Economic aspects

Submitted by-Sheenam Sapra

Assistant.Prof
Meaning of Economics
 Economics is a social science. Its basic function
is to study how people –individuals ,household
firm maximize their gains from their limited
resources and opportunities.
 Thus economics is the study of how beings

make choices to make choices to allocate

resources to satisfy their unlimited wants in
such manner that consumers maximize their
satisfaction ,producers can maximize their
profits, and the society can maximize its social
welfare is called economics
Branches of econonmics
 There are 2 types of branches of economics
 1-micro
 2-macro
 Micro economics-means small it studies an

individual consumer producer price of

particular commodity, household etc.
 Macro economics –means it is the study of

aggregates or average covering the entire

economy such as national income national
output total saving total consumptions
Difference between micro and macro economics

Basis MICRO MACRO

Deals with Individual economic Aggregate economics

variable variable
Business applications Applied to internal Applied to
issues environment and
external issues
Scope Narrow wide

examples Individual income, National, national

individual output output income
Time element Fixed period Not fixed
Managerial economics meaning
 It is the use of economic mode of thought to
analyze business situation.
 Thus managerial economic is the body of
economics knowledge ,which is used in
analyzing business problems for taking
appropriate business decisions and
formulating forward plans is called
managerial economics
Nature of managerial economics

1. Micro
2. Macro
3. Interdisciplinary
4. Problem solving
5. Allocation of resources
Relationship of managerial
economics with others areas
Statistics
Accounting
Mathematics
Economics
Theoryof decision making
Accounting
Importance of economics in decision
makings-
1. Production decision
2. Inventory decision
3. Cost decision
4. Marketing decision
5. Investment decision
Scope of managerial economics

1. Demand analysis
2. Demand forecasting
3. Pricing decision and
pricing policy
4. Capital management
Responsibilities of economist
 To make reasonable profit on
capital employed
 Successful forecast
 Knowledge of source of

economic information
 His status in the firm
Managerial economics fills the gap
between theory and practices
 It deal with the complex business condition of
the real world and the have to find their way to
their destination i.e achieving the goal that
they set for themseleves.There are some
following points-
 Identify their problems in achieving their goals
 collection the relevant data and other relevant
information
 Processing the data
 Evaluating the alternative means to achieve the
goal
 Taking a decision
 Demand meaning

 Demand refers to the quantity of

goods or services that consumer are
willing and able to purchase at various
prices dealing a period of time is
called demand
 Acc.to benham-”The demand for any

thing at a given price is amount of it

which needs to be bought price unit of
time at that price is called demand’’
Objectives of demand analysis
1. Demand forecasting-means it is the art of
predicting demand for a product or service
at some future date on the basis of certain
present and past behaviour pattern related
events.
2. Production planning-should be based on
the estimates of likely demand ,otherwise
they may be over or under production so
losses may have to be faced.
3. Sales forecasting-is based on the demand
analysis and also promotional effort of the
firm should be based on sales forecast.
 4-Inventroy control-A satisfactory control of
business stock raw material ,finished goods
spare parts which can be traced through
demand analysis
 5-Growth&long term investment-it help to

determine and increase the growth rate of

firm and long term programs and planning
Types of demand

1. Short term demand

2. Long term demand
3. Market demand
4. Individual demand
5. Composite demand
6. Joint demand
1. Individual demand-means quantity of a
commodity which an individual is willing to
buy at a particular price of a commodity
2. Market demand-it means the total quantity
which all consumers of a commodity are
willing to buy at a given price ,income
taste and price of other commodity
3. Short term demand – it refers to the
demand for such a goods as are demanded
over a short period .for eg fashionable
dress seasonable fruits and vegetables
4. Long term demand-refers to the demand
which exists over a long period for eg milk
butter pulses water etc.
 5-Joint demand –when 2 or more goods are
jointly demanded at a same time to satisfy a
single want. for eg petrol ink coffee tea sugar
etc.
 6-Composite demand –when goods or

services have more than one use so that an

increase in the demand for an product. For eg
milk which be used for cheese curd butter
cream and other products
Factors affecting demand
 Priceof commodity
 Income of the consumer
 Taste and preferences
 Growth of population
 Weather condition
 Tax rate
 Advertisement
 Seasonal condition
Assumptions of demand
 Income level should be constant
 Taste of the buyer should not be change
 Price of the other goods should remain

constant
 Taxation policy constant
 No change in advertisement
 No change in population
 Climatic condition should be constant
Why demand curve slope downward
 Substitution Effect

 When the price of a product decreases, the consumers shift

their resources to this product. This results in less
consumption of the price substitutes. This phenomenon is
called a substitution effect. J.R. Hicks, Allen, and other modern
economists take substitution effect as one of the reasons
behind demand curve slopping downwards .
 Number of Consumers

 When the price of a product goes down the number of

consumers of that product rises. Similarly, when the price
of a product goes up, the consumers shift towards
cheaper substitutes. The number of consumers impacts
the demand graph and make curve slope downwards.
 Price effect –Every commodity has certain
consumer but when its price falls so
consumer start consuming it as a result
demand increases.
Exception to the law of demand
 Giffen Good:
 A ‘Giffen good’ is a special variety of inferior

good. Sir Robert Giffen of Scotland observed

in the 19th century (1840s) that poor people
spent the major portion of their income on a
staple item, viz., potato. If the price of this
good rises they will become so poor that they
will be found to spend less on other items
and buy more potatoes in order to get a
minimum diet and keep themselves alive
 Change in fashion and Tastes & Preferences: The
change in fashion trend and tastes and
preferences of the consumers negates the effect
of law of demand. The consumer tends to buy
those commodities which are very much ‘in’ in
the market even at higher prices.

Conspicuous Necessities: There are certain

commodities which have become essentials of
the modern life. These are the goods which
consumer buys irrespective of an increase in
the price. For example TV, refrigerator,
automobiles, washing machines, air
conditioners, etc.
Variation in demand
 There are 2 types of variation in demand
 1-Movement along the demand curve
 A-extension or expansion in demand
 B -Contraction in demand
 2-Shift in demand curve
 A-Increase in demand
 B-Decrease in demand
Elasticity of demand meaning
 It refers to the relation responsiveness of
supply or demand curve in relation price,
the more elastic curve the more quantity
will change its price is called elasticity of
demand. Types of elasticity of demand
 Price elasticity of demand
 Income elasticity of demand
 Cross elasticity of demand
 Advertising elasticity of demand
Types of elasticity of demand
Priceelasticity of demand
Cross elasticity of demand
Income elasticity of demand
Advertising elasticity of

demand
 Formula of total outlay or total expenditure
 Total outlay=PXQ
 Where P=price
 Q=quantity
Income elasticity of demand
 The percentage change in the quantity
demanded of goods divided by the
percentage change in income of consumer is
called income elasticity of demand
Types of income elasticity of demand
 High income elasticity of demand
 Unitary income elasticity of

demand
 Low income elasticity of demand
 Zero income elasticity of demand
 Negative income elasticity of

demand
Use &importance of elasticity of
demand in managerial decisions
 Importance in international
trade
 Effect use of machine of

employment
 Public utilities
 Output decisions
 Determination of price policy
Unit2ndconcept of
supply and demand
forecasting
Assumptions of law of supply
 No change in the price of factor
production
 No change in the price of related
goods
 No change in the state of
technology
 No change in govt.policy
 No change in the goal of the firm
Why does supply curve slope upward?

Change in stock
Profit and loss
Entry and exists
Innovation
Increase cost
Exception to the law of supply
 1-Increase of agriculture goods-Agriculture
goods is regulated, fertility of the land &
weather condition in place of price
 2-Pershibale goods-Those goods which can

not be stored for a long period, the producer

supply them irrespective of the price in the
market such as milk vegetables sweets and
so on
 3-When leaving the industry-if a firm want to

shut down or close down their business ,they

may sell their product at a below price their
average cost of production s
 4-Backward countries –These countries lack
of capital and necessary input for the
production of goods ie they lack of
production capacity and supply remain
limited in face of rising price
Determinants of elasticity of supply
 Nature of industry
 Nature of input
 Nature of commodity
 Nature of techniques
 Time
 Resources available
 Risk taking
FORECASTING
 PLANNING IS THE MOST IMP FUNCTION
OF MANAGING .
 PLANNING IS THINKING BEFORE DOING.
 IT IS DONE TO MINIMIZE THE RISKS

ARISING OUT OF AN UNCERTAIN

FUTURE.
 SUCH ESTIMATION KNOWN AS

FORECASTING.
DEMAND FORECASTING
 It is the art of predicting demand for a
product or a service at some future date on
the basis of present and past behavior
pattern of some related events is called
demand forecasting
 Acc.to Evan dougles –It is the process of

finding current value of demand for various

value of prices and other determining
variables.
Criteria of demand forecasting

1. Simplicity
2. Economy
3. Availability
4. Accuracy
5. Flexibility
6. Availability of data
 1-Simplicty -Management must be able to
understand and gave confidence in technique
to used .
 2-Economy-forecaste should be the

economic consideration of balancing the

benefits from increased accuracy against the
extra cost of providing the improved
forecasting
 3-Availability –Techniques should give quick

result and useful information .

 4-Accuracy-Sales forecasting must be based

on marketing planning and it must be

accurate as possible
 5-Flexibility-forecasting method must be
flexible .it means we should be able to
accommodate some changes in the variables
which determine the demand
 6-Availability of data-Forecasting is based on

the availability of data ,which is fitted in a

modern to estimate future demand
Imp of demand forecasting

1. Production planning
2. Sales forecasting
3. Control of business
4. Inventory control
5. Policy making
 1-Prodction planning-It is prerequisite for
the production planning of a business firm.
Expansion of output of the firm should be
based on the estimates of likely demand
,otherwise it may be over or under production
losses may have to be faced.
 2-Sales forecasting-is based on the demand

forecasting .promotional efforts of the firm

should be based on sales forecasting
 3-Control of business-it is essential to have a

well conceived budgeting of costs and profits

that is based on the forecast of annual
demand sales and price
 4-Inventory control-means raw material semi
finished goods finished goods spare parts
etc, requires satisfactory estimates of the
future requirements which can be traced
through demand forecasting.
 5- Policy making- helps to the planner and

policy maker for a better planning and

rational allocation of resources .
Limitation of demand forecasting
Change in fashion
Consumer psychology
Lack of experts
Lack of past data
 1-Change in fashion-is an inevitable
consequence of advancement of civilization.
 2-Consumer psychology-results of
forecasting depend largely on psychology of
consumer understanding which it self is
difficult.
 3-lack of experts-accurate forecasting
necessitates experienced experts who may
not be easily available.
 4-lack of past data-it requires past sales data
which may not easily available. this mat be
typical problem in case of forecasting for a
new product
STAGES OF FORECAST IN DEMAND
1. SPECIFICATION OF OBJECTIVES
2. SELECTION OF APPROPIATE
TECHNIQUE
3. COLLECTION OF APPROPIATE DATA
4. ESTIMATION AND INTERPRITAION
OF RESULTS
5. EVALUATION OF FORECASTE
 FORECASTING TECHNIQUE
1. ACCURACY
2. LEAST POSSIBLE COST
3. MINIMUM USE OF OTHER
RESOURCES
4. CHOICE OF TECHNIQUE DEPEND
UPON
5. URGENCY
6. AVAILABLITY OF DATA
METHODS OF DEMAND
FORECASTING.

QUALITATIVE

METHOD
QUANTITATIVE

METHOD
QUALITATIVE METHODS .MEANING.
IN THIS METHOD THE OPINION OF THE BUYER
SALES FORCE AND EXPERTS METHODS
COULD BE GATHERED TO DETERMINE THE
EMERGING TREND IN THE MARKET IS
CALLED QUALITATIVE METHOD ..THERE ARE
3 TYPES OF QUALITATIVE METHOD
1. . CONSUMER SURVEY
2. SALES FORCE OPINION METHOD
3. DELPHI TECHNIQUES
4. SAMPLE SURVEY
 1-Consumer survey method-are conducted
to collect the information to collect
information about future plans of the
probable buyers of the product.
 2-Sample survey-Under this method some

representative household are selected on

random basis as samples and their opinion is
taken as generalized opinion. Their reaction
to the product are noted after a period of
time and an estimate of likely demand is
made form result
 3-Sales force opinion method-This is also

know as collective opinion method .These

individual forecast are discussed and agreed
with the sales manager.
 4-Delphi technique-This method is also
know as expert opinion method of
investigation .In this method instead of
depending upon the opinion of buyers and
sales firms can obtain views of the specialist
experts in their respective fields .
QUANTITATIVE METHOD.
 THESE ARE FORECASTING
TECHNIQUES THAT MAKE USE
OF USE OF HISTORICAL
QUANTITATIVE DATA
 THESE QUANTITATIVE

METHOD KNOWN AS
STATISTICAL DATA
TYPES OF QUANTITATIVE METHODS

1. TREND PROJECTION
METHOD
2. TIME SERIES DATA
3. GRAPHICAL DATA
4. BAROMETRIC METHOD
5. ECONOMETRIC METHOD
 1-Trend projection method-An old firm can
use it of past years regarding its sales in past
years
 2-Time series data-it refers to data collected

over a period of time recording change in

price income and other relevant variables
influencing demand for commodity.
 3-Graphical method-A trend line can be

fitted through a series graphically and areas

are plotted on a graph and shows the trend
 4-Barometric method-it is also know as

leading indicators forecasting. The analyst

should establish a relationship between the
sales of the product and economic indicators
 Econometric method-This model involves
estimating several equations which are
generally mathematical identities and
behavioral equation.
  UNIT 3rd
Cost analysis
COST ANALYSIS
 IT
REFERSTO THE STUDY OF
BEHAVIOUR OF COST IN
RELATION TO ONE OR MORE
PRODUCTION CRITERIA LIKE
OUTPUT PRICE OF FACTOR
PRODUCTION AND OTHER
VARIABLES .
TYPES OF COST
1. OPPORTUNITY COST
2. BUSINESS COST
3. DIRECT COST AND INDIRECT COST
4. INCREMENTAL COST AND SUNK COST
5. EXPLICT COST AND IMPLICT COTS
6. PAST COST AND FUTURE COST
7. SHUT DOWN COST
8. REAL COST
9. POSTPONABLE COST
TOTAL COST
MARGINAL COST
ACCOUNTING COST
 1-Opportunity cost-may be defined as the loss
of expected returns from the second use of the
resources foregone for availing the gains from
their best possible use.
 2-Business cost-it include all the expenses,
which are incurred in carrying out a business.
 3-Direct cost & indirect cost-direct cost are the
cost that have direct relationship with a unit of
operations for eg. salary of all employees.
 Indirect cost-are those whose sources can not
be easily traced to a plant or product process
department such as electricity &other office
expenses.
 4-Incremental cost and sunk cost-denote the
additional cost associated with the batch of
output
 Sunk cost-are the cost that are not affected

by a change in the level of business activity

 5-Explicit cost and implicit cost-are those

payment that must be made to the factors

hired form outside control of the firm
 Implicit cost-refers to the payment made to

the self owned resources used in productions

 6-Past cost and future cost-are those cost

which have been incurred in the past.

 Future past-refers to the costs that are

incurred in some future periods

 7-Shut down cost-are the cost that are
incurred in the case of an closure of plant
operations
 8-Real cost-The total money expenses

,recorded in the book in the books of

accounts.
 9-Postnable cost-the cost which can be

postponed for some time.

 TOTAL Cost – IT IS THE SUM OF TOTAL
QUANTITY OF OUTPUT PRODUCE BY ALL THE
UNIT OF VARIABLE FACTOR ALONG WITH SUM
UNITS OF FIXED FACTOR USED IN THE
PROCESS OF PRODUCTION.
 ACCOUNTING COST-is based upon

accounting records in the books of accounts.

 MARGINAL COST-IT REFER TO THE

ADDITIONAL PRODUCT WHICH CAN BE

DERIVED BY EMPLOYING ONE MORE UNIT OF
VARAIABLE FACTOR.
 MC= TC-AC
DETERMINANTS OF COST

1. SIZEOF PLANT
2. NATURE OF PLANT
3. CAPACITY
UTILISATION
4. TECHNOLOGY
USE OF COST ANALYSIS
 PRODUCT COST
 COST MANAGEMENT
 PRICE DECISION
 PROFIT PLANNING
 CAPITAL INVESTMENT AND DECISION
 MARKET DECISION
 1-Product cost-is used in managerial
decision making is in setting product or
service price which cost based price, market
based price target based price.
 2-Cost management-is the process of

controlling, planning the budget of business

 3-Price decision-Companies that make

simple pricing decisions often try to increase

sales by making small, competitive
adjustments such as purchase discounts,
volume discounts and purchase allowances.
 4-Captial investment decision-it is basically

examine two major items ,namely benefits

and cost
 5-Market decision-it provides useful
information needed to plan and control
marketing cost and market strategies for
selling product based on their contribution
margin to the total company profits
Cost output relationship in the short
run and long run
Itindicates 3 terms-
Total cost
Total fixed cost
Total variable cost
 1-Total cost-are the total expenses incurred
in by a firm in producing a given quantity of
commodity.

Units TFC TVC TC

1 20 18 38

2 20 30 50

3 20 40 60

4 20 52 72

5 20 65 85

6 20 82 102

7 20 106 126
2-Total fixed cost-are the
cost of production that
does not change with
output.
3-Total variable cost-are

those cost of production

that change directly with
the output
Cost output for long run
Break even analysis-
 It is used to determine how much sales volume
your business needs to start making a profit.
 The break even analysis is especially useful
when you are developing pricing strategy,
either a part of a marketing plan or a business
plan
 In economics specifically cost accounting ,the
break even point is the point at which cost or
expenses and revenue are equal their no net
loss or no gain
Advantages of break even analysis

 Measure profit and losses at different levels

of production and sales.
 Predict the effect of changes in sales prices.
 Analyze the relationship between fixed and

variable costs.
 Predict the effect of cost and efficiency

changes on profitability.
WHAT IS PRODUCTION
 ITEXPLAINS THAT REALTIONSHIP
IN WHICH MAXIMISE OUTPUT
THAT CAN BE PRODUCED WITH
THE USE OF INPUT DURING A
GIVEN PERIOD OF TIME.IS CALLED
PRODUCTION
CONCEPT OF PRODUCT

1. TP (TOTAL PRODUCT)
2. MARGINAL PRODUCT
3. AVERAGE PRODUCT
 TOTAL PRODUCT – IT IS THE SUM OF TOTAL
QUANTITY OF OUTPUT PRODUCE BY ALL THE
UNIT OF VARIABLE FACTOR ALONG WITH SUM
UNITS OF FIXED FACTOR USED IN THE
PROCESS OF PRODUCTION.
 AVERAGE PRODUCT–IT REFERS TO THE

OUTPUT PER UNITOF VARIABLE FACTOR.

 AP= TP\Q
 MARGINAL PRODUCT-IT REFER TO THE

ADDITIONAL PRODUCT WHICH CAN BE

DERIVED BY EMPLOYING ONE MORE UNIT OF
VARAIABLE FACTOR.
 MP= TP-AP
CAUSES OF VARAIBLE PRODUCTION
CAUSES OF INCREASING RATE
1. BETTER UTILISATION OF RESOURCES
2. BETTER COORDINATION
3. INCREASES EFFICIENCY
CAUSES OF DECREASING RETURN
4. FIXED FACTOR
5. IMPERFECT SUBSTITUTE
6. LESS COORDINATION
CAUSES OF NEGATIVE RETURN
7. LIMITATION OF FIXED FACTOR
8. DECREASE EFFICIENCY
 Economics of scale
 Economics of scale refers to the notion of
increasing efficiencies of the production of
goods as the numbers of goods being produced
increases is called economics of scale.
 Diseconomies of scale means when a firm
continues to expand its size ,a stage comes
when diminishing a returns to scale set in. when
diseconomies of scale arise they are more likely
to be associated with the human behavioral
problems of managing a large enterpise.
Kinds of economies of scales
INTERNAL ECONOMIES OF
SCALE
EXTERNAL ECONOMIES

OF SCALE
 External economies
 Raw material-The expansion of an industry
may result in exploration of new sources of
raw material machinery and other
equipments.
 Technological external economies- when the

whole industry expands, it may result in the

discovery of new technical knowledge and
accordance with that the use of improved and
better machinery than before.
 Growth of industries-With the growth of

industry a firm may also get developed

processing the waste products of the industry
and making some useful product
 Better transportation-The expansion of an
industry resulting from entry of new firm may
make possible and development of
transportation .
 Marketing facilities-Marketing network which

will greatly reduce cost of production of

firms.
 Unit 4th

Market structure
Meaning of Market structure
 Market refers to a particular place where
goods are purchased and sold.
 Market structure refers to the nature and

degree of competition in the market for

goods and service. The structures of market
both for goods market & services market are
determined by the nature of competition
prevailing in particular market.
Determinants of market structure

Number of sellers
Number of buyers
Nature of product
Entry and exist

conditions
Types of market structure
 There are 2 types of market structure-
 Perfect market competition
 Imperfect market structure
 1-Monopoly
 2-Monopolistic competition
 3-oligopoly
 4-Duopoly
Perfect competition
 It is one in which the number of buyers and
sellers is very large ,all engaged in buying
and selling a homogenous product without
any artificial restrictions
 Features of perfect competition
 Large no buyers
 Large of sellers
 Homogeneous product
 Free entry and exist
 Perfect knowledge
Monopoly meaning
 It is a market situation in which there is one
seller of a product with barriers to entry with
others. for which there is no close substitute.
 Features of monopoly
 Single seller
 Restricted entry
 No close substitute
 Homogeneous product
 Lack of competition
Advantages of monopoly
Economic of scale
High profit
No interference
Research and

development
Stability in price
Price determination under monopoly
 Some economists think that, in a
short period, three different
situations may arise before the
monopolist:
 (i) When the monopolist earns

abnormal profits,
 (ii) When he gets only normal

profits, and
 (iii) when he firm losses
 Determination of Price in the Long
Period:
 In the long period the monopolist

introduces changes in his equipment’s

and techniques of production. During
this period in order to gain excess
profit, he will change efficiency and
capacity of his resources according to
his need. But the determination of the
quantity of production follows, the
same line as under short period.
Monopolistic competition meaning
Advantages of monopolistic
competition
1-Promotion of
competition
2-lack of barrier entry
3-Product efficiency
4-Quality development
Disadvantages of monopolistic
competiton
Cut throat competition
Political control
False representation of

resources
Advertising cost high
Oligopoly menaing
Features of oligopoly
Few seller
Non price competition
Group behaviour
Barrier to entry
Formation of cartel
Interdependence
Kinked shape demand
curve-
Because of interdependent
of the firm and inavailablity
of a particular firm to
predict the behaviour of
other firm.
Aduopoly is a situation where two
companies own all, or nearly all, of
the market for a given product or
service. A duopoly is the most
basic form of oligopoly, a market
dominated by a small number of
companies. A duopoly can have
the same impact on the market as
a monopoly if the two players
collude on prices or output. 
Feature of duopoly
 Higher efficiency
 Dual market
 High profit
 interdependence
 Advantages of duopoly
 Cut throat competition

 Interaction
 Simplicity

 Near perfect competiton

 Pricing policy meaning
 Pricing is the art of translating into
quantitative term(rupees) the value of
product or a unit of a service to
customer at a point in time.
 It is the process of setting objectives,

determining the available flexibility

,developing strategies setting prices
and engaging in implementation and
control.
Objective of pricing
 Profit maximization
 Price stabilization
 Maintain market share
 Entry into new market
 Achieving a target return
 Ability to pay
 Facing competitive situation
 Profit maximization-The primary objective of the
firm is to maximize its profit and help to achieve
its objective
 Price stabilization-The price as far as possible
should not be fluctuate too often
 Maintain market share-it refers to the share of
firms sales of a particular product in all total
sales of all firm in the market. The economic
strength and success of the firm is measured in
terms of its market share
 Entry into new market-Apart from growth
expansion diversification in its activities a firm
make a special attempt to enter into new
market.
 Achieving target return-The target are set
according to the position of individual firm.
Hence, price of the products are so calculated as
to earn the target return on cost of production
sales and capital investment
 Ability to pay-pricing decisions are sometimes
taken on the basis of the ability to pay of the
customer.
 Facing competitive situation-One of the main
objective of the pricing policy is to face
situations in the market. wherever companies
are aware of specific competitive product, they
try to match the price of their product with those
rivals to expand the volume of their business .
Factors influencing pricing
 Internal factors
 Cost of the product
 Organizational factor
 Objective of the firm
 Corporate culture
 Human resources
 External factors
 1-Competition 4- buyers
 2-Supplier
 3-Economic condition
 Pricing method
There are 4 types of pricing method which are as
follow-
1-Cost oriented
2-Customer demand oriented
policies
3-Comeptition oriented policies
4-Other policies
 1-Cost oriented policies-
 Full cost or mark up cost
 Marginal cost
 Break even pricing method
 Target return or rate on return
 2-Competition oriented pricing-
 Discount pricing
 Premium pricing
 Tender pricing
 3-Other pricing policies-
 Value based
 Product pricing
 Affordability pricing
 Market and demand pricing
 Cycle pricing
 Revenue meaning
 Itis the amount of money ,which
the firm receive by sale of its
output in the market.
 There are three types of revenue
 TR-(Total revenue)
 AR-(Average revenue)
 MR-(Marginal revenue)
 1-“Total revenue- is the sum of all sales,
receipts or income of a firm
 2.Average Revenue
 Average revenue refers to the revenue

obtained by the seller by selling the per unit

commodity. It is obtained by dividing the
total revenue by total output.
 3. Marginal Revenue
 Marginal revenue is the net revenue obtained

by selling an additional unit of the

commodity.
 Unit 5th
Nature and
characteristics of
Indian economy
  liberalization in short is "the removal
of controls" in order to encourage
economic development
 Advantages of liberalization
 Industrial license
 Increase foreign investment
 Removal of imports
 Globalization and transfer of

technology
 Faster economics growth
 Poverty reduction
Privatization meaning
 The transfer of ownership, property or business
from the government to the private sector is
termed privatization. The government ceases to be
the owner of the entity or business.

The process in which a publicly-traded company is

taken over by a few people is also called
privatization. The stock of the company is no
longer traded in the stock market and the general
public is barred from holding stake in such a
company. The company gives up the name 'limited'
and starts using 'private limited' in its last name.
Advantages of privatization
 Lack of political interference
 Increase competition
 Improve the quality of decision

making
 Increase efficiency
 Increase profit
National income meaning
 It is the money value of all the final goods and services
produced by a country during a period of a year is called
national income
 National concept-
 Market price and factor cost
 GDP
 GNP
 NDP
 NNP
 PI
 PI
 Domestic income
Factors affecting national income
 Natural resources-like land fertile soil
minerals like coal and iron resources have the
necessary potential for high national income
 Labour-is required for the production of

wealth. The workers must be efficient.

 Capital-Efficient production is impossible

without up to date machinery and other

equipments .The income of under developed
countries is low because of lack capital .
 Organization-Skilled

management is necessary for a

high level of production. In all
high income countries efficient
leadership is available for
industrial organization.
Importance of measurement of
national income
Over all production
performance
Analysis the economy
Help in policy making
Help in comparison
Rapid economic growth
Inflation meaning
 Inflation is normally associated
with high price, which cause
decline in the purchasing power or
the value of money .
 According to Crowther –Inflation is

a state in which the value of

money is falling ie price are rising
Features of inflation
Rising trend
Disequilibrium
Dynamic
Excess demand
Long term process
Scarcity oriented
 Types of inflation
 Creeping inflation-When the rise in price is very
slow like that snail or creeper.
 Walking inflation-When the rise in price becomes
more pronounced as compared to creeping
inflation.
 Running inflation-When the movement of price
rapidly running emerges.
 Galloping /hyperinflation-In this case price rise
every moment and there is no limit to the height
to which price might rise, therefore it is difficult
to measure its magnitude .
 War time inflation-It is the
outcome of certain exigencies of
war, on account of increased
government expenditure which is
of an unproductive in nature.
 Peace time inflation- By this is

meant the rise in price during the

normal period of peace.
Causes of inflation
 Increase in demand of goods of
goods and services
 Increase in Exports
 International causes
 Rapid growth of population
 War
 Natural calamities
 Effect of inflation
 Effect on production
 Misallocation of resources
 Change in the system of transaction
 Fall in the quality
 Reduction in saving
 Increase instability currency exchange
 Make it difficult for companies to

budget or long term plan

Control of inflation
 Credit control
 Reduction in unnecessary

expenditure
 Increase in saving
 Increase in tax
 Increase in production
Business cycle or trade cycle meaning
It refers to the fluctuation in economic activity
that occur in a more or less regular time
sequence in all capitalist societies.
Features of business cycle –
1-Periodical
2-Systematic
3-Recurring
4-flcuating
5-International in character
Phases of business cycle
Prosperity
Boom
Recession
Depression
Trough
Recovery
Phases of business cycle
 Prosperity-This stage is characterized by
increased production ,high capital investment
in basic industries.
 Boom-The growth eventually slows down and

reaches the peak

 Recession-refers to fall in price ,a sharp

reduction in demand for capital equipment

 Depression –it is a protective in which

business activities in the country is far below

the normal
 Trough –it is phase of depression during
which the down trend in the economy slow
down and eventually stops and the economic
activities once again register an upward
movement
 Recovery-it implies increase in business

activity after the lowest point of depression

has been reached
Causes of business cycle
 Banking operation
 Purchasing power
 Human psychology
 Capital goods
 Profit
 Cyclical changes in weather
Measure to control business cycle

Preventive measure
Monetary policy
Fiscal policy
Fixed investment policy
Direct control
 1-Monetary policy as measure to control
business cycle fluctuation refers to all those
measures which are taken with a view to
control money and credit supply in the country
 2-Fiscal policy as measure to control business
cycle fluctuation nowadays is considered to be
a powerful anti-cycle weapon in the hands of
the government. Fiscal policy involves the
process of shaping the public finance (income
and expenditure) with a view of reduce
fluctuations in the business cycle and
attainment of full employment without
inflation.country.
 3. Direct Controls:
 The aim of direct controls is to ensure proper

allocation of resources for the purpose of price

stability. They are meant to affect strategic
points of the economy. They affect particular
consumers and producers. They are in the form
of rationing licensing, price and wage controls,
export duties, exchange controls, quotas,
monopoly control, etc.
 4-Preventive measure-it aim at avoidance of the

occurrence of business cycles. these include all

measure which would be adopt during the
period of expansion for regulating purchases
assets and credit expansions
 Fixedinvestment policy-In this
policy where efforts can be
made to control the cyclical
movements of business. Such
records may enable the rate of
normal growth to be fairly
accurately determined and
thus enable future extension
to be planned in advance