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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