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Industrial Economics and Principles of Management (IEPM)

CSE, IT, MIE Vth Semester

Important Questions

1. What is law of demand? Explain in brief determinants of demand?

Demand law that states that, all other factors being equal, as the
price of a good or service increases, consumer demand for the good
or service will decrease and vice versa.

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

b) ) 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.

4. Write short note on (any two):

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.

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.

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.

Indifference curves are typically represented to be:

• 1. defined only in the positive (+, +) quadrant of commodity-bundle quantities.

• 2. negatively sloped. That is, as quantity consumed of one good (X) increases,
total satisfaction would increase if not offset by a decrease in the quantity
consumed of the other good (Y). Equivalently, satiation, such that more of either
good (or both) is equally preferred to no increase, is excluded. (If utility U = f(x,
y), U, in the third dimension, does not have a local maximum for any x and y
• 3. complete, such that all points on an indifference curve are ranked equally
preferred and ranked either more or less preferred than every other point not on
the curve. So, with (2), no two curves can intersect (otherwise non-satiation
would be violated).
• 4. transitive with respect to points on distinct indifference curves. That is, if each
point on I2 is (strictly) preferred to each point on I1, and each point on I3 is
preferred to each point on I2, each point on I3 is preferred to each point on I1. A
negative slope and transitivity exclude indifference curves crossing, since straight
lines from the origin on both sides of where they crossed would give opposite and
intransitive preference rankings.
• 5. (strictly) convex (sagging from below). With (2), convex preferences implies a
bulge toward the origin of the indifference curve. As a consumer decreases
consumption of one good in successive units, successively larger doses of the
other good are required to keep satisfaction unchanged.

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.

c) Money functions as calculation unit: A characteristic of the monetary

economy is that the market value of a ware is measured by a standard value. This
simplifies the comparison of the value of two products or services.

7. What is inflation? List out the determinants of price-inflation and suggest measure to control
the price inflation.

inflation is a rise in the general level of prices of goods and services in an

economy over a period of time. The term "inflation" once referred to increases in
the money supply (monetary inflation); however, economic debates about the
relationship between money supply and price levels have led to its primary use
today in describing price inflation. Inflation can also be described as a decline in
the real value of money—a loss of purchasing power. When the general price
level rises, each unit of currency buys fewer goods and services. A chief measure
of price inflation is the inflation rate, which is the percentage change in a price
index over time.

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

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
• 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

Commercial banks engaged in the following activities:

• processing of payments by way of telegraphic transfer, EFTPOS, internet banking or

other means
• issuing bank drafts and bank cheques
• accepting money on term deposit
• lending money by way of overdraft, installment loan or otherwise
• providing documentary and standby letter of credit, guarantees, performance bonds,
securities underwriting commitments and other forms of off balance sheet exposures
• safekeeping of documents and other items in safe deposit boxes
• currency exchange
• sale, distribution or brokerage, with or without advice, of insurance, unit trusts and
similar financial products as a “financial supermarket”

9. Discuss effect of inflation on:

a) Industrialist -
b) Debtors and Creditors
c) Consumers
10. Discuss various value of money.
Ans: the term value of money means the purchasing power of money,in other words ,it denotes the quantity
of goods and services a unit of money can buy
-value of money depends on level of prices of goods & services to be purchased,higher the prise of goods
lower would be purchasing power of money and vice cersa
Vm-1/p where Vm is value of money and p is price

Economicst have laid down three standard to measure value of money

i) The wholesale price index—Vm is expresses in terms of all goods and traded in wholesale
ii) The consumer price index-Vm is expressed in terms of all he goods and services which
constitute the consumption items of an average family
iii) The labour price index—Vm is expressed in terms of prices of labour services

11. Define management and trace out its exact nature.

12. Management in business and human organization activity is simply the act of getting people
together to accomplish desired goals. Management comprises planning, organizing, staffing,
leading or directing, and controlling an organization (a group of one or more people or
entities) or effort for the purpose of accomplishing a goal. Resourcing encompasses the
deployment and manipulation of human resources, financial resources, technological
resources, and natural resources.

Management operates through various functions, often classified as planning, organizing,

leading/motivating, and controlling.

• 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
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

13. What are the basic elements of scientific management

Ans: scientific mgmt includes finding the most efficient method of production,scientific selection and
training of workers,proper allotment of duties and work and achieving cooperation between workers and
Scientific mgmt involves-:
i)scientific study and analysis of work
ii)scientific selection and training of workers
iii)standardization of raw materials,equipmentsand working condition
elements of scientific mgmt
• scientific task setting
• work study
• planning the task
• setting wage rate
• standardization of tools
• scientific selection and training of workers
• specialization or functial foremanship

aim of scientific mgmt_:

• increased production
• quality control
• cost reduction
• elimination of wastes
• incentive wages
• right men for right work

14. What are the major functions of management? Briefly explain them.
Ans: Functions of management

Managerial Operational
functions or operative

2.organising 1.purchase
3.staffing management
4.directing 2.production mgmt
5.controlling mgmt mgmt
5.human resource
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

15. Describe short note on:

a) Contribution of Max Weber –
--contributed the theory of bureaucracy
-weber said” bureaucracy as an abstract system that would rationally solve problems without the frictions
caused by humn errors
Weber identified 3 types of legitimate authority
I) Rational legal authority—authority due to rank of the boss aur manager
II) Traditionally authority—authority due to traditional,it is followed as legacy passes on
III) Chasismatic authority—authority due to specaility of the person

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

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

16. Describe Fayol’s Contribution related functions of management.

--Henry fayol (france0
-called as father of mgmt process
-he laid emphaises on process of the mgmt than any other thing
--according to him there are 5 functions of mgmt

He gave generl theory of administration

17. What is perception? How does the management affluence the perception of its employees?
18. State and explain the important principles of learning and highlight the role and importance of learning
in training and development.
19. Write short notes (any two):
a) Factor affecting human behavior ---
A) Personal factors---age,education,sex etc
B) Psychologiacal factors-includes personality,perception,leraning,motivation
C) Organizational factr—facilities provided by org.,organization structure and design
D) Environmental factor—economic and social factor
E) Political factor—political climate also palys important role
b) Group behavior—
Group behavior in sociology refers to the situations where people interact in large or
small groups. The field of group dynamics deals with small groups that may reach
consensus and act in a coordinated way
group behavior in an organization is quite complex,several factors influence group behavior
a] external factor-
b]group structure
c]group process
d] group task
e]group decision making
c) Personality development--
20. Give a brief account on interpersonal relationship.

21. Explain models of human behavior in brief.

Model Autocratic Custodial Supportive collegial
Basis of model power economic leadership partnership
Managerial authority money support teamwork
Employee obedience Security and Job performance
orientation benefits Responsible
Employee Dependence of Dependence on participation Self discipline
psychology boss organisation
Employee needs subsistence security Status Self actaulisation
Performance minimum Passive Awakened drives Moderate
cooperation enthusiam

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
Supportive— in this all the work is done as getting support

Collegial- in this people with same motive work and it has maximum performance,

Make huge huge stories based on the above contents,

Quantity matters than quality ,welcome to uptu….

Best of luck !!!!