Category: Business Economics

Business economics content is a field of apply economics which uses economic theory and quantitative methods to analyze business enterprises. And, the factors contributing to the diversity of organizational structures and the relationships of firms with labor, capital and product markets. A professional focus of the journal Business Economics is express as providing. “Practical information for people who apply economics in their jobs”. As well as, BE is the study of the financial issues and challenges faced by corporations operating in a specified marketplace or economy. BE deals with issues such as business organization, management, expansion, and strategy.

Also learn, “Economics is a social science that studies the production, distribution, and consumption of scarce goods and services”. Money is a scarce good that is unevenly distributing. Just why this is the case and the consequences of an uneven. Distribution of income and wealth are the central questions in the science of economics.

  • Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition

    Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition

    Monopolistic Competition; Know the Characteristics of Monopolistic Competition, before knowing their definition – Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another and hence are not perfect substitutes. “It has been more fully realized that every case of exchange is a case of what may be called partial monopoly and partial monopoly is looked at from the other said a case of imperfect competition. There is a blending of both competition element and monopoly element in each situation.” by According to Prof. J. K. Mehta.

    Know and Understand the Characteristics of Monopolistic Competition.

    Concept of Monopolistic Competition: Monopolistic competition is a market structure which combines elements of monopoly and competitive markets. Essentially a monopolistic competitive market is one with freedom of entry and exit, but firms can differentiate their products. Therefore, they have an inelastic demand curve and so they can set prices.

    However, because there is freedom of entry, supernormal profits will encourage more firms to enter the market leading to normal profits in the long term. Monopolistic Competition refers to the market situation in which there is a keen competition, but neither perfect nor pure, among a group of a large number of small producers or suppliers having some degree of monopoly because of the differentiation of their products.

    Thus, we can say that monopolistic competition (or imperfect competition) is a mixture of competition and a certain degree of monopoly, on the basis of a correct appraisal of the market situation. Chamberlin has asserted that monopoly and competition are not mutually exclusive rather both are frequently blended together. In short, we can say that a market with a blending of Monopoly (What do you think of Monopoly?) and competition is called monopolistic competition or imperfect competition.

    Characteristics of Monopolistic Competition:

    Important characteristics of monopolistic competition are as follows:

    Minimum Number of Buyers and Sellers:

    In this market, neither buyers nor sellers are too many as under perfect competition nor there is only one seller as under monopoly. Mostly, it is a situation in between. Every producer for his produced commodity has some special buyers. Every consumer and seller can influence demand and supply in the market.

    Maximum Number of Buyers and Sellers:

    There are a large number of firms but not as large as under perfect competition. That means each firm can control its price-output policy to some extent. It is assumed that any price-output policy of a firm will not get a reaction from other firms that means each firm follows the independent price policy. If a firm reduces its price, the gains in sales will be slightly spread over many of its rivals so that the extent to which each of the rival firms suffers will be very small. Thus these rival firms will have no reason to react.

    Ignorance of the Buyers:

    There are some people who think that high priced goods will be better and of higher quality. So, they avoid buying low priced goods.

    The difference in the Quality and Shape of the Goods:

    Although the commodities produced by different producers can serve as perfect substitutes to those produced by others, yet they are different in color, form, packing, design, name, etc. So there is product differentiation in the market.

    Differentiated Products:

    Sellers sell differentiated products, but they are close— but not perfect—substitutes. Buyers may not mind if they do not get Lux soap rather than Rexona. Different varieties of soap that are available in the Indian market are slightly differentiated products and, hence, close substitutes. It is the degree of differentiation that creates both monopoly and competitive elements. Every product is unique to the buyers. So every seller enjoys some degree of monopoly of his own product over other sellers. But since these goods are close substitutes, sellers face competition.

    Because of the brand loyalty of buyers, sellers exercise some monopoly power. And sales of closely related goods create a competitive environ­ment. Thus monopolists compete among themselves. It is product differentiation that enables Monopolistically competitive firms to possess market power with competition amongst the firms. In this market, monopoly power is, therefore, small.

    Product Differentiation:

    Another feature of the monopolistic competition is product differentiation. Product differentiation refers to a situation when the buyers of the product differentiate the product with others. Basically, the products of different firms are not altogether different; they are slightly different from others. Although each firm producing differentiated product has the monopoly of its own product, yet he has to face the competition. This product differentiation may be real or imaginary. Real differences are like design, the material used, skill, etc. whereas imaginary differences are through advertising, trademark and so on.

    Lack of Knowledge on the Part of Consumers:

    Neither consumers nor sellers have full knowledge of market conditions, so there is an international difference in the price of goods from those of others.

    High Transportation Cost:

    In this high transportation cost play an important role in order to create discrimination among commodities. Similar goods because of different transport costs are bought and sold at different prices.

    Advertisement:

    Here, advertisement plays an important role because buyers are influenced to prefer by advertisement, which plays upon their mind and makes them the product of one firm to those of another. Through advertisement, they are brought to his notice through radio, television and other audio-visual aids in a more pleasing and more forceful manner. Thus, rival firms compete against each other in quantity, in facilities as well as in price.

    Differences in the Establishment of Industry:

    In the imperfectly competitive market, there is neither freedom of entry or exit as is under perfect competition nor there is perfect control as in monopoly but there are some restrictions on the entry of industry only.

    Elastic Demand Curve:

    Since the product of each seller is slightly different from his rivals he enjoys some degree of monopoly power and, hence, can raise the price of his product without losing most customers. But as other rival firms produce closely related goods, every firm faces competition and its influence over the price of the product is rather limited.

    Thus, each firm has a downward sloping demand curve implying that it behaves as a price-maker. Since a seller faces a large number of competitors to whom buyers may turn, the demand curve is more elastic.

    Non-Price Competition:

    Besides price competition, Chamberlin suggested cases of non-price competition that arise due to product variation and selling activities. Seller always tries to establish the fact that his product is superior to others by improving the quality of his product. And in doing so, he incurs selling costs or makes advertise­ment to attract more customers in his fold.

    It is the product differentiation that causes selling costs to emerge, in addition to production costs. In Chamberlin’s model, demand for any commodity is not only affected by the price of a commodity but also by non-price competition (i.e., product variation and selling activities). Selling costs or advertising outlays are peculiar to this market.

    Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition
    Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition. #Pixabay.

    Now, Understand basically how to Determine the Price and output in their Competition?

    You’ll understand the Characteristics of Monopolistic Competition upstairs, now study Determine the Price and output in their Competition. Under monopolistic competition, organizations need to make optimum adjustments in the prices and output sold to attain equilibrium. Apart from this, under monopolistic competition, organizations also need to pay attention to the design of the product and the way the product is promoted in the market.

    Moreover, an organization under monopolistic competition is not only required to study its individual equilibrium but group equilibrium of all organizations existing in the market. Let us first understand the individual equilibrium of an organization under monopolistic competition. As we know every seller, irrespective of the market structure, is willing to maximize his/her profits. In monopolistic competition, profits are maximized at a point where marginal revenue is equal to marginal cost.

    The price determined at this point is known as equilibrium price and the output produced at this point is called equilibrium output. If the marginal revenue of a seller is greater than marginal cost, he/she may plan to expand his/her output. On the other hand, if marginal revenue is lesser than marginal cost, it would be profitable for the seller to reduce his/her output to the level where marginal revenue is equal to marginal cost.

    Equilibrium in Long-term Run:

    In the preceding sections, we have discussed that in the short run, organizations can earn supernormal profits. However, in the long run, there is a gradual decrease in the profits of organizations. This is because, in the long run, several new organizations enter the market due to freedom of entry and exit under monopolistic competition. When these new organizations start production the supply would increase and the prices would fall. This would automatically increase the level of competition in the market.

    Consequently, the AR curve shifts from right to left and supernormal profits are replaced with normal profits. In the long run, the AR curve is more elastic than that of in the short run. This is because of an increase in the number of substitute products in the long- run. The long-run equilibrium of Monopolistically competitive organizations is achieved when average revenue is equal to average cost. In such a case, organizations receive normal profits.

    Equilibrium in Short-term Run:

    The short-run equilibrium of a monopolistic competitive organization is the same as that of an organization under monopoly. In the short run, an organization under monopolistic competition attains its equilibrium where marginal revenue equals marginal cost and sets its price according to its demand curve. This implies that in the short run, profits are maximized when MR=MC.

  • What do you think of Monopoly? Understand the Monopoly on the Characteristics, Purpose, and Strength.

    What is a Monopoly? The word Monopoly is made of two words; MONO + POLY. Here “Mono” means one and “Poly” implies the seller, thereby the literal meaning of the word Monopoly is one seller or one producer. Thus, pure monopoly refers to that form of market organization wherein there is a single firm (or producer) producing a commodity for which there are no good or close substitutes. The monopolist is not bothered by the reaction of rival firms since it has no rival. So the demand curve faced by the monopoly firm is the same as the industry demand curve. So, what is the topic of the question we are going to discuss; What do you think of Monopoly? Understand the Monopoly on the Characteristics, Purpose, and Strength. Read in Hindi.

    Here are explained about Monopoly: Understand the Monopoly on the Characteristics, Purpose, and Strength.

    The market, form of monopoly is the opposite extreme from that perfect competition. It exists whenever an industry is in the hands of the single producer. In the case of perfect competition, there are so many individual producers that no one of them has any power over the market and an; one firm can increase or diminish its production without affecting the market price. A monopoly, on the other hand, has the power to influence the market price. By reducing its output, it can force the price up, and by increasing its output it can force the price down.

    According to Watson, “A monopolist is the only producer of a product that has no close substitutes.” Changes in prices and outputs of other goods sold in the economy must leave the monopolist unaffected. Conversely, changes in the monopolist’s price and output must leave the other producers of the economy unaffected.

    In the words of Salvatore, “Monopoly is the form of market organization in which there is a single firm selling a commodity for which there are no close substitutes.” The cross elasticity of demand with every other product is very low. This means that no other firms produce a similar product. Thus, the monopoly firm is itself an industry and the monopolist faces the industry demand curve. The demand curve for his product is, therefore, relatively stable and slopes downward to the right, given the tastes and incomes of his customers.

    The Characteristics of Monopoly:

    We may state the features or characteristics of monopoly as:

    One Seller and a Large Number of Buyers:

    The monopolist’s firm is the only firm; it is an industry. But the number of buyers is assumed to be large.

    The difficulty of Entry of New Firms and Industry:

    Firms – There are either natural or artificial restrictions on the entry of firms into the industry, even when the firm is making abnormal profits. Industry – Under monopoly, there is only one firm which constitutes the industry. Difference between firm and industry comes to an end. Since in monopoly there is a single firm producing the commodity, hence the difference between firm and industry vanishes automatically.

    Barriers to the Entry:

    The entry into the industry is completely barred or made impossible. If new firms are admitted into the industry, monopoly itself breaks down. This ban on entry may be legal, natural or institutional but it must essentially be there.

    Price Maker:

    Under monopoly, the monopolist has full control over the supply of the commodity. But due to a large number of buyers, the demand of any one buyer constitutes an infinitely small part of the total demand. Therefore, buyers have to pay the price fixed by the monopolist.

    Price-Discrimination is Possible:

    Under the conditions of monopoly, price-discrimination is possible. It implies that a monopolist can sell its product at different prices to different customers.

    In short, monopoly depends basically on two factors:

    • Absences of close substitutes, and.
    • Restriction on the competition.
    No Close Substitutes:

    For the monopoly to exist single producer is the necessary condition but not a sufficient one. It is also essential that there should be no close substitute of the commodity in the market. This second condition would be even more difficult to fulfill than the first since there are few things for which there is no substitute. For instance, Usha is produced by a single firm alone but there are close substitutes of Usha fans that are available in the market in the form of Railfans, Khaitan Ashoka, Crompton, etc. Hence, though the firm producing Usha fans is single yet it cannot be termed a monopoly firm.

    It is, therefore, essential for a monopoly to exist that there should be no close substitutes available in the market. This condition can be stated in other words as that the cross elasticity of demand for the output of the firm with respect to the price of every firm’s product is zero. There shall not be any close substitutes for the product sold by the monopolist. The cross elasticity of demand between the product of the monopolist and others must be negligible or zero.

    Positive And Negative Purpose Of Monopoly:

    Currently, in many countries around the world, the monopoly in the business still has debatement and it is applied in some fields. Therefore, there will be two exclusive aspects: positive and negative when applied in the business methods of a certain field. The main points lead to monopoly are Government concessions resources for a certain firm, the ownership of inventions, patents and intellectual property, ownership is a great resource.

    Positive Purpose:

    As a result, we can analyze the positive outlook base on Viet Nam Oil And Gas Group (Petrovietnam) – one of the most popular corporations in Viet Nam since 1985 till now. Petrovietnam has supposed as a powerful economic group in Vietnam, known in the region and the world. In this situation, the profits that Petrovietnam earns to provide funds that can be invested in equipment and development.

    Whereas perfect competition must be accepted with a normal return on invested capital, the monopolist has more funds to undertake the development further. Importantly, the ability to achieve a monopoly position or to maintain it and step ahead of potential competitors, Petrovietnam has to do innovation in products, techniques and cost savings. They also may not need to spend more money on advertising, marketing, promotions, etc.

    Negative Purpose:

    Due to maximize revenue, the monopolist would produce goods which marginal sales equal marginal revenue instead of producing output level which prices higher than marginal cost as in the market (supply equals demand). Besides, different from perfect competition which price depends on the quantity of producing of a firm. Price of Petrovietnam would increase while decreasing the quantity of produce. For this reason, profit margins will be higher than selling price.

    Besides, producing more oil products will make the enterprise gets more revenue and it also will be the higher selling price. Accordingly, sometimes Petrovietnam suddenly increases the price higher while the international market price was decreasing and the market did not change. Thus, people have to buy oil and gas at an expensive price because oil and gas are important in life. Although people complained, Petrovietnam still keeps the price high.

    In this case, we can see easily that they misused the power of monopolist sometimes. In short, the monopolist will produce lower and price of selling goods is higher than the competitive market. In addition, society has to bear loss by increased output minus the marginal total cost to produce the output which should be produced more. It is the toll by the monopolist. In addition, lack of incentive to innovate also impact the demand and supply.

    Measuring Monopoly Power (Strength):

    Different measures that have been suggested are as follows:

    By Concentration Ratio:

    Concentration ratio refers to the fraction of total market sales controlled by the largest group of sellers. The inclusion of the market shares of several firms in the concentration ratio rests upon the possibility that large firms will adopt a common price- output policy which may not be very different from the one they would adopt if they were under unified management. But here the difficulty arises that they may not do so. Therefore, a high concentration ratio may be necessary for the exercise of monopoly power but it is not sufficient.

    In an industry, usually there exist some smaller firms and some larger firms in the sense that smaller firms have relatively smaller shares in total industry sales (or profits or assets), and the larger firms have relatively larger shares. That is, sales (or profits or assets) may be more concentrated in a few firms of the industry, or such concentration may be less. Now, the size of the largest firms’ share in total industry sales, etc. is known as the concentration ratio.

    For example, if we consider sales as the criterion, then the n largest firms’ share in total industry sales is called an n-firm concentration ratio which is denoted by CRn. Usually, the four-firm and eight-firm concentration ratios denoted by CR4 and CR8, are used as a measure of monopoly power.

    The concentration ratio may act as a measure of monopoly power because, in a competi­tive industry, sales are more evenly distributed among firms—concentration of sales is more or less absent. On the other hand, in a monopolistic industry, sales tend to concentrate in a few large firms—in the limiting case, sales are concentrated in only one firm when we have the case of a pure monopoly.

    By Profit-Rate:

    J.S. Bain used profit-rate as a measure of monopoly power. By high profits, economists mean returns sufficiently in excess of all opportunity costs which potential new entrants desire for entering the industry. The size of super-normal profits which a firm is able to earn is an indication of its monopoly power. In perfect competition, a firm earns only normal profits. In a monopoly, new entrants will not normally compete away monopoly profits.

    But there will be some level of profits at which new firms will find it worth taking the risk of trying to break the monopoly. The stronger the monopolist’s position, the greater the profits he will be able to earn without attracting new rivals. In short, it is said that neither concentration ratio nor profit-rate is ideal measures of the degree of monopoly power, both are of some value nor both are widely used.

    By Lerner’s:

    It is the oldest measure and is based on the difference between the price charged by the monopolist and his marginal cost. Bober gives the formula 1/E. Thus, the degree of monopoly power varies inversely with the elasticity of demand for the commodity.

    However, the more commonly used formula is:

    Degree of monopoly power = (P-MC) / P

    Where P is the price charged by the monopolist and MC his marginal cost.

    In perfect competition,

    P = MC and the formula (P-MC)/P gives zero answers indicating no monopoly power. If the monopolized product is a free good, MC = 0 and the formula registers unity. The index of monopoly power thus varies from zero to unity. Since monopolized goods are seldom free, monopoly power is seldom as high as unity.

    This method is not free from defects as:

    • Firstly it does not measure non-price competition. Secondly, monopoly power is shown itself not only in high price but also in output restriction. The output may be restricted by under-utilization of capacity already in existence or by restricting new entry.
    • Lerner’s method throws no light on these aspects of monopoly power.

  • What does Monopoly mean? Understand Monopoly control Methods.

    What is the Monopoly? The word Monopoly has been derived from the combination of two words i.e., “Mono” and “Poly”. Mono refers to a single and poly to control. “Mono” means one and “Poly” means seller. A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. Thus monopoly refers to a market situation in which there is only one seller of a particular product. This means that the firm itself is the industry and the firm’s product has no close substitute. So, what is the question we are going to discuss; What does Monopoly mean? Understand Monopoly control Methods. Read in Hindi.

    Here are explained What does Monopoly mean? after Understand Control and Regulation of Monopoly Methods.

    The monopolist is not bothered by the reaction of rival firms since it has no rival. So the demand curve faced by the monopoly firm is the same as the industry demand curve. In this way, monopoly refers to a market situation in which there is only one seller of a commodity.

    There are no close substitutes for the commodity it produces and there are barriers to entry. The single producer may be in the form of an individual owner or a single partnership or a joint-stock company. In other words, under monopoly, there is no difference between firm and industry. The monopolist has full control over the supply of the commodity.

    Having control over the supply of the commodity he possesses the market power to set the price. Thus, as a single seller, the monopolist may be a king without a crown. If there is to be the monopoly, the cross elasticity of demand between the product of the monopolist and the product of any other seller must be very small.

    Can there be the complete monopoly in the real commercial world? Some economists feel that by maintaining some barriers to entry a firm can act as the single seller of a product in a particular industry. Others feel that all products compete for the limited budget of the consumer. Therefore, no firm, even if it is the only seller of a particular product, is free from competition from the sellers of other products.

    Thus complete monopoly does not exist in reality. The monopolist is the sole seller of a particular product. Therefore, if the monopolist is to enjoy excess profit in the long run that must exist certain barriers to the entry of new firms into the industry. Such barriers may refer to any force which prevents rival firms (competing producers) from enter­ing the industry.

    Learn Control and Regulation of Monopoly:

    There are three methods of controlling and regulating monopoly:

    First, the government may adopt anti-monopoly laws and restrictive trade practices legislation. Second, the government may either run natural monopolies directly or regulate monopolies by imposing price ceilings. Third, the government may regulate monopolies through taxation.

    Besides, there are certain fears that prevent the monopolist from charging a very high price in order to earn large super-normal profits.

    They are discussed as under.

    Fear of Potential Rivals:

    The fear of potential competitors may prevent a monopolist to charge a very high price to his customers. If he sets a very high price, he will earn large super-normal profits. Attracted by these monopoly profits, new entrants may force themselves into the monopolized industry. The monopolist, being averse to the entry of new firms, would prefer to charge a reasonable price and thus earn only a modest profit.

    Fear of Government Regulation:

    The same consideration applies to potential government regula­tion. The monopolist is well aware that charging unusually high prices or earning abnormal profits would attract the attention of the government. Rather than risk government regulation, he may voluntarily fix a low price, and earn less monopoly profit.

    Fear of Nationalisation:

    The fear of nationalization also prevents the monopolist to wield absolute monopoly power. If the product or service which the monopolist provides is a public utility service, there is every likelihood of the state taking over the monopoly organization in public interest. This consideration may prevent the monopolist from charging too high a price.

    Fear of Public Reaction:

    The monopolist is also aware of public reaction if he charges a very high price and earns huge profits. Voices may be raised against the monopoly firm in parliament to press for anti-monopoly legislation.

    Fear of Boycott:

    People may even boycott the use of monopolized service and start their own service instead. For instance, if in a big city taxi operators combine to charge high rates, people may boycott taxi service and even start operating their own services by forming a cooperative society. Naturally, such a fear compels monopoly firms to charge reasonable prices and earn only nominal profits.

    Fear of Substitutes:

    Then there is the fear of substitutes. In fact, the fear of substitutes is the most potent factor which prevents monopoly firms from charging very high prices and thereby earn super-normal profits. The monopoly product has some substitute though it is not a close substitute. Therefore, the fear of the emergence of very close substitutes is always uppermost in the mind of the monopolist which acts as a restraint on his absolute power.

    Differences in Elasticities of Demand:

    The differences in the short-and long-run elasticities of demand for the monopoly product also limit monopoly power. In the short-run, the monopolist can charge a very high price because customers take time to adjust their habits, tastes, and incomes to some other substitutes.

    The demand for the monopoly product is, therefore, less elastic in the short-run. But in the long-run, the fear of public opinion, the emergence of substitutes, government regulations, etc. will force the monopolist to set a low price. He will view his demand curve as elastic, and sell more at a low price.

    1. Control of Monopoly through Legislation:

    Government tries to control monopoly by anti-monopoly laws and restrictive trade practices legislation.

    These measures tend to:

    • Remove restrictive trade practices and fixation of high prices.
    • Reduce the incidence of market-sharing agreements.
    • Remove unfair competition.
    • Restrict the control of a very large share of the market.
    • Prevent unfair price discrimination.
    • Restrict mergers in order to avoid market domination, and.
    • Prohibit exclusive agreements between the producer and retailer to the detriment of other traders.

    2. Control of Monopoly through Price Regulation:

    We now take the case where the government feels that monopoly price is very high and tries to bring it down by price regulation. To regulate monopoly, the government imposes price ceiling so that monopoly price should be near or equal to competitive price.

    This is done when the government appoints a regulating authority or commission which fixes a price for the monopoly product below the monopoly price, thereby increasing output and lowering the price for the consumer.

    Before the regulation of monopoly price, the monopolist is making PF * OM profits by selling OM output at MP (=OA) price. Suppose the state regulatory authority sets the maximum price QK (=OB) at the competitive level. The new demand curve facing the monopolist becomes BKD. Its corresponding MR curve becomes BKHMR. Now the monopolist behaves like a perfectly competitive producer. He produces and sells OQ output at point К where the MC curve cuts the BKHMR curve from below.

    As a result of price regulation, the monopolist increases his output to OQ from OM. He still makes supernormal profits equal to KG * OQ that are smaller than the monopoly profits (PF * OM) at the unregulated price MP. If the price regulatory authority fixes the monopoly price WS equal to the average cost where the AC curve cuts the D/AR curve at point S, the monopolist would be able to place a greater quan­tity of output OW in the market.

    At this level, the monopolist would earn only normal profits. In such a situation, the monopolist would continue to produce so long as he is getting a fair return on his capital investment. But the regulatory authority cannot force him to increase output beyond OW because the monopolist would not be operating at a loss.

    3. Control of Monopoly through Taxation:

    Taxation is another way of controlling monopoly power. The tax may be levied lump-sum without any regard to the output of the monopolist. Or, it may be proportional to the output, the amount of tax rising with the increase in output.

    Lump-sum Tax:

    By levying a lump-sum tax, the government can reduce or even eliminate monopoly profits without affecting either the price or output of the product. A lump-sum tax imposed on the monopoly firm is shown in suppose where AC and MC are the average cost and marginal cost curves before the tax is levied. The monopolist earns APRT super-normal profits by selling OM product at MP Price.

    The imposition of the lump-sum tax is, in fact, a fixed cost to the monopoly firm because it is independent of output. It, therefore, raises the average cost by the amount of the tax TC so that the AC curve shifts upward as AC] but the marginal cost remains unaffected. So the imposition of a lump-sum tax has the effect of reducing monopoly profit from APRT to APBC.

    The entire burden of the tax will be borne by the monopolist himself. He cannot shift any part of it to his customers at any stage by raising the price and reducing output. Since the monopolist’s marginal cost curve and the marginal revenue curve remain unaffected by the tax imposition, any change in the existing price-output combination would only lead to losses.

    Specific Tax:

    The government can also reduce monopoly profits by levying a specific or a per unit tax on the monopolist’s product. A per unit tax on monopoly output has the effect of shifting both the average and marginal cost curves upward by the amount of the tax.

    Illustrates this case. AC and MC are the monopoly firm’s average cost and marginal cost curves before the tax imposition. It earns BPGK monopoly profits by selling OM quantity of the product at the UP price. Suppose a government levies a specific tax which is a variable cost to the monopoly firm tends to shift the cost curves upward to AC1 and MC1.

    The monopolist’s new equilibrium point is E1 where the MC1 curve cuts the MR curve. The new price is M1P1 >MP (the old price) and the output is OM1

    Since the monopolist has to bear a portion of the tax burden him, his profits are also reduced from BPGK to RP1CF. Such a tax does not help in regulating monopoly price and output. For the higher, the demand elasticity of tax, the higher the price for the product and the lower the output. The ultimate loss will be borne by the public rather than by the monopolist.

  • What is the Price Mechanism or Market Mechanism?

    What is the Price Mechanism or Market Mechanism?

    Price Mechanism or Market Mechanism (Hindi); The mechanism through which the prices of commodities and factor services get determined through the free play of market forces of demand and supply. The theory that the determinations about what prices and quantities to purchase are essentially set by both sellers and buyers in the market. Define – What is the Price Mechanism or Market Mechanism?

    Price Mechanism or Market Mechanism, Explain their meaning and definition.

    The price mechanism is an economics term, which says that demand and supply of goods and services set their prices. Let me explain with the help of a diagram. The demand curve is a curve which state demand for a certain commodity at a certain price. Therefore as the prices increases, demand goes down. For example; think this from a consumer perspective, the demand for buying a car less than 10 lac (1 million) is more than the demand for luxurious cars which price in crores.

    Meaning of Price Mechanism or Market Mechanism;

    “In economics, a price mechanism is the manner in which the prices of goods or services affect. The supply and demand for goods and services, principally by the price elasticity of demand. They affect both buyers and sellers who negotiate prices. A price mechanism, part of a market mechanism, comprises various ways to match up buyers and sellers. It is a mechanism where price plays a key role in directing the activities of producers, consumers, resource suppliers. An example of a price mechanism uses announced bid and ask prices. Generally speaking, when two parties wish to engage in trade. The purchaser will announce a price he is willing to pay (the bid price) and the seller will announce a price he is willing to accept (the asking price).” By Wikipedia.

    According to the Business Dictionary,

    “System of interdependence between the supply of a good or service and its price. It generally sends the price up when supply is below demand, and down when supply exceeds demand. The price mechanism also restricts supply when suppliers leave the market due to low prevailing prices and increase it. When more suppliers enter the market due to high obtainable prices.”

    According to capitalistic Economy,

    “Economic system based (to a varying degree) on private ownership of the factors of production (capital, land, and labor) employed in the generation of profits. It is the oldest and most common of all economic systems and, in general, is synonymous with the free market system.”

    Definition of Price Mechanism or Market Mechanism;

    The following definition below are;

    According to Cairncross.

    “It is the mechanism by which prices adjust themselves to the pressure of demand and supply and in their turn operate to keep demand and supply in balance.”

    The interaction of buyers and sellers in free markets enables goods, services, and resources to allocate prices. Relative prices and changes in price reflect the forces of demand and supply and help solve the economic problem. Resources move towards where they are in the shortest supply, relative to demand. And, away from where they are the least demand.

    What is the Price Mechanism or Market Mechanism - ilearnlot
    What is the Price Mechanism or Market Mechanism? Image Credit from ilearnlot.com.

    Features of Control Price Mechanism:

    The basic features are as below:

    • Prices fixed by the government.
    • Central Planning Authority takes all the decisions on production on behalf of the government.
    • The authority determines the level of new investment. And, allocates resources in different sectors for optimum utilization.
    • The authority distributes the different goods among the consumers through ration shops or fair price shops.
    • The government fixes the prices of the different factors of production like wage rate and interest rate etc.

    Where to be Price Mechanism in the Economy:

    A blended economy tackles the issue of what to create and in what amounts in two different ways:

    • The market mechanism (for example powers of interest and gracefully) assists the private part in choosing what items with delivering and in what amounts. In those circles of creation where the private segment contends with the open division, the nature and amounts of wares to deliver are likewise chosen by the market mechanism.
    • The focal arranging authority chooses the nature and amounts of merchandise and enterprises to deliver where the open part has a restraining infrastructure. On account of purchaser and capital merchandise, items are created fully expecting social inclinations. Prices fixed by the focal arranging expert on the guideline of the benefit price strategy.
    Extra Things:

    There are regulated prices that raise or brought down by the state. For open utility administrations like power, railroads, water, gas, interchanges, and so on., the state fixes their rates or prices on a no-benefit no-misfortune premise. The issue of how to deliver merchandise and ventures additionally understand incompletely by the price mechanism and mostly by the state. Also, the benefits rationale decides the methods of creation in the private segment.

    Simultaneously, the focal arranging authority intercedes and impacts the working of the market mechanism. The state directs and gives different offices to the private segment for embracing such strategies of creation which may diminish costs and amplify yield.

    It is the state which chooses where to utilize capital-serious strategies and where to utilize work concentrated procedures in the open area. The issue for whom to deliver additionally chose halfway by the market mechanism and mostly by the focal arranging authority. In the private division, it is the market mechanism that figures out what products and enterprises are to deliver based on buyer inclinations and wages.

    Since a blended economy targets accomplishing development with social equity, the designation of assets isn’t left totally. The state intercedes to dispense assets and for the dissemination of salary. For this reason, it embraces standardized savings projects and exacts dynamic expenses on salary and riches. In the open area, the state chooses for whom to create fully expecting shopper inclinations.

  • What is the Inductive Method of Economics?

    What is the Inductive Method of Economics?

    The Inductive Method: Induction “is the process of reasoning from a part to the whole, from particulars to generals or from the individual to the universal.” This article explains the Inductive Method of Economics; Bacon described it as “an ascending process” in which facts are collected, arranged and then general conclusions are drawn. Also learn the Methods of Economics.

    Here are explaining and learn, What is the Inductive Method of Economics? Steps, Merits, and Demerits.

    The inductive method was employed in economics by the German Historical School which sought to develop economics wholly from historical research. The historical or inductive method expects the economist to be primarily an economic historian who should first collect material, draw generalizations, and verify the conclusions by applying them to subsequent events. For this, it uses statistical methods. Engel’s Law of Family Expenditure and the Malthusian Theory of Population have been derived from inductive reasoning.

    The inductive method involves the following steps:
    The Problem:

    In order to arrive at a generalization concerning an economic phenomenon, the problem should properly select and clearly stated.

    Data:

    The second step is the collection, enumeration, classification, and analysis of data by using appropriate statistical techniques.

    Observation:

    Data are using to make the observation about particular facts concerning the problem.

    Generalization:

    On the basis of observation, generalization is logically deriving which establishes a general truth from particular facts.

    Thus induction is the process in which we arrive at a generalization on the basis of particular observing facts. Also learn, Explain is What is Economics? Meaning and Definition of Criticisms!

    The best example of inductive reasoning in economics is the formulation of the generalization of diminishing returns. When a Scottish farmer found that in the cultivation of his field an increase in the amount of labor and capital spent on it was bringing in less than proportionate returns year after year, an economist observing such instances in the case of a number of other farms, and then he is arriving at the generalization that is known as the Law of Diminishing Returns.

    Merits of the Inductive Method:

    The chief merits of this method are as follows:

    Realistic:

    The inductive method is realistic because it is based on facts and explains to them as they actually are. It is concrete and synthetic because it deals with the subject as a whole and does not divide it into component parts artificially

    Future Inquiries:

    Induction helps in future inquiries. By discovering and providing general principles, induction helps future investigations. Once a generalization is establishing, it becomes the starting point of future inquiries.

    Statistical Method:

    The inductive method makes use of the statistical method. This has made significant improvements in the application of induction for analyzing economic problems of the wide range. In particular, the collection of data by governmental and private agencies or macro variables, like national income, general prices, consumption, saving, total employment, etc., has increased the value of this method and helping governments to formulate economic policies pertaining to the removal of poverty, inequalities, underdevelopment, etc.

    Dynamic:

    The inductive method is dynamic. In this, changing economic phenomena can analyze on the basis of experiences, conclusions can draw, and appropriate remedial measures can take. Thus, induction suggests new problems to pure theory for their solution from time to time.

    Historico-Relative:

    A generalization drawn under the inductive method is often historical-relative in economics. Since it is drawn from a particular historical situation, it cannot apply to all situations unless they are exactly similar. For instance, India and America differ in their factor endowments. Therefore, it would be wrong to apply the industrial policy which was following in America in the late nineteenth century to present-day India. Thus, the inductive method has the merit of applying generalizations only to related situations or phenomena.

    Demerits of Inductive Method:

    However, the inductive method is not without its weaknesses which are discussing below.

    Misinterpretation of Data:

    Induction relies on statistical numbers for analysis that “can misuse and misinterpret when the assumptions which are requiring for their use are forgotten”.

    Uncertain Conclusions:

    Boulding points out that “statistical information can only give us propositions whose truth is more or less probable it can never give us certainty”.

    Lacks Concreteness:

    Definitions, sources, and methods using in statistical analysis differ from investigator to investigator even for the same problem, as for instance in the case of national income accounts. Thus, statistical techniques lack concreteness.

    Costly Method:

    The inductive method is not only time-consuming but also costly. It involves detailed and painstaking processes of collection, classification, analyses, and interpretation of data on the part of trained and expert investigators and analysts

    Difficult to Prove Hypothesis:

    Again the use of statistics in induction cannot prove a hypothesis. It can only show that the hypothesis is not inconsistent with the known facts. In reality, the collection of data is not illuminating unless it is related to a hypothesis.

    Controlled Experimentation not Possible in Economics:

    Besides the statistical method, the other method used in induction is controlled experimentation. This method is extremely useful in natural and physical sciences which deal with the matter. But unlike the natural sciences, there is little scope for experimentation in economics because economics deals with human behavior which differs from person to person and from place to place. Also, What is Demand? Meaning and Definition.

    Further, economic phenomena are very complex as they relate to the man who does not act rationally. Some of his actions are also bound by the legal and social institutions of the society in which he lives. Thus, the scope of controlled experiments in inductive economics is very little. As pointed Out by Friendman, “The absence of controlled experiments in economics renders the weeding out of unsuccessful hypo-these slow and difficult.”

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  • What is the Deductive Method of Economics?

    What is the Deductive Method of Economics?

    The Deductive Method: Deduction Means reasoning or inference from the general to the particular or from the universal to the individual. The deductive method derives new conclusions from fundamental assumptions or truth established by other methods. This article explains the Deductive Method of Economics; It involves the process of reasoning from certain laws or principles, which are assuming to be true, to the analysis of facts. Also learn, What are the Methods of Economics?

    Here are explaining and learn, What is the Deductive Method of Economics? Steps, Merits, and Demerits.

    Then inferences are drawn which are verifying against observing facts. Bacon described deduction as a “descending process” in which we proceed from a general principle to its consequences. Mill characterized it as a priori method, while others called it abstract and analytical.

    Deduction involves four steps:

    1. Selecting the problem.
    2. The formulation of assumptions based on which the problem is to explore.
    3. The formulation of hypothesis through the process of logical reasoning whereby inferences are drawn.
    4. Verifying the hypothesis.

    These steps are discussing as under, Following are:

    Selecting the problem:

    The problem which an investigator selects for inquiry must state clearly. It may be very wide like poverty, unemployment, inflation, etc. or narrow relating to the industry. The narrower the problem the better it would be to conduct the inquiry.

    Formulating Assumptions:

    The next step in deduction is the framing of assumptions which are the basis of the hypothesis. To be fruitful for inquiry, the assumption must be general. In any economic inquiry, more than one set of assumptions should make in terms of which a hypothesis may formulate.

    Formulating Hypothesis:

    The next step is to formulate a hypothesis based on logical reasoning whereby conclusions are drawn from the propositions. This is done in two ways: First, through logical deduction. If and because relationships (p) and (q) all exist, then this necessarily implies that relationship (r) exists as well. Mathematics is mostly using these methods of logical deduction.

    Testing and Verifying the Hypothesis:

    The final step in the deductive method is to test and verify the hypothesis. For this purpose, economists now use statistical and econometric methods. Verification consists of confirming whether the hypothesis is in agreement with facts. A hypothesis is true or not can verify by observation and experiment. Since economics is the concern with human behavior, there are problems in making an observation and testing a hypothesis.

    For example, the hypothesis that firms always attempt to maximize profits rests upon the observation that some firms do behave in this way. This premise base on a priori knowledge that will continue to accept so long as conclusions deduced from it is consistent with the facts. So the hypothesis stands verified. If the hypothesis not confirms, it can argue that the hypothesis was correct but the results are contradictory due to special circumstances. Explain are Economics is a Science and Art?

    Under these conditions, the hypothesis may turn out to the wrong. In economics, most hypotheses remain unverified because of the complexity of factors involving in human behavior which, in turn, depend upon social, political and economic factors. Moreover, controlled experiments in a laboratory are not possible in economics. So the majority of hypotheses remain untested and unverified in economics. Also learn, What are the Fundamentals of Economics?

    Merits of the Deductive Method:

    The deductive method has many advantages.

    Real:

    It is the method of “intellectual experiment,” according to Boulding. Since the actual world is very complicated, “what we do is to postulate in our minds economic systems which are simpler than reality but more easy to grasp. We then work out the relationship in these simplified systems and by introducing more and more complete assumptions, finally, work up to the consideration of reality itself.” Thus, this method is nearer to reality.

    Simple:

    The deductive method is simple because it is analytical. It involves abstraction and simplifies a complex problem by dividing it into parts. Further, the hypothetical conditions are so chosen as to make the problem very simple, and then inferences are deducing from them.

    Powerful:

    It is a powerful method of analysis for deducing conclusions from certain facts. As pointed out by Cairnes, The method of deduction is incomparable, when conducted under proper checks, the most powerful instrument of discovery ever wielded by human intelligence.

    Exact:

    The use of statistics, mathematics, and econometrics in deduction brings exactness and clarity in economic analysis. The mathematically trained economist can deduce inferences in a short time and make analogies with other generalizations and theories. Further, the use of the mathematical-deductive method helps in revealing inconsistencies in economic analysis.

    Indispensable:

    The use of the deductive method is indispensable in sciences like economics where experimentation is not possible. As pointed out by Gide and Rist, “In a science like political economy, where an experiment is practically impossible, abstraction and analysis afford the only means of escape from those other influences which complicate the problem so much.”

    Universal:

    The deductive method helps in drawing inferences that are of universal validity because they are based on general principles, such as the law of diminishing returns.

    Demerits of Deductive Method:

    Despite these merits, much criticism has been leveled against this method by the Historical School which flourished in Germany. Explain are What is Economics? Meaning and Definition of Criticisms.

    Unrealistic Assumption:

    Every hypothesis is based on a set of assumptions. When a hypothesis is testing, assumptions are indirectly testing by comparing their implications with facts. But when facts refute the theory based on the tested hypothesis, the assumptions are also indirectly refuted. So deduction depends upon the nature of assumptions. If they are unrealistic, in this method, economists use the ceteris paribus assumption. But other things seldom remain the same which tend to refute theories.

    Not Universally Applicable:

    Often the conclusions derived from deductive reasoning are not applied universally because the premises from which they are deducing may not hold good at all times and places. For instance, the classicists assumed in their reasoning that particular conditions prevailing in England of their times were valid universally. This supposition was wrong. Prof. Lerner, therefore, points out that the deductive method is simply “armchair analysis” which cannot regard as universal.

    Incorrect Verification:

    The verification of theories, generalizations or laws in economics is based on observation. And right observation depends upon data which must be correct and adequate. If a hypothesis is deducing from wrong or inadequate data, the theory will not correspond with facts and will refute. For instance, the generalizations of the classicists were based on inadequate data and their theories were refuted. As pointed out by Ircholson, “the great danger of the deductive method lies in the natural aversion to the labor of verification”.

    Abstract Method:

    The deductive method is highly abstract and requires great skill in drawing inferences for various premises. Due to the complexity of certain economic problems, it becomes difficult to apply this method even at the hands of an expert researcher. More so, when he uses mathematics or econometrics.

    Static Method:

    This method of analysis is based on the assumption that economic conditions remain constant. But economic conditions are continuously changing. Thus this is a static method that fails to make the correct analysis.

    Intellectually:

    The chief defect of the deductive method “lies in the fact that those who follow this method may absorb in the framing of intellectual toys and the real world may forget in the intellectual gymnastics and mathematical treatment”.

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  • What are the Methods of Economics?

    What are the Methods of Economics?

    Methods of Economics: First, Definition of Economics as; The social science concerned with the efficient use of limited or scarce resources to achieve maximum satisfaction of human materials wants. This article explains the Methods of Economics; Economic methodology is the study of methods, especially the scientific method, about economics, including principles underlying economic reasoning. The deductive and inductive method involves reasoning from a few fundamental propositions, the truth of which is assumed. Human wants are unlimited, but the means to satisfy the wants are limited. Also learn, What are the Fundamentals of Economics?

    Here are explaining and learn, What are the Methods of Economics?

    The following Methods of Economics below are;

    The Economic Perspective:

    • Scarcity and choice: Resources can only use for one purpose at a time. Scarcity requires that choices make. The cost of any good, service, or activity is the value of what must give up to obtain it. As well as, How to explain the Nature of Business Economics?
    • Rational Behavior: Rational self-interest entails making decisions to achieve maximum fulfillment of goals. Different preferences and circumstances lead to different choices. Rational self-interest is not the same as selfishness.
    • Marginalism – benefits, and costs: Most decisions concern a change in current conditions; therefore the economic perspective is largely focusing on marginal analysis. Each option considered weighs the marginal benefit against the marginal cost. Whether the decision is personal or one made by business or government, the principle is the same. The marginal cost of action should not exceed its marginal benefits. There is “no free lunch” and there can be “too much of a good thing.”

    Why Study Economics?

    The below are;

    • Economics of citizenship: Most political problems have an economic aspect, whether it is balancing the budget, fighting over the tax structure, welfare reform, international trade, or concern for the environment. Both the voters and the elected officials can fulfill their role more effectively if they have an understanding of economic principles.
    • Professional and personal applications: The study of economics helps to develop an individual’s analytical skills and allows students to better predict the logical consequences of their actions. Economic principles enable business managers to make more intelligent decisions. Economics can help individuals make better buying decisions, better employment choices, and better financial investments. Economics is, however, mainly an academic, not a vocational subject. Its primary objective is to examine problems and decisions from a social rather than a personal point of view. It is not a series of “how to make money” examples.

    Methods of Economics:

    Some of the most important methods of economic analysis are as follows:

    1. Deductive Method, and.
    2. Inductive Method.

    Economic generalizations describe the laws or statements of tendencies in various branches of economics such as production, consumption, exchange, and distribution of in­come. In the view of Robbins, economic generalizations or laws are statements of uniformities that describe human behavior in the allocation of scarce resources between alternative ends.

    The generalizations of economics like the laws of other sciences, state cause and effect relationships between variables and describe those economic hypotheses which have been found consistent with facts or, in other words, are true by empirical evidence. But a distinction may draw between a generalization (law) and a theory.

    A law or generalization just describes the relationship between variables; it does not provide any explanation of the described relation. On the other hand, a theory explains the stated relation between the variables, that is, it brings out the logical basis of the generalization. Economic theory or a model derives a generalization through the process of logical reasoning and explains the conditions under which the stated generalization will hold.

    Deductive Method of Economics:

    The deductive method is known as the analytical abstract a priori method. Here we start with certain formal data and assumptions. Then by logical reasoning, we arrive at certain conclusions. We start with undisputed fundamental facts and after adding some assumptions we build up a theory. For instance, it is assumed that businessmen aim at maximum profit. It follows from this that businessmen buy the materials in the cheapest market and sell them in the dearest market.

    In the Deductive method of Economic Analysis, we proceed from the general to the particular. This is also known as a hypothetical method for some of the assumptions that may not correspond to facts, but very near facts which may use as the premise for starting, reasoning and drawing conclusions. In economics, we start with very simple premises and work up gradually or more and more complex hypotheses.

    Inductive Method of Economics:

    In this method, economists proceed from a practical angle to problems of science to reduce the gulf between theory and practice. Induction is done by two forms, viz. experimentation and statistical form. Facts are collecting first, arrange and conclusions are drawn. Then these general conclusions are further verified concerning facts.

    The inductive method is generally associating with the statistical form of inductions. The statistical approach has a larger field in economic investigations than the method of experimentation. Further, the method of statistical induction is indispensable for the formulation of economic policy. Malthus presented his famous theory of population only after studying the facts of the population in various countries; He then used statistics to support his theory. Similarly, Engel, the German statistician employed the inductive method and used statistics to formulate his law of consumption.

    The Inductive method can apply in two distinct ways:

    1. The experimental method, and.
    2. Statistical method.

    Deductive or Inductive?

    From the above discussion, we can infer that there is no point in pleading one method against the other. The two methods have to make use of or blended to achieve the required objective. The two methods, deductive and inductive, are not competitive, but complementary helping the investigator. Explain are Economics is a Science and Art?

    Just, like any other matter, the issue, whether the deductive method is to refer to the inductive method or vice versa, became a raging controversy in the last century. The classical school of Britain represented by David Ricardo, Malthus, J.S.Mill, N.Senior, etc., strongly advocated deduction and affirmed their support in deductive methodology. On the contrary, the Historical School in Germany represented by Carl Knies, Roscher, Hildebrand, etc., affirmed faith in an inductive method. The controversy over methodology went on until Alfred Marshall brought about a compromise.

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  • How to explain the Nature of Business Economics?

    How to explain the Nature of Business Economics?

    Nature of Business Economics; A Traditional economic theory has developed along two lines; viz., normative, and positive. Normative focuses on prescriptive statements and helps establish rules aimed at attaining the specified goals of the business. Positive, on the other hand, focuses on the description it aims at describing how the economic system operates without staffing how it should operate.

    Here is the article, How to explain the Nature of Business Economics?

    The emphasis in business economics is on normative theory. Business economic seeks to establish rules which help business firms attain their goals, which indeed is also the essence of the word normative. However, if the firms are to establish valid decision rules, they must thoroughly understand their environment [Hindi]. This requires the study of positive or descriptive theory. Thus, Business economics combines the essentials of the normative and positive economic theory, the emphasis being more on the former than the latter.

    Understanding the Characteristics or Nature of Business Economics

    The following nature are below;

    1. Microeconomic nature: Business Economics is Microeconomics in nature because it deals with the matters of a particular business firm only.
    2. Use of economic theories: Business Economics uses all economic theories relating to the profits, distribution of income, etc.
    3. Realistic one: Business Economics is real science. It studies all matters concerning business organization by considering the real conditions existing in the business field.
    4. Normative Science: Business Economics is a normative science. It studies the matters concerning the aims and objectives of a business firm. Determines the methods to be adopted for achieving such objectives. It also makes an inquiry into the good and bad in decision making. Hence it is a normative science.
    5. Use of Macroeconomics: Even though Business Economics has the nature of Microeconomics, it also uses Macroeconomics approaches frequently. Certain matters in Macroeconomics like business cycles, national income, public finance, foreign trade, etc. which are essential for Business Economics. So, Business Economics uses the Macro Economics phenomenon for taking business decisions.

    Another five Main Characteristics of Business Economics

    Some of the main characteristics of business economics are as follows:

    Micro in Nature:

    Business economics is microeconomics in nature. This is due to the study of business economics mainly at the level of the firm. Generally, a business manager is concerned with the problems of his business unit. He does not study the economic problems of an economy as a whole.

    The basis of Theory of Markets and Private Enterprises:

    Business economics largely uses the theory of markets and private enterprise. It uses the theory of the firm and resource allocation of the private enterprise economy.

    Pragmatic in Approach:

    Business economics is pragmatic in its approach. It does not involve itself with the theoretical controversies of economics. Yet it does not relegate the realities of business decision-making to the background by bringing in abstract assumptions. While economic theory abstracts from realities of the individual business units to build up its theories, managerial economics takes proper note of the particular economic environment in which a firm works.

    Normative in Nature:

    Business economics is also called normative economics which prescribes standards or norms for policymaking. Business economics is prescriptive rather than descriptive. Economic theory, we try to explain economic behavior: Business economics, we try to prescribe policies for a business manager which are most likely applied to achieve his objectives. In economic theory, we build ‘laws’ such as the law of Demand and the Law of Diminishing Returns. In business economics, we apply these laws for policy planning at the level of a firm.

    Macro Analysis:

    Macroeconomics which deals with the principles of economic behavior for the economy as a whole is also useful for business economics. A business unit operates within some economic environment which is in turn shaped by the behavior of the economy as a whole. Therefore, a business manager must know the external forces working in his business environment.

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    How to explain the Nature of Business Economics?
  • What is Demand? Meaning and Definition!

    What is Demand? Meaning and Definition!

    Demand is an economic principle that describes a consumer’s desire and also willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease demand, and vice versa. What is Glocalization? Meaning, Definition!

    Here are discuss What is Demand? Meaning and Definition!

    In economics, demand is the quantity of a commodity or a service that people are willing or able to buy at a certain price, per unit of time. The relationship between price and quantity demands stands also known as the demand curve. Preferences and choices, which underlie demand, can represent functions of cost, benefit, odds, and other variables. Determinants of (Factors affecting) demand Innumerable factors and also circumstances could affect a buyer’s willingness or ability to buy a good. 

    Some of the common factors are:

    The following are below;

    Good’s own price:

    The basic demands relationship is between the potential prices of a good and the quantities that would purchase at those prices. Generally, the relationship is negative meaning that a price increase will induce a decrease in the quantity demands. This negative relationship is embodied in the downward slope of the consumer demand curve. Also, The assumption of a negative relationship is reasonable and intuitive. If the price of a new novel is high, a person might decide to borrow the book from the public library rather than buy it.

    The principal related goods are complements and substitutes. A compliment is a good that uses for the primary good. Examples include hot dogs and mustard, beer and pretzels, automobiles, and gasoline. Perfect complements behave as a single good. If the price of the complement goes up the quantity demanded of the other good goes down.

    Definition of Demand:

    The following definitions below are;

    1. Commerce: A claim for a sum of money as due, necessary, or require.
    2. Economics: (1) Desire for certain good or service support by the capacity to purchase it. (2) The aggregate quantity of a product or service estimated to be bought at a particular price. (3) The total amount of funds which individuals or organizations want to commit to spending on goods or services over a specific period.
    3. The Law: An assertion of a legal right, such as to seek compensation or relief.

    The amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price. The demand curve is usually downward sloping since consumers will want to buy more as the price decreases. Demand for a good or service exists determined by many different factors other than prices, such as the price of substitute goods and complementary goods. In extreme cases, demand may be completely unrelated to price, or nearly infinite at a given price. Along with supply, it is one of the two key determinants of the market price.

    Another Definition:

    Demand in economics is how many goods and services are being at various prices during a certain period. It is the consumer’s need or desire to own the product or experience the service. It’s constrained by the willingness and also the ability of the consumer to pay for the good or service at the price offered.

    They are the underlying force that drives everything in the economy. Fortunately for economics, people exist never satisfied. Also, They always want more. This drives economic growth and expansion. Without demand, no business would ever bother producing anything.

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    What is Demand? Meaning and Definition!