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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 PARTICIPANTS mobile : 91+9414430763

2. My words... Build your competency in different aspects relating to business and management. Here we give introductory ideas on economics. Go with positive spirit. Please pass this presentation to all those who might need it. Let us spread knowledge as widely as possible. I welcome your suggestions. I also request you to help me in spreading social entrepreneurship across the globe – for which I need support of you people – not of any VIP. With your help, I can spread the ideas – for which we stand....

3. What is autonomous demand vs derived demand ? When demand derives from demand of other goods, it is called derived demand. But when demand derives on its own, it is called autonomous demand. Example : sale of tyres is derived demand, as it depends on sale of automobiles, but sale of automobiles is autonomous demand.

4. What is the short run demand v/s long run demand ? When we are considering time frame, there are two time frames : 1. short run – in this period only one factor of production can be variable. 2. long run : in this all the factors of production are variable. In the long run, the demand and supply will match, but in short run there is a possibility that due to only one factor being variable (labour), there is a possibility of mismatch.

5. Which is the best option? Consumer surplus is most accurately defined as the difference between the: A) value consumers are willing to pay for an additional unit of good or service and the cost of producing the additional unit of the good or service. B) total value consumers place on the quantity of a good purchased, and the total amount they must pay for that quantity. C) price that a consumer must pay for an additional unit of a good or service and the cost of producing the additional unit of the good or service.

6. Answer : Consumer surplus means the difference between what consumer is paying and what he is getting. If consumer is getting benefit (utility) of 100, but is paying only 40, there is consumer surplus of 60. Consumer will buy only till there is consumer surplus. It is based on the utility theory. So answer is B

7. Which is the best option? The minimum supply price, the lowest price at which a producer is willing to supply an additional unit of a good, is: A) the price at which producer surplus is maximized. B) less than the marginal revenue for the additional unit. C) the marginal cost of producing the additional unit. Answer : = c

8. Explanation Producer will supply the goods till the price he gets is equal or more than the marginal cost. If the marginal revenue is less than marginal cost, then the producer will stop

9. Which is the best option? Which of the following conditions exists when the economic gain to society is maximized? A) The sum of consumer and producer surpluses for a good or service is maximized. B) The price and quantity for a good or service is such that producer surplus equal zero. C) The price and quantity for a good or service is such that consumer and producer surpluses are equal.

10. Answer a. both should be maximised – consumer surplus and producer surplus consumer surplus is when the conumer is able to get move value than price paid producer surplus is when the priced received is more than the cost.

11. Good W requires the inputs of raw material R and intermediate goods S and T. Good X requires the inputs of raw material R and intermediate goods U and V. If demand for Good W increases and demand for Good X decreases, which of the following outcomes is least likely? A) More resources will be devoted to producing Good W and less to producing Good T. B) Some of raw material R will be diverted away from the producers of Good X. C) The price of Good U will decrease and the price of Good S will increase. Answer = a

12. Which is the market condition which gives maximum possibility for product differentiation? Options : 1. perfect 2. monopoly (single seller) 3. monopolist 4. oligopoly answer : 3 monopolistic competiton = many sellers selling differentiated products

13. Which is the market condition, when the no seller can change the price ? Perfect market

14. Which is the market condition where the firm can earn abnormal profit even in long run? Monopoly

15. Which is the market, in which average cost is equal to average price – generally? Perfect market

16. Which is the market where average revenue is equal to marginal revenue ? Perfect market

17. Which is the market, where there is disincentive for price change ? Oligopoly

18. Which is the market condition, where there is only one buyer ? Monopsony

19. What is law of demand ?

20. What is inductive method of study ? Here we proceed from general to particular it is also called priori method

21. What is deductive method of study ? Here we proceed from particular to general

22. Is economics an art ? ART = where constant practice produces good results, where we use our knowledge base for the development of the world through practice based on some principles example : painting yes economics is also an art to some extent.

23. Is economics a positive science? Positive science = science which has physical properties to check out. Here we are actually able to see the result between cause and effect Examples : physics etc. Example : law of gravitation – drop a ball, and you can see the cause and effect relationship no economics is not a positive science – because it is difficult to prove cause and effect relation here as in physics or other sciene

24. Is economics a normative science? Normative science = what is ideal, what should be there norm = what should be there it tells you about what should be there as a norm. yes, economics is normative science to some extent

25. Law of demand .... Demand is dependent variable and price is independent variable, demand is depemdent on price. When prices will increase, demand will fall and vice versa (other things remain same). What are other things : 1. prices of substitute goods 2. prices of complementary goods 3. income of the consumer 4. taste, preferences 5. govt. Policy etc.

26. Are there any exceptions to the law of demand ? Yes 1. inferior goods (giffin goods) – when people cant buy normal goods, they buy inferior goods – so when prices increase, the demand of inferior goods will increase further and vice versa 2. luxury goods / status symbols : their demand will increase with increase in prices – they are baught for their price tags 3. speculation

27. What are the methods of demand forecasting ? 1. quantity based (quantitative) 2. qualitative

28. What are quantitative methods ? Here we use data to predict the future. These methods are widely used. The data must be based on normal distribution properties. Thus if data are based on normal distribution properties, we can apply formula for predicting the future. Examples : 1. trend analysis 2. moving average 3. time series analysis (with many methods like logit, probit etc. ) 4. graphical analysis etc. Here we can use many softwares like EXCEL, EVIEWS, SPSS etc.

29. What are the 4 components of time series ? 1. trend 2. seasonality 3. cyclical pattern 4. random fluctuations

30. What is exponential smoothing ? It is also just similar to time series analysis here more weightage is given to recent data in comparison to old data. Here the independent factor is time and the dependent factor is whatever we are trying to measure – for example FDI inflows

31. Barometric forecasting Here we are using different types of indictors, for example : 1. lagging indicator 2. coincident indicators 3. leading indicators 4. composite indicators 5. diffusion indicators

32. What are indicators? It is a data that helps you in predicting future. For example, if there is sudden increase in demand of steel – it indicates that real estate sector might rise indicator = a pointer

33. What is leading indicator? These types of indicators signal future events. Example : increasing inflation is an indicator of falling share prices

34. What is lagging indicator? A lagging indicator is one that follows an event.

35. What are coincident indicators ? These indicators occur at approximately the same time as the conditions they signify. Co + incident = happening together

36. What are qualitative forecasting methods ? They rely on subjective data rather than on objective data. Examples : 1. expert opinion 2. delphi 3. focus group discussion 4. nominal group technique etc.

37. Expert opinion / delphi Here we ask experts to predict the demand and we write down their prediction. In delphi method, there is little change. Here we ask a number of experts to give opinion. We prepare a summary of their prediction and find the average prediction. Then we ask them to revise again their prediction on the basis of the averge prediction (experts dont know each other – so they are giving their individual opinion).

39. What are the different sectors? Private sector : for profit (includes public limited companies ) Public sector : where govt. Owns more than 50% equity (includes PSUs, departmental undertakings also) Joint sector (where both private and Govt sector have together set up unit) Non-profit sector (NGOs / VOs, not for profit units and Sec. 25 companies )

40. What are the different forms of organisations? Partnership partnership (limited) cooperative corporation society trust Non-profit units

41. What are the objectives of a firm ? Maximisation of value of the firm = (maximise the present value of all future cash inflows related to the firm net of cash outflows) maximise revenue / sales / growth

42. What is opportunity cost principle? Every firm has constraints like resource constraint etc find out the best use of resources. If you use resource in some sector, their next best use is called opportunity cost. For example : if you invest 1000 in business, if you had invested them in bank you would have got 10%, which is the opportunity cost.

43. What is production possibility curve ? You have limited resources. Suppose you have 100 units of resources. You can make 100 units of rice or 100 units of wheat or 50 units of rice and 50 units of wheat. Thus there are different possibilities which can be plotted on a graph. This graph is called production possibility curve. Thus production possibility curve tells you the different possibilities of production. It can be drawn with reference to nation also. With our limited resources, either we can make Nuclear bomb or make Schools - we have to decide what to make

44. What is cost function ? Cost is a function of factors like : (price, output, technology, plant size, management effectiveness etc. )

45. What are the approaches to measure cost ? 1. accounting – here we take up only historical cost 2. economics – here we take up opportunity cost also, we also look at social cost and benefits 3. engineering – here we use direct relation of inputs to outputs – thus it is more of direct cost only 4. econometrics – here we use statistical models for cost estimation

46. What are the steps in cost functions? 1. identify determinants of costs (like inputs, labour etc.) 2. prepare cost function 3. apply regression formula to estimate cost

47. Linear cost function ? Here there is a direct (straight line) relation between inputs and cost TC = A + BQ TC = total cost A = intercept (minimum fixed cost) B= slope Q = quantity (of material)

48. Quadratic cost function TC = A + BQ+ CQ^2 TC = total cost A = intercept (minimum fixed cost) B= slope Q = quantity (of material) C = Relation of the variables

49. Cubic cost function TC = A + BQ+ CQ^2+DQ^3 TC = total cost A = intercept (minimum fixed cost) B= slope Q = quantity (of material) C = Relation of the variables

50. How can regression analysis help you ? There are two variables – dependent and independent Regression analysis can help you in projecting the demand / future state on the basis of trend of the data. Here we use the basic equation : Y = A + BX Y = dependent variable X = independent variable A = intercept , B = slope

51. What is decision tree? Find out all the possibilities relating to decisions. The decision tree shows the possibilities and their outcomes in the form of a decision tree. We have to undertake uncertainity analysis before taking a decision. Coca Cola launched new Coke in May 1985, but had to withdraw it. They didnt analyse the consequences and the customer reaction properly.

52. What is FISHER'S theory about money ? MV = PT m=total quantity of money v= velocity of money p=average prices t=total number of units thus inflation will increase if either M or V increae or T decrease

53. What is CAMBRIDGE theory of prices ? P= KR / M p = prices (purchasing power of money) k = proportion of real resources / money that people want to keep with them for liquidity r = real resources of the society m = legal tender (money supply with the public) Purchasing power will fall if M will increase and vice versa

54. What is CD Ratio ? CASH DEPOSIT RATIO : how much cash the banks keep agaist deposits. Lower CD ratio means the banks can give more loans and thus they have greater liquidity CD ratio depends on RBI (central bank), Govt. Policy, financial position of the bank, overall confidence in the depositors etc.

55. What is first line of defence ? When banks take deposits from public, they keep a part of it with them. This is called first like of defence. It is very low – usually 3-10% of deposit. Banks also keep some short term securities (near money ) : they are called 2 nd line of defence. Bank also keep some long term investments / securities -which are called 3 rd line of defence

56. Is there conflict between objectives of liquidity and the objective of profitability? Yes, as per the first, the banks have to keep huge CD ratio and maintain lot of cash. According to 2 nd idea – the bank should give more and more loan - thus CD ratio should be low – thus profitability will increase. Banks have to find a good balance between these 2 principles.

57. How do banks Create Credit ? Banks are actively involved in credit creation. A bank will give loans on the basis of deposits. When those who take loan, deposit their money or they make payment, but their creditor deposits the money, the moneey, is agian used for giving loans – thus this cyclical process starts. It is called credit creation.

58. What are functions of money ? There are 4 basic functions : 1. exchange 2. standard for deferred payment 3. value 4. store

59. What are 3 methods of measuring national income ? 1. total of product (total production in country) 1. total of income 3. total of expenditure

60. In expenditure, what are the 3 main heads of expenses ? 1. household 2. government 3. capital formation (purchase of assets etc.)

61. Can you tell when were industrial policies allowed, which one was the best? Industrial policies were announced in 1948,56,77,80,90,91 the best one is 1991 – which introduced Liberalisation, privatisation and globalisation in India

62. Which of these is necessary condition in equilibrium ? 1 AR = AC 2. MR = MC 3. AR = MR answer : MR=MC Is a necessary condition for equilibrium. AR=MR is possible only in perfect market. AR=AC is possible when the firm is at BEP level. But in case of equilibrium, MR=MC is the necessary condition.

63. What is perfect competition? There are infinite number of buyers and sellers There are homogenous proudcts There is perfect mobility of resource there are no entry or exit barriers MR = AR no company can set price – prices are determined purely on the basis of demand and supply any seller can sell any quantity at given price and any buyer can buy any quantity at given price. No individual seller / buyer can influence price

64. What is imperfect market ? It is mainly of 3 types : 1. monopolistic competition 2. monopoly 3. oligopoly (or duopoly) a few more types are also there, but they are not very popular

65. What is monopoly ? When there is only one seller he can undertake price discrimination easily he can sell at any price – earn supernormal profit Here prices are reduced to increase the sales volume – so AR and MR are falling and MR falls more than AR (in graph) in order to sell more, you have to reduce price, so MR falls

66. What is oligopoly / duopoly ? When there are 2 or a few sellers, it is called oligopoly or duopoly oligo = few duo = two there is kinked demand curve in the case of oligopoly if one firm reduces the price, others will also reduce, so there is no benefit of reduction in price, if one firm increases prices, customers will switch over to competitor, so again there is no advantage. Thus companies dont change price frequently and there is an artificial balance in the market.

67. What is a monopolistic competition ? When there are a large number of sellers selling differentiated products, it is called monopolistic competition. Each seller has its own customers (due to brand, differentiation, and publicity). Monopolistic competition has graph similar to that of monopoly (in order to sell more, you have to reduce prices, so AR & MR are falling.

68. What is the market where there are only a few sellers? Oligopoly

69. What is the law of supply ? Q = f(p,c,t) Q = quantity of supply f=function p=price c=cost t=technology thus quantity supply depends on 3 factors : price, cost, and technology.

70. What is the relation between prices and supply ? There is a direct positive relationship Supply will go up when prices go up.. Similarly, when prices fall, supply will also fall.

71. What is the law of demand? There is inverse relation between price and demand. If price will increase, demand will decrease. (if other factors remain the same) The determinants of demand are : 1. price, 2. income, 3. taste and preferences 4. price of substitute goods 5. price of complementary goods

72. What is elasticity of demand ? It shows the quantum of change in demand in response to change in price. Suppose price increase 10%, demand falls 10%, there is equal relation between these two – thus this is unit elasticity elasticity can be of 5 types : 1. perfectly elastic 2. highly elastic 3. unit elastic (elasticity is = 1), 4. inelastic 5. completely inelastic

73. What is perfectly elastic demand ? A slight change in price results into huge (very high) change in demand

74. What is completely inelastic demand ? There is no change in demand in response to any change in price. Example : price of essential medicines may rise, but the demand will remain the same.

75. What is elastic / relatively inelastic demand When elasticity is more than 1, it is relatively elastic demand when elasticity is less than 1, it is relatively inelastic demand C

76. How to measure elasticity ? There are many methods : 1. formula = % change in demand / % change in price 2. arc 3. graph etc.

77. What is income elasticity ? % change in demand in response to % change in income of the consumer is called income elasticity of demand

78. What is cross elasticity ? % change in demand in response to % change in price of some other good is called cross elasticity example : price of tea increased by 10% but due to this demand of coffee increased by 15%. it can be from substitute or complementary goods

79. What is advertising elasticity ? % change in demand in response to % change in advertisement wha

80. How to estimate demand ? There are many methods – correlation regression, moving average

81. What is isoquant ? Iso=equal quant = quantity example : 2 units of labour and 7 units of capital give output of 5 units and 7 units of labour and 3 units of capital also give 5 units of output. Can we put them on a graph ? Yes – this will be called isoquant. On a graph, ISOQUANT has infinite number of points and there are infinite number of isoquants on a graph.

82. What is the shape of ISOQUANT? It is covex to origin when you substitute a product by another – it cant substitute completely and therefore for substitution, you require increasingly more quantity of the other input. MRTS = marginal rate of technical substitution rate at which you can substitute the inputs

83. What are the inputs ? There are 2 inputs : 1. labour 2. capital (including plant, machine , building etc.) MRTS for capital = change in capital / change in labour

84. Example of MRTS ? L = Labour K=capital O=output 10L+10K = 17 O 15L+9K=17O (here you can see that for substituting 1 unit of capital, you have to use 5 units of labour) 24L+8K=17O (here MRTS = 9, it will continue to increase) (thus after some time, this substitution becomes uneconomical and unprofitable).

85. What is economic region of production ? We can see from MRTS that substitution of one input by another is uneconomical – and after some time it becomes un-viable. Thus there is a range of inputs within which you can get best productivity and results. So you must use that combination of inputs only. This range is called economic range of production.

86. What is price discrimination? When a seller charges two different prices in two different markets, it is called price discrimination.

87. When should price discrimination be done ? When price elasticity is different in different market, price discrimination should be done to maximise revenues. Some times, due to government policy, or due to competition or due to social welfare purpose, price discrimination is done.

88. What are the essential conditions for price discrimination? The two markets must be distinct. There should not be any possibility that the customer of one group can switch over to the other group. There should be clear, distinct criteria for discrimination. Discrimination should not result in customer discontent and it should generate more sales in comparison to the previous situation.

89. Examples of price discrimination based on demographic factors When you travel in railway – you notice, the fair is different for different people – elderly persons have to pay less (above 60), similarly physically challenged person has to pay less in Railway

90. Price discrimination based on geographic factors .. One ceramics company charges higher price in south India in comparison to North India.

91. Price discrimination based on govt. Policy / scheme / social welfare measures .. Companies sell at lower price to CSD depot in comparison to the open market further, due to diffferent rates of taxes, CSD depot are able to sell at lower price in comparison to general market.

92. Relation with price elasticity ... If you are selling in a market which has low price elasticity – it is better to charge higher price if you are selling in a market which has higher price elasticity – it is better to sell at lower price.

93. What are the different degrees of price discrimination? 1 st degree : based on the ability of consumer 2 nd degree : based on some rational basis - volume or quantity etc. 3 rd degree – market segmentation – different prices in different markets

94. Example of 1 st degree price discrimination? A doctor charging different fees from different customers

95. Example of 2 nd degree price discrimination? MOBILE COMPANIES : go for long call – pay less per second. Go for short call – pay more per second

96. Example of 3 rd degree price discrimination? Railway : different prices for senior citizens

97. What is peak load pricing ? Did you notice IDEA scheme for mobile use – pay less when you call during night (most mobile company charge less for night call) when they find that there is less use of their resources, they charge in such a way that they are able to collect revenue throughout the period. Airlines companies charge less during off season.

98. What is bundling? When a company offers a number of products as bundle – it is called bundling. Suppose you take product X, you also have to buy Y with it. Bundling can be of various types : 1. one + one free 2. coupon 3. mixed bundling – you can buy individual product also – but joint product will cost you less 4. tying – buy X – but you will have to buy Y also for successful working

99. Why do companies go for bundling ? To sell slow moving items to promote their products in the markets which dont give good response to attract new customers to encourage customers to try out new products etc.

100. What is TWO PART TARIFF? Here revenue comes in 2 parts. Example : when you buy a DTH – you pay initially for instrument, later you pay per month for channels. Telecom companies : pay for sim + pay for usages

102. Download links for material on English http://www.scribd.com/doc/6583315/English-Improvement-Afterschoool http://www.scribd.com/doc/6583518/English-20-May-Afterschoool http://www.scribd.com/doc/28531795/Mock-Paper-Cat-Rmat-Mat-Sbi-Bank-Po-Aptitude-Tests

103. Links http://www.scribd.com/doc/14647398/English-Improvement-and-Word-Power http://www.scribd.com/doc/14660508/General-Knowledge-24-May-3 http://www.scribd.com/doc/19628963/Mathematics http://www.scribd.com/doc/19492878/Direct-and-Indirect-Speech-in-English

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105. ADDITIONAL LINKS http://www.scribd.com/doc/11692763/Advanced-Mathematics-for-GMAT-CAT-MAT http://www.scribd.com/doc/23407929/Advanced-Mathematics-for-GMAT-CAT-MAT http://www.scribd.com/doc/11625819/Basic-Mathematics-for-Cat-GMAT-Mat http://www.scribd.com/doc/23407954/mathematics-for-OPENMAT-MAT-CAT-GMAT-25-april http://www.scribd.com/doc/23407934/Advanced-Mathematics-for-GMAT-CAT-MAT2 http://www.scribd.com/doc/6583520/English-Afterschoool-21-May-2 http://www.scribd.com/doc/23300964/Advanced-Mathematics-for-GMAT-CAT-MAT2 http://www.scribd.com/doc/23407945/MATHEMATICS-FOR-ATMA-CAT-MAT-GMAT-BANK-PO-GRE

106. http://www.scribd.com/doc/6583303/Reasoning-Afterschoool

107. http://www.scribd.com/doc/23393680/REASONING-AFTERSCHOOOL http://www.scribd.com/doc/23393719/reasonning-44 http://www.scribd.com/doc/6583347/DI-and-Reasoning http://www.scribd.com/doc/23407636/10-July-reasoning http://www.scribd.com/doc/6583273/Reasoning-Quiz http://www.scribd.com/doc/23393476/10-July-reasoning http://www.scribd.com/doc/23393716/REASONING-QUIZ http://www.scribd.com/doc/14705025/17-Reasoning-II http://www.scribd.com/doc/23393478/10-July-reasoning-II

108. http://www.scribd.com/doc/23393316/general-knowledge http://www.scribd.com/doc/23609752/Group-Discussion-Afterschoool http://www.scribd.com/doc/6583547/General-Knowledge-24-May

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