module ii - fair

8/3/2019 Module II - Fair

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ALTERNATIVE


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Combines and organizes resources for

the purpose of producing goods

and/or services for sale.

Internalizes transactions, reducing

transactions costs.

Primary goal is to maximize the wealth

or value of the firm.


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SALES MAXIMIZATION

Adequate rate of profit, through increased

volume of sales.

MANAGEMENT UTILITY MAXIMIZATION

Coordinating Superiors and Subordinates to

achieve the organizational goals.

SATISFYING BEHAVIOUR

About the customers/consumers.


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RICARDIAN

THEORI

ES


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Focused on 3 aspects: -

Trade Advantage. (Theory of Trade)

Wages & impact on Profits. (Theory of Wages & Profits)

Productivity of Land. (Theory of Rent)

Trade Advantage Countries exports that item, whose production have

abundant resources with them, and imports those which have scarce

availability; subjected to enjoy the advantage over them.

Wages & impacts on Profits (Theory of Profit)As real wages increases,

the real profits decreases, because revenue from the sales of goods is

split among profits and wages.


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Productivity of Land while only one grade of land is being used for

cultivation, rent will not exist, but when multiple grades of land are

being utilized, rent will be charged on the higher grades and will

increase with the ascension of the grade. He stated that the poorest

grade land in use has no (land) rent and so pays no land value tax.


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DEMAND &

SUPPLY


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DEMAND

DEMAND =Desire for commodity + Purchasing power Needsbasic state of deprivation, that exists in every human

life.

Wants Need for a specific product.

Demand

wish for commodity+ money+ willingness to pay.

SUPPLY

SUPPLY = availability of product in the market


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MARKETS


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CLASSIFICATION OFMARKETS

PRIMARY MARKET

SECONDARY MARKET

LOCAL MARKET

REGIONAL MARKET

NATIONAL MARKET

GLOBAL MARKET

COMMODITY MARKET

BULLION MARKET

MONEY MARKET

CAPITAL MARKET

SHORT TERM MARKET

MEDIUM TERM MARKET

LONG TERM MARKET

PERFECT MARKET

IMPERFECT MARKET

MONOPOLY MARKET

DUOPOLY MARKET

OLIGOPOLY MARKET

MONOPOLISTIC MARKET

MONOPSONY MARKET

DUOPSONY MARKET


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CLASSIFICATION OF MARKETS

PERFECT MARKET: - where demand is equal to supply, commodities

are same, customer determines price, rare to exist.

IMPERFECT MARKET: - Dd is not equal to Ss, Commodities are

heterogeneous, seller determines price, commonly existing one.

MONOPOLY MARKET: - 1 seller, he determines price, no substitutes, enjoys

huge profits.

DUOPOLY MARKET: - 2 sellers, price determined based on competition,

profit sharing competition.

OLIGOPOLY MARKET: - Few sellers, Kinked Dd curve, needs heavy

investments.

MONOPOLISTIC MARKET: - most commonly existing

MONOPSONY MARKET: - 1 Buyer, he determines price, tenders/quotations

are used.

DUOPSONY MARKET: - 2 Buyers, price determined by them.


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TOTAL REVENUE,

TOTAL COST TOTAL REVENUE = price of an item X no: of units ofthat item sold.

TR (Q) = P (Q) X Q

TOTAL COST = total economic cost of production

and is made up ofvariable costs, which vary

according to the quantity of a good produced and

include inputs such as labor and raw materials, plus

fixed costs, which are independent of the quantity

of a good produced and include inputs (capital) thatcannot be varied in the short term, such as buildings

and machinery.


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TOTAL COST


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TOTAL COST

Marginal Revenue is equal to thechange in total revenue over the changein quantity when the change in quantityis equal to one unit.


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Break-even Point (BEP) is the point atwhich cost or expenses and revenue areequal: there is no net loss or gain, and onehas "broken even.


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PRODUCTION DECISIONS

INVENTORY DECISIONS

COST DECISIONS

MARKETING DECISIONS

INVESTMENT DECISIONS

PERSONNEL DECISIONS


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Dd Fn is the algebraic expression of relationship between

Demand for a commodity and its various determinants

that affects this qty.

Individual Demand Function = An Individuals Dd Fn

refers to qty of goods demanded at various price levels by

an individual.

Market Demand Function = total Dd for goods or

services of all the buyers taken together.


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Various determinants of Dd Function are as follows: -

Dx = Qty demanded for Commodity X

f = Functional Relations Px = Price of Commodity X Pr = Price of Related Commodities, i.e. Substitutes &

Complementary

M = Money income of consumer

T = Taste and Preferences

A = Advertisement Effects

Te = Technology

U = Unknown


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Demand Schedule is the tabular representation of goods

demanded and the price.

Demand Curve is the graphical representation of relation

between Demand and Price.

Price (Rs.) Qty Demanded (Units)

5 10

4 153 20

2 25


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A demand curve must look like this,

i.e., be negatively sloped.own

price

quantity demanded

demand


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Individual Demand:

Market Demand:

Joint Demand: (Pen & Ink, SIM & Mobile)

When two or more commodities are jointly needed to satisfy a single

want, then the demand for such goods are said to be joint demand. Composite Demand: (Steel, Water, Cow)

When a commodity is demanded for a number of uses, then the

demand for that commodity is said to composite in nature.

Competitive Demand: (Tea & Coffee)

When two goods are close substitutes of one another, then the demand

for such goods is said to be competitive in nature.

Derived Demand: (Leather and Leather Shoes)

When demand for a commodity gives rise to demand for another

commodity, then it is said to be as a derived demand.


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Negative Demand: (Vaccines, Dental Work)

The market is in a state of negative demand if; a major part of the

market dislikes the product and may even pay a price to avoid it.

Negative Demand: (Vaccines, Dental Work)

The market is in a state of negative demand if; a major part of themarket dislikes the product and may even pay a price to avoid it.


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When other things remaining the same, the amount

demanded increases with a fall in price and

diminishes with a rise in price.

Price (Rs.) Qty Demanded (Units)

40 100

30 200

20 30010 400


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x

Y

D

D

10

20

30

40

100

200

300

400Qty Demanded (in

Nos.)

Price(in

Rs.)


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A demand curve must look like this,

i.e., be negatively sloped.

own

price

quantity demanded

demand


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Shifts in Demand Curve

Extension and Contraction of Demand occursdue to changes in price, other factors remainingconstant When more of a commodity is purchased with a

fall in price then it is known as extension ofDemand and vice versa

Refer to movement along same demand curve Increase and Decrease in Demand refers to

changes in demand due to factors, other than price An increase in demand signifies that more will

be purchased at a given price than before . Refer to movement from one demand curve to

another


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EXTENSION & CONTRACTION

OF DEMAND


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INCREASE & DECREASE IN

DEMAND


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Reasons for shifts (increase ordecrease in Demand)

Changes in Income

Changes in Taste, habits and Preferences

Change in Fashions and Customs

Change in Distribution of Wealth

Change in Substitutes

Change in demand for Complementary

goods Advertisement and Publicity Persuasion

Change in level of taxation


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Supply Analysis

Supply during a given period of time meansthe quantities of goods which are offeredfor sale at particular prices

Supply is what seller is able and willing tooffer for sale

Supply and Stock are related but distinctterms-Supply comes out of Stock

Stock determines potential supply

Stock is outcome of production


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Determinants of Supply

Cost of factors of production

State of Technology

Factors outside Economic Spheresuch as weather conditions, naturalcalamities, etc

Tax and Subsidy


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LAW OF SUPPLY

Other things remaining same ,

supply of a commodity rises witha rise in price and falls with a fallin price


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Supply Schedule


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SUPPLY CURVE


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When market is in Equilibrium?

Equilibrium price of a commodity is

price at which quantity demanded of

commodity equals quantity supplied.

Equilibrium is condition which once

achieved tends to persist in time.


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Equilibrium of Supply and Demand

S

D

E

Demand & Supply

Price

ExcessSupply

ExcessDemand

Qty Demanded

S

D

module ii - fair

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