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Economics Introduction

Economics is a social science that deals with the production, consumption, and distribution of goods and services. It is a crucial field that affects all aspects of our daily lives, from the price of our morning coffee to the unemployment rate in our community. In this blog post, we will explore some of the key concepts of economics and their implications for society. One of the fundamental principles of economics is the concept of supply and demand. This theory states that the price of a good or service is determined by the interaction between the quantity of the product available and the level of demand for it. In general, when the supply of a product increases, the price will decrease, while an increase in demand will lead to a rise in the price of the product. This is why we often see prices fluctuate based on factors like seasonality, scarcity, and changes in consumer preferences. Another critical concept in economics is the idea of opportunity cost. This principle suggests that w...

ROLE OF GOVERNMENT IN PRICING POLICY

Government in India plays an important role in product pricing. The way through which government influences product pricing are Types of Government interventions 1) Direct Intervention a) Price pegging -> All output & partial b) Price ceilings 2) Indirect Intervention a) Taxes->Sales(specific,Advalorem), profit, realestate b) subsidies 1)Direct Interventions: In direct interventions the government fixes the price of all output of a good when the goods produced by public sector or it happens to be a basic good produced by private and public. Eg: prices of electricity, petroleum, cooking gas, telephone, railway, airline, post & telegraph offices etc. Lifesaving drugs, steel, fertilizers etc. a)Price pegging: Price pegging means keep prices wages etc at ...

PRICING METHODS

The main pricing pratices can be classified into three broad categories. They are 1.COST ORIENTED PRICING: a) Cost plus pricing: This is the most popular and common method of pricing in pratice because * It is simple to compute. * It assures profitable business. * It is scientific as it eliminates any subjectivity. * It is Considered a satisfactory for taking care of business. In this method the price is used to cover costs and add a predetermined percentage for profit. The percentage of profit differs among industries among members in the same industry and even among products of the same firm. Demerits of Cost plus pricing method: a) Cost plus pricing ignored demand. b) Cost plus pricing fails to reflect the forces of competition adequately. c) Cost plus pricing ignores marginal cost and Incremental cost and instead uses average cost. d) It cannot be applied to industries dealing wi...

PRICING

Pricing is the most important function of all enterprises. Since every enterprise is engaged in the production of some goods and services incurring. Some expenditure to sell in the market. It must set a price for it's product. Every manager endeavours to find the price which would best meet it's objective. On the other hand if the price is set too high the seller may not find enough customers to buy his product. On the other hand if the price is set too low the seller may not able even to recover his costs. Thus there is a need for the right place. Price denotes the exchange value of an Unit of a good expressed in terms of money. The pricing decision needs to be renewed and reformulated from time to time. Determinants of price: Determination of prices is an important function in all enterprises. Price affects profit through it's effect both on total...

COST FUNCTION

Cost which a firm incurs in the production of goods or services depend on two things a) Firm's production function b) Market's inputs supply function The cost would vary * Output level varies * Nature of production function varies or factor prices change. Putting all this together we have the following cost function C= f( Q1,E1,P1) f1,f3>0>f2 Where, C= Total Production cost Q= Total output E1= Efficiency of inputs P1= prices of inputs Factor productivities depends on the levels of technology, the quality of the work force and management. Which are influenced by education, training and health condition and sincerity and integrity of the labour and mis management which are reflected in absentism, strikes, lockouts etc. Thus through factor efficiencies many factors exercise influence on the cost of production. An increase in ...

COST CONCEPTS AND TYPES

Cost is the money spent on production and selling a product to the customer. The cost may be direct or indirect cost. The cost of a product starts from procuring the raw materials till selling the product to the customer. The cost includes 1) Manufacturing cost 2) Selling and distribution cost 3) Office and administration cost Types of cost: The kind of cost concepts to be used in particular business situation depend on the business decisions to be made. It is important to use the right kind of cost in the business situation. The following are some of the main cost concepts or cost types. They are 1) Actual costs & Opportunity costs 2) Incremental costs & Sunk costs 3) Explicit costs & Implicit costs 4) Past costs & Future cost 5) Accounting costs & Economic costs 6) Private costs & Social costs 7) Direct costs & Indirect costs 8) Controllable costs & ...

PRODUCTION

Production theory deals with input output relationship. Input output relationship can be expressed in physical terms as well as in money terms. Production theory deals with physical relationship ( ie.) technical and technological relations between inputs and outputs. (Eg) Capital labour ratios , capital output ratios etc. One of the prime objective of business firm is to achieve optimum efficiency in production and minimizing cost for a given Production. Meaning of production: In economics the term Production means process by which a commodity are transformed into a different usable commodity. Production also means transforming input into output. This kind of Production is called manufacturing. In economic sense Production process may taken a variety of forms. For eg. Transporting a commodity from one place to anot...

SUPPLY

The supply of a product means " the amount of that product which producers are able and willing to offer for sale at a given price". Supply depends on the price when there is a change in price the demand for the product by the consumer or the supply of the product by manufacturers to the market change. When the price is high, demand is less but the supply is high. Determinants of supply: The market supply of goods generally depends on many factors such as 1. Input prices 2. Technology 3. Government regulation 4. Competition 5. Substitute in production 6. Taxes 7. Producer expectation 1. Input prices: The supply curve explains how much manufactures are willing to produce at different prices. But as the production cost changes the willingness of producers to produce output at a give price changes. When the price of an input rises producers are willing to produce less at given pri...

DEMAND FORECASTING

Demand forecasting means estimation of the demand for the goods in forecast period. Demand forecasts may be attempted not only for a total market but also for market segments like domestic demand and foreign demand. Steps involved in forecasting: 1. Identify and clearly state the objective forecasting. 2. Select appropriate method for forecasting depending upon the objective different tools will be used. 3. Identify the variables affecting the demand for the product. 4. Gather the relevant data to represent the variables. 5. Determine the most probable relationship between the depended and independent variables. 6. Prepare the forecast and interpret the results. Method of demand forecasting: There are several methods of demand forecasting basically for 3 reasons a) No method is perfect and no method is useless. b) No method is best under all circumstances. c) The best method may not be available in a particular situat...

DEMAND ELASTICITY

To find out the magnitude of impact on the quantity of demand for economists use the tool of elasticity of demand. Definition: Elasticity of demand is defined as " the percentage of change in quantity demanded caused by one percent change in the demand determinant under consideration while other determinant are held constant. This can be replaced as e= percentage change in quantity of demanded of goods(q)/ percentage change in demand determinant (z). The above definition can be simplified into " the degree of responsiveness of quantity demanded to a change in the demand determinant". The formula is e = proportionate change in the quantity demanded/ proportionate change in price. Elasticity of demand means " the rate at which demand may change when price changes is known as elasticity of demand". Types of Elasticity of ...

DETERMINANTS OF DEMAND

Demand analysis is needed for three purposes a) To provide the basis of analysing market influence on the demand. b) To provide guidance for manipulating the demand. c) To provide guidance for manipulating the demand. d) To guide in production on planning through forecasting the demand. Demand Determinants are classified as 1. For all demands a) Consumer's Income b) Prices of related goods * Substitute goods prices * Complementary goods prices c) Consumer's taste& preference 2. For durable or expensive goods a) Consumer's expectations about * Future incomes * Future prices 3. For aggregate demand a) Number of consumer's b) Distribution of consumer's Demand determinants can ...