1. ECONOMICS FOR ENTREPRENEURS by : DR. T.K. JAIN AFTERSCHO ☺ OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE / CSE PARTICIPANTS mobile : 91+9414430763
2. My words.... Here I present a few basic questions on economics. I wish that more people should become entrepreneurs. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation but we have to strengthen those institutions which truly promote entrepreneurship, not just degree granting institutions. Let us work together to promote knowledge, wisdom, social development and education. We believe in free education for all, free support for all, entrepreneurship opportunities and training for all. Let us work together for these goals. ... I alone cant do much, I need support of perosns like you .......... ...
4. What are the methods of privatisation? 1. Disinvestment (here Govt. Sells out PSUs to private sector companies) 2. IPO – here govt. Invites public to subscribe to PSU's shares 3. Management – employee buyout: here government employees are given an opportunity to buy stake in the govt. Company 4. Strategic Sale : - here the govt. Sells its strategic stake in PSUs to private sector companies. 5. sale to foreigners/ foreign company (example= maruti)
5. When will the total utility be highest ? When marginal utility will be zero. (answer )
6. What are giffin goods? Inferior goods (consumers buy them because they cant afford normal goods).
7. What are components of modern theory of demand ? 1. income effect 2. substitution effect (traditional theory incorporate law of diminishing marginal utility, addition of new consumers and other such concepts)
8. Is per capita income a study of microeconomics (because in micro economics we study an individual unit)? No it is a macro economics subject
9. Do we have exact science and law in economics ? No because it is about human behaviour
11. What is difference between value and price ? Value is based on satisfaction / utility to the consumer price is based on cost of the seller and so seller fixes up price as per the cost.
12. What is CETERIS PARIBUS ? It means = other things remaining the same
13. What is deductive reasoning ? Deductive reasoning works from the more general to the more specific. Sometimes this is informally called a "top-down" approach. We might begin with thinking up a theory about our topic of interest. We then narrow that down into more specific hypotheses that we can test. We narrow down even further when we collect observations to address the hypotheses
14. What is inductive reasoning ? nductive reasoning works the other way, moving from specific observations to broader generalizations and theories. Informally, we sometimes call this a "bottom up" approach (please note that it's "bottom up" and not "bottoms up" which is the kind of thing the bartender says to customers when he's trying to close for the night!). In inductive reasoning, we begin with specific observations and measures, begin to detect patterns and regularities, formulate some tentative hypotheses that we can explore, and finally end up developing some general conclusions or theories.
15. What is difference between deductive method and inductive method ? Deductive method of study is widely used in classical economics, but industive method is widely used in modern economics deductive moves from general to particular, but inductive moves from particular to general.
16. What are key assumptions in socialist economics ? 1. State ownership 2. central decision making 3. social welfare is important 4. there should be econoic equality among people 5. rule by proletariat and not by bourgeoises.
17. What is people plan ? This was prepared by M.N. Roy, it was a plan which presented how our country could progress (prepared before independence of India)
18. What is under employment ? When a person is doing work far below his standard / capability, it is called under employment
19. What type of unemployment is found in developing countries ? Structural unemployment : because people have traditional skills, but there are no vacancies for that. There are vacancies for new jobs, for which there are not people
20. What is disguised unemployment ? When far more number of persons are employed when actually the work can be done by only a few persons, it is called disguised unemployment
21. Which department completed 150 years in 2002? Indian Railway It has now over 63000 km of network in our country
22. What is IWT ? Inland water transport : it is estimated that India has 15000km of IWT possibilities
23. What is teledensity in India ? with 621 million telephone(landline and mobile) subscribers and 584 million mobile phone connections as of March 2010 India has teledensity of over 50% and it is the second largest in the world (about to overtake number One – China) Indian Mobile subscriber base grew 10 fold in just 4 years(from 7.56 million subscribers in Dec 2001 to 75.94 million subscribers in Dec 2005) and then over the next 4 years it grew 7 fold (from 75.94 million subscribers in Dec 2005 to 525.94 million subscribers in SDec 2009). In the first quarter of 2010 there have been a record breaking 59.18 million mobile subscriber additions
24. 90 per cent of India's trade by volume (70 per cent in terms of value) is moved by..... (fill in the blank)? Sea
25. What is India's rank in shipping in developing countries ? India has the largest merchant shipping fleet among the developing countries and ranks 20th amongst the countries with the largest cargo carrying fleet with 8.83 million GT as on 01.06.2008 and the average of the fleet being 18 years
26. How many vessels does India has ? 872 vessels (282 overseas vessels with 7.89 million Gt and 13.55 million DWT and 590 coastal vessels with 0.5 million GT and 0.99 million DWT).
27. How many ports does India have ? India has 7,517 km long coastline studded with 13 major ports and 200 non-major port
28. Which are the training institutions relating to shipping etc. ? * Training Ship 'Chanakya'; which conducts (i) Three years B.Sc. degree course in Nautical Sciences under the University of Mumbai, (ii) Pre-Sea training course for Deck Cadets. * Marine Engineering and Research Institute (MERI), Kolkata; which conducts four-year degree course in Marine Engineering under Jadavpur University. * Marine Engineering & Research Institute (MERI), Mumbai; conducts (i) one-year Training Marine Engineering course for graduate Mechanical Engineers and (ii) Three-year B.Sc. degree course in Martime Sciences (polyvalent degree) under the University of Mumbai. * LBS College of Advance Maritime Studies & Research, Mumbai, conducts almost 46 post-sea training courses for serving Marine Officers.
29. What is NREGA? National Rural Employment Guarantee Act 2006
30. What are the features of NREGA? time bound employment guarantee and wage payment within 15 days, incentive-disincentive structure to the State Governments for providing employment as 90 per cent of the cost for employment provided is borne by the Centre or payment of unemployment allowance at their own cost and emphasis on labour intensive works prohibiting the use of contractors and machinery. The Act also mandates 33 percent participation for women.
31. When did NREGA start ? February 2, 2006 In Phase one it was introduced in 200 of the most backward districts of the country. It was implemented in an additional 130 districts in Phase two 2007-2008. As per the initial target, NREGA was to be expanded countrywide in five years. However, in order to bring the whole nation under its safety net and keeping in view the demand, the Scheme was extended to the remaining 274 rural districts of India from April 1, 2008 in Phase III.
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33. If banking system has reserves of Rs. 500 crores and reserve requirements are 20%, what is demand deposit that the banking system can support ?? 500 * 100/20 = 2500 crore answer
34. If banking system has reserves of Rs. 500 crores and reserve requirements are 20%, If reserve requirement is increased to 25%, how much can the system take as additional deposits / how much will its capacity reduce in terms of deposits ? 500 * 100/25 = 2000 earlier the deposit was 2500, but now it is 2000 so the system has to pay deposits of 500 crore thus its capacity reduces by 500 cr.
35. What is fixed fiduciary system ? Suppose the government asks RBI to issue upto 5000 crore without any gold / security to back up. This is called fixed fiduciary system if RBI issues more than 5000 crore, it will have to deposit gold for that.
36. What is Proportional reserve system:? According to this system proportion of note issue is backed by metallic reserve and rest of the amount is backed by Govt. securities and bonds. In other words central bank issue notes 25% to 40% of which is backed by gold and rest of 60% to 75% is backed by Govt. securities. The proportional percentage is different from countries to countries.
37. What is percentage deposit system? Under this system the central bank is allowed to hold part of the legal percentage of the reserve in foreign exchange, including currency, foreign bills and deposits in foreign banks. The foreign country should be such where gold standards prevail. (not relevant today as no country follows gold standard today)
38. What are the different systems of notes issue by government ? 1. fixed fiduciary system: here there is a fixed amount upto which currency can be issued 2. proportional system – here currency is issued inproportion to the deposits with the government 3. minimum reserve system – here there are some minimum reserve requiremens. 4. simple deposit system / percentage deposit system
39. What is REPO rate? REPO = repurchase rate it is the rate at which the RBI will repurchase the securities issued by it to banks and financial institutions.
40. What is production theory ? Production theory: quantity of output may change (i) when some factors of production are kept constant (fixed), and others are varied(The law of variable proportions ); or (ii) when all factors of production are varied (law of returns to scale)
43. What are the 3 phases of law of variable proportion? phase of increasing returns, phase of constant returns, and phase of diminishing returns.
44. What are assumptions of law of variable proportion? It claims that the extent to which a firm can utilise its inputs does not depend upon their absolute quantities. Instead, this depends upon the proportion in which they are combined. productive efficiency of inputs varies with the proportion in which they are combined, it follows that there will be one combination in which it will be the highest attainable. The combination with highest possible productive efficiency of inputs is termed ‘ideal’ or ‘optimum’ combination. Technology is also assumed to be stable
45. What is the phase when average output is the highest in law of variable proportion. 2 nd phase
46. total output increases throughout this phase, marginal output first increases, reaches its highest value and then starts declining till it is equal to the average output. Name this phase ? 1 st phase in law of variable proportion
47. During this phase, average product of the variable factor keeps declining together with marginal output. Eventually, marginal output may even fall to zero and become negative. Name this phase 3 rd phase of law of variable proportion
48. Which assumption of law of variable proportion is unrealistic ? The assumption regarding the homogeneous units of variable input (specially labour) is not logical. Every unit of labour or worker is different from each other. Secondly, the assumption of constant input prices and technique of productions also seems unrealistic in the present dynamic world.
49. What is the classical stand regarding law returns to scale? The classical economists subscribed to the theory that productive efficiency of inputs depends upon the proportion in which they are combined.
50. What is modern perspective on law of returns to scale ? In modern view, productive efficiency of inputs is affected by both their proportion and their absolute quantitie (scholars like Professor Chamberlin)
51. What is short run? ‘ short run’ does not represent a fixed time period. It is a functional concept and represents that time interval over which the firm is not able to alter every input.In the short term, we have fixed and variable both type of expenses. In the long term every input is variable, therefore there is no fixed cost in the long term.
52. What is literal meaning of economy of scale ? economies of scale denotes ‘saving’ in cost of production with an increase in the scale of output
53. What is difference between internal and external factors in economies of scale ? Internal ones are those which occur due to what we term endogenous (or internal) causes. For example, if we are thinking of a firm, then internal economies and diseconomies arise on account of some actions of the firm itself. Example : marketing, advertising etc. In contrast, external economies and diseconomies result from some exogenous or external causes, The firm has no control on these. Examples : govt. policy
54. What is ‘bilateral monopoly’ If a single buyer is confronted with a single seller,
55. What is monopsony? When we have a single buyer
56. What is necessary condition for a firm ? There is a single unit of entrepreneurship. The restriction of having only one unit of input applies only to entrepreneurship. A firm can have any number of units of other inputs.
57. What is industry ? An industry is a set of firms which are conceptually closely associated in the sense of having some "common" type(s) of activities. It is a set of firms which are producing a certain type of a manufactured good or providing a certain type of service.
58. What is conventional assumption about firm ? a firm always tries to maximise its profit and takes decisions such that this objective is satisfied to the maximum extent possible. These days, however, several economists have expressed doubts about this assumption. They have suggested that a firm may try to aim at some objective other than profit maximisation
59. What are fundamental assumptions of perfect market ? No Transportation cost Free entry and free exit large number of buyers and sellers honomogenous product prices determined purely by demand and supply no single buyer / seller can influence price perfect information perfect mobility of factors of production Economic Rationality
60. What are characteristics of day to day market period ? This time period is also referred to as Day-to-Day Period or simply Market Period. It is that interval of time within which the firm is not able to alter its supply by replenishing it through additional production. It can only sell what it has in stock. Thus the total supply of the firm is limited by stock held by it. Given the existing stock, of course, it has the choice to sell its entire stock, a part of it, or nothing at all. It bases its decision upon the demand conditions and other relevant factors. Normally, it has a "reserve" price below which it is not ready to sell even a single unit of its produc
61. What are the conditions for equilibrium of a firm in short term in perfect market ? two conditions should be satisfied : MR must equal MC and cut it from below; and AR must equal or exceed AVC MR = marginal revenue MC = marginal cost, AR = average revenue AVC = average variable cost
62. How do cost curve behave in long run in comparison to short term? Long term is defined as that period in which the firm has the opportunity of varying all its inputs. There are no fixed costs and therefore, average fixed cost curve vanishes. The average cost (AC) curve denotes average total cost (ATC) curve. In the long run, the firm can decide to go in for any of the alternative plants of different scales.
63. What are conditions for equilibrium of a firm in long term in perfect market ? MC curve must intersect MR curve from below. AR ≥ AC, so that the firm does not incur a loss and close down. (in the long term, AR=AC, as no firm can earn superior profit in long term and no firm whichh is incurring losses, will stay in the long term. )
64. What is difference in the shape of demand curve for a firm and industry in perfect market ? FIRM = A firm has a perfectly elastic demand curve, so its shape is a straight horizontal line. Industry : - demand curve for the industry is always drawn with a negative slope
65. What will be shape of supply curve of an industry in the long term in increasing return? Negative (falling)
66. What will be shape of supply curve of an industry in the long term in decreasing return? Increasing (positive) (supply of quantity will increase only on increase in price)
67. What will be shape of supply curve of an industry in the long term in constant return? Constant
68. What is price discrimination of first degree ? The monopolist may charge a separate price for each unit sold by him.
69. What is price discrimination of second degree ? The monopolist may sell his output in ‘batches’ or ‘lots’, charging a separate price for each batch or lot.
70. What is price discrimination of third degree ? The monopolist may split up the market for his product on the basis of the buyers, He may divide buyers into two or more categories and charge from each category a different price.
71. What is the basic rule for price discrimination ? The basic rule according to W.J. Baumol is that marginal revenue in all the markets should be similar. (discrimination is used when different markets have different elasticities and it is continued till these elasticities reach same point)
72. what is monopolistic competition It is defined as that market structure in which each seller produces a ‘differentiated product’.
73. What are essential features of monopolistic competition ? Product differentiation a large number of sellers perfect knowledge of market all firms have identical cost and demand conditions. (however, there are different selling expenses)
74. ONIDA, videocon, LG, samsung Are all examples of which market ? Monopolistic competition
75. What choices are available to firms in monopolistic competition? Each firm operating under monopolistic competition is thus able to make a choice between alternative combinations of product quality, product differentiation, and selling costs.
76. Why do firms operate at below their capacity in monopolistic competition? negatively sloping demand curves, U-shaped long term average cost curve, free exit and entry of firms, and competition among firms.
77. What is the benefit to the consumers in monopolistic competition? The benefit is in the form of the ‘variety’ of products.
78. What is the loss to the consumers in monopolistic competition? They get a smaller supply compared with what the economy can produce by effectively utilising its productive capacity. The average cost of production is more than the minimum average cost of optimum level of output and the consumers have to bear it in the form of higher prices. They also pay for the selling expenses incurred by the sellers. ‘ for a given quality of product they pay a higher price, and for a given price they get an inferior product’.
79. Why is monopolistic competition so popular ? it is much closer to reality than several other models of market structure. It incorporates the facts of product differentiation and selling costs. Secondly, it can be easily used for the analysis of duopoly and oligopoly.
80. can the the entire group of firms be in equilibrium in monopolistic competition? Yes
81. What are the major hurdles in analysis of monopolistic competition ? What is a group ? Here we assume that there are a number of companies in a group selling differentiated products. Related with the concept of a group of firms, we face the difficulty of defining the meaning of a ‘ close substitute’ .
82. What factors have been ignored by monopolistic competition theory? the demand by final consumers is influenced by the retail dealers because the consumers themselves are not fully aware of the technical qualities of the product.
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