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This law summarizes the effect price changes have on consumer behavior. For
example, a consumer
2. Why do demand curve always slope downward to right. Will it always happen?
Ans: The demand curve slopes downwards due to the following reasons
(1) Substitution effect: When the price of a commodity falls, it becomes relatively
cheaper than other substitute commodities. This induces the consumer to substitute the
commodity whose price has fallen for other commodities, which have now become
relatively expensive. As a result of this substitution effect, the quantity demanded of the
commodity, whose price has fallen, rises.
(2) Income effect: When the price of a commodity falls, the consumer can buy more
quantity of the commodity with his given income, as a result of a fall in the price of the
commodity, consumer’s real income or purchasing power increases. This increase induces
the consumer to buy more of that commodity. This is called income effect
. (3) Number of consumers: When price of a commodity is relatively high, only few
consumers can afford to buy it, And when its price falls, more numbers of consumers
would start buying it because some of those who previously could not afford to buy may
now afford to buy it, Thus, when the price of a commodity falls, the number of its
consumers increases and this also tends to raise the market demand for the commodity.
3. Show the price effect is combination of two effects:
Income effect: When the price of a commodity falls, the consumer can buy more
quantity of the commodity with his given income, as a result of a fall in the price of
the commodity, consumer’s real income or purchasing power increases. This increase
induces the consumer to buy more of that commodity. This is called income effect
Income and price elasticity of demand-:Price elasticity of demand is defined as the measure of
responsivenesses in the quantity demanded for a commodity as a result of change in price of the
same commodity.In other words, it is percentage change in quantity demanded as per the
percentage change in price of the same commodity. In economics and business studies, the price
elasticity of demand (PED) is a measure of the sensitivity of quantity demanded to changes in
price. It is measured as elasticity, that is it measures the relationship as the ratio of percentage
changes between quantity demanded of a good and changes in its price. Drinking water is a good
example of a good that has inelastic characteristics in that people will pay anything for it (high or
low prices with relatively equivalent quantity demanded), so it is not elastic. On the other hand,
demand for sugar is very elastic because as the price of sugar increases, there are many
substitutions which consumers may switch to.
a)
Elasticity of supply---Responsiveness of producers to changes in the price of their
goods or services. As a general rule, if prices rise so does the supply.
Elasticity of supply is measured as the ratio of proportionate change in the
quantity supplied to the proportionate change in price. High elasticity
indicates the supply is sensitive to changes in prices, low elasticity indicates
little sensitivity to price changes, and no elasticity means no relationship with
price. Also called price elasticity of supply.
b)
5. What is indifference curve and what are its characteristics.
indifference curve is a graph showing different bundles of goods, each measured as to
quantity, between which a consumer is indifferent. That is, at each point on the curve,
the consumer has no preference for one bundle over another. In other words, they are
all equally preferred. One can equivalently refer to each point on the indifference
curve as rendering the same level of utility (satisfaction) for the consumer. Utility is
then a device to represent preferences rather than something from which preferences
come. The main use of indifference curves is in the representation of potentially
observable demand patterns for individual consumers over commodity bundles.
A graph of indifference curves for an individual consumer associated with different utility
levels is called an indifference map. Points yielding different utility levels are each
associated with distinct indifference curves. An indifference curve describes a set of
personal preferences and so can vary from person to person.
6. Define money and bring out the various functions of money in brief.
Money is a good that acts as a medium of exchange in transactions. Classically it is
said that money acts as a unit of account, a store of value, and a medium of
exchange. Most authors find that the first two are nonessential properties that follow
from the third. In fact, other goods are often better than money at being
intertemporal stores of value, since most monies degrade in value over time through
inflation or the overthrow of governments.
Function of money
a) Money is used as trade or monetary unit: In a pure trade society farmer Fred
will trade shoemaker Paul 20 eggs for a pair of shoes. This functions if Paul needs
the eggs. However, if he needs vegetables then it gets a little complicated. It
would be easier if Fred had money to give Paul. Paul could then buy what he
needs. Money is therefore a comparative object, a tertium comparationis ("a
third comparative unit").
b) b) Money as a value storage unit: Money represents a certain value that one can
trade at any time into wares or services.
7. What is inflation? List out the determinants of price-inflation and suggest measure to control
the price inflation.
Inflation can cause adverse effects on the economy. For example, uncertainty
about future inflation may discourage investment and saving. Inflation may widen
an income gap between those with fixed incomes and those with variable
incomes. High inflation may lead to shortages of goods as consumers begin
hoarding them out of concern their prices will increase in the future.
Economists generally agree that high rates of inflation and hyperinflation are
caused by an excessive growth of the money supply. Views on which factors
determine moderate rates of inflation are more varied. Low or moderate inflation
may be attributed to fluctuations in real demand for goods and services, or
changes in available supplies such as during scarcities, as well as to growth in the
money supply. The consensus view is that a sustained period of inflation is caused
when money supply increases faster than the growth in productivity in the
economy.
The task of keeping the rate of inflation low is usually given to monetary
authorities who establish monetary policy. Generally today these monetary
authorities are the central banks that control the size of the money supply through
the setting of interest rates, through open market operations, and through the
setting of banking reserve requirements.
8. What is modern banking system? Summarize the functions of a commercial and central bank.
Ans: a bank is defined as institution which deals in money and instruments of credit.,accepting
money,purpose of lending money ,depository of money,etc
A central bank, reserve bank, or monetary authority is the entity responsible for the monetary
policy of a country or of a group of member states. Its primary responsibility is to maintain the
stability of the national currency and money supply, but more active duties include controlling
subsidized-loan interest rates, and acting as a lender of last resort to the banking sector during
times of financial crisis (private banks often being integral to the national financial system). It
may also have supervisory powers, to ensure that banks and other financial institutions do not
behave recklessly or fraudulently.
Functions of a central bank (not all functions are carried out by all banks):
• implementing monetary policy
• controlling the nation's entire money supply
• the Government's banker and the bankers' bank ("lender of last resort")
• managing the country's foreign exchange and gold reserves and the Government's stock
register
• regulating and supervising the banking industry
• setting the official interest rate – used to manage both inflation and the country's
exchange rate – and ensuring that this rate takes effect via a variety of policy mechanisms
Commercial banking refer to a bank or a division of a bank that mostly deals with deposits and
loans from corporations or large businesses, as opposed to normal individual members of the
public
• Planning: Deciding what needs to happen in the future (today, next week, next month,
next year, over the next 5 years, etc.) and generating plans for action.
• Organizing: (Implementation) making optimum use of the resources required to enable
the successful carrying out of plans.
• Staffing: Job Analyzing, recruitment, and hiring individuals for appropriate jobs.
• Leading/Motivating: Exhibiting leadership and motivational skills in order to encourage
others to play an effective part in achieving plans and ensure willing participation in the
organization on the parts of workers.
• Controlling: Monitoring, checking progress against plans, which may need modification
based on feedback.
Nature of Management
1}management is an art—:it is an art because mgmt process involves the use of know –how and
skills
2} management is science—it is science as it works on the process of cause and effect and
provide predicatble result and can be verified
14. What are the major functions of management? Briefly explain them.
Ans: Functions of management
Managerial Operational
functions or operative
management
1.planning
2.organising 1.purchase
3.staffing management
4.directing 2.production mgmt
5.controlling 3.financial mgmt
4.marketing mgmt
5.human resource
mgmt
Managerial functions
planning- it is making of strategies or path to be followed
organizing-it is organizing manpower and material
staffing-to recruit ,select,training ,development,appraisel of personnel or staff
directing-it is determining course,giving orders and instructions and provide dynamic leadership
it includes leadership,motivation,supervision,controlling,
controlling_ it is the process of checking actual performamce against agreed standards
operational management
purchase mgmt-it is concerned with inviting tenders,choosing supplier,making transport arrangement
production mgmt—it is concerned with the transformation of input like manpower,machinery ,material into
required output
financial mgmt—deals with proper utilization of monetary resource for smooth running
marketing- concerned with distribution of product and advertisement etc
human resource mgmt— deals with use of the human resource or manpower effectively to get maximum
output
weber theory of bureaucracy recognizes “rational legal authority” as most important type in organizations
weber described ideal organization as the one that would be perfectly rational and would provide maximum
efficiency
b) Contribution of Taylor-
F.W taylor was the first person who insisted on the introduction of scientific method in mgmt
--he made the first systematic study-launched scientific mgmt in 1990
Regarded as father of scientific mgmt
--he gave theory of scientific mgmt
-taylor wanted to bring mental revolution on the parts of worker and mgmt
Autocratic—depends on power of boss ,it is useful in condtion where the workers are
lazy,but it gives minimum performance ,it ca lead to the aggressiveness or frustration in
workers for the boss
Custodial --- here manpower works for organization ,not for boss,it is advantageous over
autocratic
Supportive— in this all the work is done as getting support
Collegial- in this people with same motive work and it has maximum performance,