
  2. The particular want is satiable.
  3. Increase in the quantity of one good does not increase the want satisfying power of the other.
  • Why indifference curve is convex to origin?

Ans) Indifference curve is convex to origin because of diminishing marginal rate of substitution between two goods. The rate of substitution goes on diminishing as we move downward to the right.

  • Higher the indifference curve yields higher level of satisfaction .Why?

Ans) Higher the indifference curve contains more units of at least one good. More is preferred to less. Therefore,higher indifference curve yields higher level of satisfaction.

  • What do you mean by consumer’s equilibrium?

Ans) Consumer’s equilibrium means the situation in which the consumer derives maximum satisfaction or utility from his given money income and market price of the goods.

  • What is price (budget) line?

Ans) Price line is the locus of all combinations of two goods which can be purchased with the given money income of the consumer.

  • Why does a budget or price line shift?

Ans) The budget or price line shift when there is change in money income of the consumer or change in price of goods.

  • Write down the conditions required for the consumer’s equilibrium according to the ordinal utility approach.

Ans) The conditions required for the consumer’s equilibrium according to the ordinal utility approach are as follows:

  1. Price line must be tangent to the indifference curve.
  2. Indifference curve should be convex to the origin.

 

  • When does the consumer’s equilibrium change?

Ans) There will be change in consumer’s equilibrium when there is change in income of the consumer or change in price of good.

  • Define price effect.

Ans) Price effect is defined as the change in consumer’s equilibrium with the change in price of a commodity .Purchase of goods will be affected with the change in price of a commodity,Keeping other things constant.

  • What is price consumption curve (PPC)?

Ans) Price consumption curve is the locus of different equilibrium points obtained due to change in price of a commodity. In other words, PPC is the curve that joins different equilibrium points of price effect.

  • Define income effect.

Ans) Income effect is defined as the change in equilibrium due to change in income of the consumer. It shows the effect of change in income to the quantity demanded. It is positive in case of normal goods ,negative in case of inferior goods and zero in case of neutral goods.

  • What do you mean by income consumption curve?

Ans) Income Consumption Curve (ICC) is defined as the locus of different consumer’s equilibrium points obtained at different income of the consumer. In other words, ICC is the curve that joins different equilibrium points of income effect.

  • Define substitution effect.

Ans) Substitution effect is defined as the effect of price change on quantity demanded when income is compensated such that consumer’s utility is unchanged. It is part of price effect.

Price effect= Substitution effect + Income effect

  • What do you mean by Engel curve?

Ans) An Engel curve is a curve which shows optimum quantity of a commodity purchased at different levels of income .In other words Engel’s curve indicates how much quantity of a commodity a consumer will consume at different levels of his income in order to be in equilibrium.

 

 

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Elasticity

images (3)Very short questions of Elasticity

  • Define elasticity of demand.

Ans) The elasticity of demand is the measure of responsiveness of demand for a commodity to the change in any of its determinants like price of the same commodity,price of the related commodity,income of the consumer,etc.

  • What are the types of elasticity of demand?

Ans)There are three types of elasticity of demand.They are:

  1. Price elasticity of demand(Ep)
  2. Income elasticity of demand(Ey)
  3. Cross elasticity of demand(Ec)

 

  • Define price elasticity of demand.

Ans) The price elasticity of demand is the measures the degree of responsiveness of quantity demanded for a commodity to the change in its price.

  • What are the types of price elasticity of demand?

Ans)The types of price elasticity of demand are as follows:

  1. Perfectly elastic demanded(Ep=infinity)
  2. Relatively  elastic demand(Ep>1)
  3. Unitary elastic demand(Ep=1)
  4. Relatively inelastic demand(Ep<1)
  5. Perfectly inelastic demand(Ep=0)

 

  • Give the name of four determinants of price elasticity of demand.

Ans) The main determinants of price elasticity of demand are as follows:

  1. Nature of commodity
  2. Substitute
  3. Goods having several uses
  4. Income of the consumer
  • What is meant by price elasticity of demand?

Ans) Income elasticity of demand shows the degree of responsiveness of quantity demanded for a good to the change in the income of the consumer.

  • State three degrees of positive income elasticity of demand.

Ans) There are three degrees of positive income elasticity of demand.They are:

  1. Unitary Income elasticity of demand (Ey=1)
  2. Less than Unitary Income elasticity of demand (Ey>1)
  3. More than Unitary Income elasticity of demand (Ey<1)

 

  • Define cross elasticity of demand.

Ans) The cross elasticity of demand is defined as the percentage change in the quantity demanded for X resulting from a percentage change in the price of Y .

  • What is the cross elasticity of demand of pens with respect to change in price of motor cars?

Ans) Cross elasticity of demand in case of independent good like pens and motor cars is zero. It means there is no effect on the demand for pens with respect to the change in price of motor cars.

  • What are the types of cross elasticity of demand?

Ans) There are three types of cross elasticity of demand:

  1. Positive cross elasticity of demand (Ec>0)
  2. Negative cross elasticity of demand (Ec<0)
  3. Zero cross elasticity of demand (Ec=0)

 

  • Define elasticity of supply.

Ans) The elasticity of supply measures the degree of responsiveness of quantity supplied of a commodity to the change in its price .

 

  • What are the types of price elasticity of supply?

Ans)The types of price elasticity of supply are as follows:

  1. Perfectly elastic supply (Es=infinity)
  2.  Relatively elastic supply (Es>1)
  3.  Unitary elastic supply (Es=1)
  4.  Relatively inelastic supply (Es<1)
  5. Perfectly inelastic supply (Es=0)

 

  • Give the name of four determinants of price elasticity of supply.

Ans) The main determinants of price elasticity of supply are as follows:

  1. Nature of the commodity
  2. Cost of production
  3. State of technology
  4. Time period

 

 

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Demand and Supply

Very short questions,Demand and Supply

  • What do you mean by demand?

Ans) Demand means the quantity of goods and services which consumers would buy in a market at a given time and price.In order to change desire into demand ,it is essential that the consumer should have both willingness and ability to pay.

  • Define Demand function.

Ans) Demand function is defined as the relationship between demand for a commodity and its determinants.It can be expressed as:

Dx=f(Px,Y,Pr,A,T….)

Where,Dx=Demand for X-Commodity

             Px=Price of X-commodity

            Y=Income of the consumer

            Pr=Price of related goods

            A=Advertisement expenditure

            T=Taste and Preference of the consumer

  • Define linear demand function.

Ans) A demand function is said to be linear when the slope of the demand curve remains constant throughout its length.The simplest form of a linear demand function is  given by the equation

      Dx=a-bPx

In this equation ,The alphabet ’a’denotes total demand at zero price and ‘b’ a constant ,denotes slope of the demand curve .

  • Define non-linear demand function.

Ans) A demand function is said to be non-linear or curvilinear when the slope of a demand curve changes all along the demand curve.A non-linear demand function,generally,takes the form of a power function as

     D=aPx^-b

  • Name four determinants of demand.

Ans ) The four determinants of demand are as follows:

a)Price of  a commodity

b)Income of the consumer

c)Price of related goods

d)Size and composition of population

  •       What do you mean by law of demand?

Ans) Demand for a commodity increases with the fall in price and decreases with the rise in price.There is inverse relationship between price and quantity demanded for a commodity.This inverse relationship between price and quantity demanded is called law of demand.

  • Define normal good.

Ans)Normal good is a good whose demand increases with an increase in income and decrease with a decrease in income of the consumer.There is positive relationship between income and demand.

  • Define Inferior goods.

Ans)When demand for a commodity increase with the decrease in income and decreases with the increase in income of the consumer ,The good is called inferior goods.

  • Define complementary goods.

Ans)When two or more commodities are demanded simultaneously for the satisfaction of a particular want ,they are called complementary goods .

For example,car and petrol,tea and sugar,etc.

  • Define substitute goods.

Ans) Substitute goods are those goods which compete with each other and which can be used interchangeably,like Mayos and Waiwai ,Pepsi and Coke.

  • Define demand schedule.

Ans) A demand schedule is a table which shows the relationship between the price of a commodity and its quantity demanded.

  • What do you mean by movement along demand curve?

Ans) If demand for a commodity changes due to the change price of the same commodity,it can be shown by the different point on the same demand curve which is called movement along demand curve.It is also called change in quantity demanded.

  • What is meant by extension in demand?

Ans)Other things remaining constant ,when the demand for a commodity goes up due to fall in price of the same commodity,it is referred to as an extension in demand.This results in downward movement along the same demand curve.

  • Define contraction in demand.

Ans) Other things remaining constant ,when the demand for a commodity decreases due to rise in price of the same commodity,it is referred to as a contraction in demand.This results in upward movement along the same demand curve.

  • What do you mean by shift in demand curve?

Ans)If demand for a commodity changes due to change in other factor keeping its price constant,the entire demand curve move either rightward or leftward,it is called shift in demand curve or change in demand.

  • Write any four causes for shifting demand curve.

Ans) The following are the causes of shift in demand curve:

  1. Change in income of the consumer.
  2. Change in the price of substitute goods and complementary goods.
  3. Change in taste and preference of the consumer.
  4. Change in size and composition of population.

 

  • What is meant by increase in demand?

Ans)When more quantities of a commodity are demanded due to the favourable change in other factors, ie. Income of the  consumer,price of the related goods,etc,it is referred to as increase in demand.This results in the demand curve for the commodity shifting rightwards.

  • What is meant by decrease in demand?

Ans) As the quantity demanded falls due to unfavourable change in other factors, i.e. income of the consumer,price of related goods,etc., it is referred to as decrease in demand.This results in the demand curve for the commodity shifting leftwards.

  • What are the causes of increase in demand?

Ans) The following are the main causes of increase in demand:

  1. Increase in income of the consumer.
  2. Rise in price of the substitute goods.
  3. Fall in price of the complementary goods.
  4. Expectation of further rise in price.

 

What are the causes of decrease in demand?

Ans) The following are the causes of decrease in demand:

  1. Decrease in income of the consumer.
  2. Fall in price of the substitute goods.
  3. Rise in price of the complementary goods.
  4. Expectation of further fall in price.

 

  • What is meant by individual demand curve?

Ans) An individual demand curve is a curve that shows different quantities of a commodity demanded by an individual consumer at different prices.It is the graphical representation of individual demand schedule.

  • What is market demand curve?

Ans) Market demand curve is a curve that represents the aggregate demand of all the consumers in the market at different prices of a particular commodity.It is horizontal summation of individual demand curves.

  • Define Supply function.

Ans) Supply function is defined as the relationship between supply for a commodity and its determinants.It can be expressed as:

Sx=f(Px,Pf,Pr,G,T…)

Where Sx=Supply function for X-commodity

Px=Price of X-commodity

Pf=Prices of factors of production

Pr=Price of related goods

G=Goal of the producer

T=Technology

  • Define linear supply function .

Ans)A supply function is said to be linear when the slope of the supply curve remains constant throughout its length.The simplest form of a linear supply function is given by the equation,

 Sx=a+bPx

In this equation ,the alphabet ‘a’ denotes total supply at zero price and ‘b’ a constant ,denotes slope of the supply curve.

  • Define non-linear supply function.

Ans) A supply function is said to be non-linear or curvilinear when the slope of the supply curve changes all along the supply curve.A non-linear supply curve function ,gemerally,takes the form of a power function as

Dx=aPx^b

  • Define supply schedule.

Ans) A supply schedule is a table showing various quantities of a good that the sellers would supply at various prices during a period of time .It is of two types: ie; Individual supply schedule and Market supply schedule.

  • Define individual supply schedule.

Ans) Individual supply schedule is defined as the table which shows quantities of a given commodity which an individual firm will supply at all possible prices at a given time.It is a graphical representation of individual supply schedule.

  • What is meant by individual supply curve?

Ans) An individual supply curve is a curve that shows different quantities of a commodity suppliedby an individual consumer at different prices.It is the graphical representation of individual supply schedule.

  • What is meant by market supply schedule?

Ans)Market supply schedule is the table which shows the total quantity of a commodity all firms would supply at each market price per period of time.It is obtained by the summation of individual supply schedule.

  • What is meant by market supply curve?

Ans) Market supply curve is a curve that represents the aggregate supply of all the producers in the market at different prices of a particular commodity.It is horizontal summation of individual supply curves.

  • What is meant by extension in supply?

Ans)Other things remaining constant ,when the supply for a commodity goes up due to rise in price of the same commodity,it is referred to as an extension in supply.This results in upward movement along the same supply curve.

  • Define contraction in supply.

Ans) Other things remaining constant ,when the supply for a commodity goes down due to fall in price of the same commodity,it is referred to as a contraction insupply .This results in downward movement along the same supply curve.

  • What do you mean by shift in supply curve?

Ans)When supply for a commodity increases or decreases ,the whole supply curve is drawn rightward or leftward ,this is referred to as shift in supply curve.Rightwaed shift in supply curve is called increase in  whereas leftward shift is called decrease in supply.

  • What is meant by increase in supply?

Ans)When more quantities of a commodity are supplied due to the favourable change in other factors, ie. goal of the producer,price of the related goods,etc,it is referred to as increase insupply.This results in the supply curve for the commodity shifting rightwards.

  • What is meant by decrease in supply?

Ans) As the quantity supplied falls due to unfavourable change in other factors, i.e. goal of the producer,price of related goods,etc., it is referred to as decrease insupply.This results in the supply curve for the commodity shifting leftwards.

  • What are the causes of increase in supply?

Ans) The following are the main causes of increase in supply:

  1. Increase in price of the related goods.
  2. Decrease in price of factors of production.
  3. Decrease in tax rate.
  4. Favourable weather condition.

 

  • What are the causes of decrease in supply?

Ans) The following are the causes of decrease in supply:

  1. Decrease in price of the related goods.
  2. Increase in price of factors of production.
  3. Increase in tax rate.
  4. Unfavourable weather condition.

 

  • Define market equilibrium.

Ans) The point of interaction between the demand and supply curve is known as equilibrium point.Every market is in equilibrium when total quantity demanded and quantity supplied of a commodity are equal.

 

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Introduction to Microeconomics

Some very short questions of Introduction to Microeconomics

1)Define an economic theory.

Ans) An economic theory is defined as a model along with the specified and empirical economic variables, concepts and facts used to explain and predict the changes.

2).List out the elements of well defined economic theory.

Ans)  The elements of well defined economic theory are as follows:

i)Definition

ii)Assumptions

iii)Predictions

iv)Test

3)What are the economic resources?

Ans)Economic resources refer to the services of the various types of labour,capital equipment,land,and entrepreneurship.Since the supply of these resources is limited or scare ,they command a price(i.e they are economic resources.

4) What do you mean by scarcity?

Ans) Scarcity in economics always refers to relative scarcity. Anything is said to be scare if its demand exceeds corresponding supply ie. Anything having finite supply is called the scare thing.

5)Why do central problems arise in an economy?

Ans) The central economic  problems arise out of two basic facts:

i)Human wants for goods and services are unlimited and

ii)Resources to produce those goods and services are limited or scarce.

6)What do you understand by allocation of resource?

Ans) Allocation of resources is the basic problem related to efficient utilization of resources for the production of different good s and services.It is concerned with what to produce,how to produce and for whom to produce.

7)Define microeconomics.

Ans)Microeconomics is defined as the branch of economics which deals with the action of individuals and small groups of individuals of an economy.These small groups of individuals may be households,firms and industries consisting of several firms.

8)Why microeconomics is also called slicing method?

Ans) Microeconomics is also called ‘slicing method’ because it splits up the entire economy into smaller parts for the purpose of intensive study.

9)Microeconomics is also called price theory.Why?

Ans) Microeconomics is also called price theory because it deals with the determination of price of goods and services.It studies how prices of a particular commodity like paddy is determined;how wages,interest,rent profit are determined.

10)What are the principle variables of microeconomics?

Ans)The principle variables of microeconomics are individual income,individual expenditure,demand and supply of an individual product,relative prices,cost of production of an individual firms,etc.

11)List out the scope of microeconomics.

Ans) The scope of microeconomics are as follows:

i)Theory of demand

ii)Theory of production

iii)Theory of product pricing

iv)Theory of factor pricing

v)Theory of welfare economics

12)What are the different types of microeconomics analysis?

Ans) The different types of microeconomics analysis are as follows:

i)Micro static

ii)Comparative micro static

iii)Micro dynamics

13)Define Micro Static.

Ans) Micro static is the study of static relationship between different microeconomic variables.It deals with the final equilibrium condition which do not involve any variation in the time element.

14)Definine Comparative Micro Static.

Ans) Comparative Micro Static is the comparartive study of different equilibrium position at different points of time.It simply compares the initial equilibrium position with the final position of equilibrium.

15)Define Micro Dynamics.

Ans) Micro economic is  the study of the process through which the final position of equilibrium  is reached through a series of adjustment over a series of time.

16)List the functions of Microeconomics Theory.

Ans) The functions of Microeconomics Theory are as follows:

i)To analyze behavior of an individual economic entities.

ii)To provide tools for business decision making.

iii)To provide basis for product pricing.

iv)To provide tools to formulate economic policies.

17)Write any four importance of Microeconomics.

Ans ) The four importance of microeconomics are as follows:

i)Helpful to understand working of the economy.

ii) Helpful to formulate economic policies.

iii) Helpful to study human behaviours.

iv) Helpful in business decision making.

18)List out the limitations of microeconomics.

Ans)The following are the limitations of microeconomics:

i)Microeconomics is static in nature .

ii)Conclusion drawn from microeconomics may be wrong from the society’s point of view.

iii)It has limited scope.

iv)It ignores the role of the government.

19)Define macroeconomics.

Ans) Macroeconomics is the branch of economics which deals with aggregate economic variables such as national income,aggregate saving,aggregate consumption,etc. It examines how general price level is determined and how resources are allocated at the level of the economic system as a whole.

20)Write any four principles of economics.

Ans)The following are the four principles of economics:

i)People face tradeoffs

ii)The cost of something is what you give up to get it.

iii)Rational people think at the margin.

iv)People respond to incentives.

21)Define normative economics.

Ans)Normative economics is that which studies things as they should be.It is related to the criteria of ‘What ought to be’ or what should be done.For example,it suggest us about what should be done to solve the problem of inflation.

22)Define Positive economics.

Ans) Positive economics is that which studies things as they happen in reality.It explains whatis,what was,and what will be.It studies cause and effect relationship between economic phenomena.For example,the law of demand studies cause and effect relationship between price and demand for a commodity.

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