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Dumping

Dumping is pricing policy in the monopoly market structure. Under dumping monopolist charging less
price in international market and higher price in domestic market for the same product is called
dumping. Legally dumping is restricted in International Trade with the interest of domestic market.
Therefore domestic market will levy anti dumping charges to protect the interest of the domestic
producers or customers.

Market Strucutre
In the traditional sense, market is a place where buyers and sellers meet each other to effect a
business transaction. It is a mention about the structure and geographical area where the suppliers and
consumers interact each other. But the concept of market also classified based on area, time element,
and more than that the nature of competition.
Market based on the geographical area
1. local market
2. regional market
3. National Market
4. World Market.

Market based on the Time Period

• market period

• short period

• long period

• very long period

Market Based on the Nature of Competition classified basically in ways. They are as follows:
a. Perfect Competiton b. Imperfect Competition
Perfect Competition is again sub devided into Perfect Competition and Pure Competition
Imperfect competion is sub devided into following heads.
Monopoly
Duopoly
Oligopoly
Monopolistic Competition
Monopsony

WEDNESDAY, OCTOBER 28, 2009

Revenue Analysis
Revenue in Economics represents total receipts a firm can recieve after the sale of his product. In other
words it can be calculated by multiplying price of a product and total output sold. Again revenue concepts
can be detailed by Average Revenue (AR), Total Revenue (TR) and Marginal Revenue (MR).

Average Revenue is per unit price of product. It is calculated TR/No of units sold.

Total Revenue is calculated by multiplying per price with total product sold.

Marginal Revenue is additon to the total revenue by selling one more unit of product.
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FRIDAY, OCTOBER 16, 2009

Cost Analysis
The cost of production of an individual firm has an importyant influence on the market supply of a
commodity. A firm aims at maximising the profit which is basically depend upon the prices of the
commodity and which inturn affected by cost of production of products.Thus given the price of the
product, the amount a firm is willing to supply in the market will depend upon the cost of production.

Costs may be nominal costs or real costs. Nominal cost is the money cost of production. It is called
expenses of production. The real cost is the opportunity cost of production.

Accounting Costs: Accounting costs are the costs of production of a firm. These are money costs or
expenses of production. These costs are paid for by the producer and are also known as entreprenuer's
costs. These are the explicit costs, and they enter the accounts books of the firms.

These costs inbclude


wages to labour
interrest on borrowed capital
rent or royalty
costs of raw materials
replacement and repurchasing charges
depreciation of capital goods
normal profits of enterprenuers etc.
Economic Costs
Economic cost mens those payments which must be received by resource oweners in order to ensure
that they will continue to supply the resources for production.
Economic Costs = Explicit Cost + Implicit cost + Normal Profits.

Opportunity Cost (alternative or transfer cost)


The opportunity cost of a product, is the opportunity lost of not being able to produce some other product.
Opportunity cost or economic opportunity loss is the value of the next best alternative foregone as the
result of making a decision.Opportunity cost analysis is an important part of a company's decision-making
processes but is not treated as an actual cost in any financial statement.The next best thing that a person
can engage in is referred to as the opportunity cost of doing the best thing and ignoring the next best
thing to be done.
The opportunity cost concept is an important tool to measure the implicit cost of a firm. This concept is
used for (a) measuring profits, (b) policy decision of the firms, (c) forming capital budget and (d)
alternatives available to the firm.

Explicit Cost: The money payment, which a firm makes to those 'ousiders' who supply labour services,
raw materials, transport services etc, are called explicit costs. Thus explicit cost are payment made for
resources purchased or hired by the firm. Theses are expenditure costs and alos accounting expenses.

Implicit Costs: The costs of self owened resources which are employed by the firm are non ecxpenditure
or implicit costs. Example, salary of the properitor, or the interest on the enterprenuer's own investment,
rent on land used by the firm. Imploicit costs are calculated based on opportunity cost principle. These
costs do not enter the accont books of a firm.

Normal Profit as a Cost: Explicit costs, implicit cost and normal profits all together from the full costs of a
firm

Types of costs of Production:


POSTED BY SATISH HEJMADY AT 2:06 AM 1 COMMENTS
TUESDAY, OCTOBER 13, 2009

Supply Analysis
In Economics, supply during a given period of time means the quantities of goods which are offered for
sale at particular prices. Thus, the supply of a commodity may be defined as the amount of the
commodity which the sellers are able and willing to offer for sale at a particular price, during a certain
period of time.

Determinants of Supply
There are number of factors influencing the supply of a commodity. They are known as the determinants
of supply. The important determinants of supply are:

Price
Natural Conditions

State of technology

Transport conditions

Factor Prices vailability and their prices

Government Policy

Cost of Production

Prices of other products

The Law of Supply


" other things remaining unchanged, the supply of a commodity expands with rise in its price and
contracts with a fall in its price".

Assumptions Underlying the Law of Supply

Cost of production is unchanged

No change in technique of production

Fixed scale of production

Government policies are unchanged

No change in transport costs

No speculation

The prices of other goods are held constant.

Exceptions to the Law of Supply: Supply of labour and savings are the two exceptions commonly pointed
out by economists. It may be observed that the supply will fall even prices are increasing. In labour supply
due to leisure expectations number of labour hours decreased are labourers are decrease even though
salary or price of the labour increases.

Elasticity of Supply
Supply changes due to change in price. The extent of change in supply in accordance with the change in
price is called elasticity of supply.
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FRIDAY, OCTOBER 9, 2009

Elasticity of Demand
Demand usually varies with price, and the extent of the variation in economics termed as a elasticity of
demand. In measuring the elasticity of demand , two variables are considered (a) demand and (b)
determinant of demand.

Elasticity of Demand =

Percentage change in quantity demanded


_______________________________

Percentage change in determinant of Demand

There are many kinds of elasticites of demand as its determinants. They are (a) Price elasticity

(b) Income elasticity of demand (c) Cross elasticity of demand

Price elasticity refers to the degree of responsiveness of demand for a commodity to a given change in its
price.

Income elasticity refers to the degree of responsive of demand for a commodity to a given change in the
income of the consumer

Cross elasticity refers to the responsiveness of demand for a commodity to a given change in the prce of
a related commodity - substitution or complemetatory product.

Price elasticity of demand (PED) is defined as the measure of responsiveness in the quantity demanded
for a commodity as a result of change in price of the same commodity. It is a measure of how consumers
react to a change in price .In other words, it is percentage change in quantity demanded by the
percentage change in price of the same commodity. In economics and business studies, the price
elasticity of demand is a measure of the sensitivity of quantity demanded to changes in price. It is
measured as elasticity, that is it measures the relationship as the ratio of percentage changes between
quantity demanded of a good and changes in its price.

Mathematical definition
The formula used to calculate coefficients of price elasticity of demand for a given product is

e=∆Q
____ ___
∆P

where,

∆ Q = the change in quantity demanded. It is measured as the difference between the new demand (say
Q2) and old demand (say Q1)

∆ P = the change in price . It is measured as the difference between the new price P2 and old price P1

P = original price
Q = original demand

Types of Price Elasticity:

Perfectly Elastic demand

Perfectly inelastic demand

Unitary elastic demand

Relatively elastic demand

Relatively inelastic demand

Perfectly Elastic Demand: When demand is perfectly elastic, with the slight or infinitely small rise in the
price of the commodity, the consumer stops buying it. The numerical coeffecient of perfectly elastic
demand is infinity (e = ∞).
Perfectly Inelastic : When the demand for a commodity shows no response at all to a change in price, that
is to say, whatever the change in price the demand remains the same, then it is called a perfectly inelastic
demand. Perfectly, inelastic demanmd has zero elasticity (e = o).

Relatively Elastic Demand: When the proportion of change in the quantity demanded is greater than that
of price, the demand is said to be relatively elastic. The numerical value of relatively elastic demand lies
between one and infinity.

Relatively Inelastic Demand: When the proportion of change in the quantity demanded is less than that of
price, the demand is considered to be relatively inelastic. The numerical value of relatively inelastic
demand lies between zero and one.

Unitary Elastic Demand: When the proportion of change in demand exactly the same as the change in
price, the demand is said to be unitary elastic. The numerical value of unitary elastic demand is exactly 1.

Measurement of Elasticity

Thetre are different methods of measuring price elasticity of demand (1) Percentage Method (2) Point
elasticity method (3) Total Outlay Method (4) point geometric method, (5) Arc Elastycity method.

Factors Influencing Price Elastycity of Demand

1. Nature of commodity

2. Availabilty of a Substitute
3. Number of Uses

4. Consumer's Income

5. Height of price and range of price change

6. Proportion of expenditure

7. Durability of Commodity

8. Inflence of habbit and customs

9. Complementary of Goods

10. Time

Uses of Concept of elasticity of demand

1. Its importance to the Businessman

2. Importance to government

3. Its importance to the trade unionist

4. Its importance to Economists

5. Its importance in international Trade.

Income Elasticity of Demand

Income elasticity of demand for a product shows the extent to which a consumer's demand for that
product changes consequent upon a change in his income. Income elatycity of demand can be defined as
the ratio of proportionate change in the quantity demanded of the commodity to a given proportionate
change in income of the consumer.

Types of Income elasticity of Demand

1. Negative Income Elasticity: When the demand for product decreses as income increases and conversly
where demand for a product increases as there is fall in income, the income elasticity of demand is
negative.

2. Zero Income Elasticity: When a change in income has no effect upon the quantity demanded of a
product, the income elasticity of demand would be zero.

3. Unit Income Elasticity: Income elasticity of demand will be equal to unity when demand for the product
increases in the same proportion in which income increases.

4. Low Income Elasticity: When the income elasticity of demand for a product is positive that is greater
than zero, but less than one, we say that the income elasticity of that demand is relatively less.

5. High Income Elasticity: When the percentage change in quantity demanded is greater than the
percentage in income, is cosidered as high income elastic.
Cross Elasticity: Cross elasticity may be defined as the ratio of proportionate change of quantity
demanded of commodity 'X' to a given proportionate change in price of the related commodity 'Y'.
Percentage change in quantity demanded of 'X'
Ec = ------------------------------------------------
Percentage change in the price of 'Y'

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Demand Forecasting
Predictions of future demand for a firm's product or products are called demand forecasts. Demand
forecasting is the method of predicting the future demand of a firm's product.

Forecasts are necessary for


1. Fulfilment of objective of the plan.
2. Preparation of a Budget
3. Stabilisation of employment and productiopn.
4. Expansion of Firms
5. Other Uses

Factors Influencing Demand Forecasts

A number of factors affect the demand forecats. Each of these factors has to be studied together with the
other factors while forecating demand. They are as follows.

1) Time Period

Forecats can be for a short period, long period or very long (secular) period.
a) Short period: These forecats are for a period of one year and based on the judgement of experienced
staff of the firm. Within this period the sales promotion policies of the firm or the tax policies of the
government do not change. Short period forecats are important for deciding the production policy, price
policy, credit policy and marketing and distribution of the firm's product.
b) Long period forecats:These are forecats for a period of 5 to 10 years and are based on sientific
analysis and statistical methods. Long period forecats are important to decide about whether a new
factory is to be established, new product can be introduced, or capital needs are to be raised.
c) Very Long Period: There are for a period of over 10 years. Secular factors like growth of population,
development of the economy, the political situation in the country, the changes in the international trade,
sociological factors like, age, marriage, have to be considered for forecating the demand over a very long
period.

2) Level of Forecasts

Forecasts can be made at the level of the firm or the industry or the nation.
a) A Firm : A firm forecasts the sales of its products.

b) An Industry: Forecasts at this level are prepared bye the trade association. These are based on
statistical data and market survey. These forecasts are available to all the forms of the country.
c) The Nation: These forecats are national level forecasts and are based on indices such as national
income and national expenditure.

3) Genaral and specific forecasts: General forecats giving a total picture of the demand for all the
products of a firm or demand from all the markets of the firm's product. Specific demand forecats give
specific information.

4) Established Products and New Products: Established goods, are goods which are already established
in the market. New products are the those whioch are yet to be introduced in the market, information
about these production is not known.. Thus depending on whether the product is an established or new
product, differewnt methods are used for forecating demand.

5) Product Classification: For the purpose of Demand Forecating products can be classified as:
a) Capital Goods and Consumer goods
b) Durable goods and Perishable goods.
The demand for capital goods is a derived demand. It is derived from demand for the product produced
by the capital goods. The demand for consumer goods depends on the incomes of the consumer. The
demand for durable goods can be postponed. The demand for perishable goods like vegetables and fruits
depends on the current incomes and current demand.

6) Other Factors: The level of uncertanity, the nature of competition, the number of substitutes to a
product, the elasticities of demand for the product are important factors which have to be considered
while forecating the demand for a product.

Methods of Forecasting Demand


The methods opf forecating demand depend upon whether the product is an established good or a new
good, and on the level of forecats, that is macro or micro level.
Macro level forecats are used in national economic planning. These are forecats about general business
conditions, and these forecasts make use of information regarding the macro variables like govt
expenditure, savings etc.

1. Methods of Forecasting demand for Established Goods


There are two basic methods of forecasting the demand for established goods
A) Interview and survey approach (Short period forecasts)
B) Projection Approach (Long period forcasts)

The interview and survey approach, tries to collect information in different way. Depending on how this
information is collected, we have different sub methods.

a) Opinion - polling Method: This method tries to collect information directly or indirectly from the
prospective consumers.. This is possible through the market research department of the firm or through
the wholesalers and retailers. This method is useful when the product and consumers come into direct
contact or when the number of consumers is small. This method is also useful when the consumer is
another firm.

b) Collective Opinion Method: Large firms have an organised sales department. The salesman have
technical training about how to collect the information from the buyers. These forecasts are based on
information which is more certain and thus forecasts based on this information may be more accurate.

c) Sample Survey Method: The total number of consumers for firm's product is called the population.
When the number of consumers is very large, it is not possible to contact each and every consumer. A
few consumers are contacted , this forms the sample. Therefore in this method information is collected
from the consumers in the sample and forecasts are based on this information, which inturn generalised
for the whole population.

d) Panel of Experts: Panel of experts consisits of either persons from within the firm or from outside.
These experts come together and forecast the demand for the firm's product..

e) Composite Management Opinion: The opinions of the experienced persons with the firm are collected
and a committee or the general manager of the firm analyses this information and forecats the demand
for the firms product. This method is quick, easy and saves time and cost, but it is not based on scientific
analysis and thus may not give very accurate results.

(B) Projection Approach: In this method, the past experience is projected into the future. This can be done
with the help of statistical methods.
(a) Correlation and Regression Analysis
(b) Time eries Analysis

2) Methods of Demand Forcating for new Products


(a) Evolutionary Method: The demand forcasts of such new goods can be based on the information about
the already established goods from which it is evolved.

(b) Substitution Method:


(c) Growth pattern method
(d) Opinion polling method
(e) Sample survey method
(f) Indirect Opinion Polling method.

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