Economic dualism refers to the existence of a developed sector side by side with an under developed or undeveloped sector. We will come across the co-existence of sophistication and primitive characteristics in every walk of life. For example, in the urban areas, one will find the use of modem technology in the production field as well as households, while in the rural areas, the age old, antiquated techniques will be used in the production as well as in households. This dualism retards economic growth. That is, the subsistence sector in the rural areas will pull down whatever little economic progress is achieved with the developed and modem sector. Further in the urban areas, one can come across the existence of dualism, in every activity. For instance there will be modern, technologically sophisticated industries existing side by side with industries with labor intensive and poor technology. There will be high wage Continue reading
Economics Basics
Deflation – Meaning, Effects and Modes of Control
When prices are abnormally high, termed as inflation, it is indeed desirable to have a fall in prices. Such a fall in the price level is good for the community, as it will not lead to a fall in the level of production or employment. The process designed to reverse the inflationary trend in prices, without creating unemployment, is generally known as disinflation. But if prices fall from the level of full employment, then income and employment will be adversely affected and this situation is termed as deflation. Effects of Deflation The following are the adverse effects of deflation: On production: Deflation has an adverse effect on the level of production, business activity and employment. During deflation, prices fall due contracting demand for goods and services. Fall in price results in losses and sometimes forcing many firms to go into liquidation. In the face of declining demand for goods, firms Continue reading
Steps in Demand Forecasting
Demand or sales forecasting is a scientific exercise. It has to go through a number of steps. At each step, you have to make critical considerations. Such considerations are categorically listed below: 1) Nature of forecast: To begin with, you should be clear about the uses of forecast data- how it is related to forward planning and corporate planning by the firm. Depending upon its use, you have to choose the type of forecasts: short-run or long-run, active or passive, conditional or non-conditional etc. 2) Nature of product: The next important consideration is the nature of product for which you are attempting a demand forecast. You have to examine carefully whether the product is consumer goods or producer goods, perishable or durable, final or intermediate demand, new demand or replacement demand type etc. A couple of examples may illustrate the importance of this factor. The demand for intermediate goods like Continue reading
Managers and Selection of Proper Forecasting Technique
The increasing complexities of the business environment together with the changing demands and expectations, implies that every organization needs to know the future values of their key decision variables. In virtually every decision they make, executives today consider some kind of forecast. In any organization, managers play a significant role in implementing Forecasting techniques. Forecasting takes the historical data and project them into the future to predict the occurrence of uncertain events. Forecasting serves as a self-assessment tool for the company. To handle the increasing variety and complexity of managerial forecasting problems, many forecasting techniques have been developed in recent years. Each has its special use, and care must be taken to select the correct technique for a particular application. The manager as the forecaster has a role to play in technique selection; and the better he understands the range of forecasting possibilities, the more likely it is that a Continue reading
Trade-Off Between Equity And Efficiency
In any society at any point of time all the resources would be relatively scarce. We cannot have whatever we want. We need to decide our priorities and then distribute the resources. In such a situation we need to take into consideration goals of efficiency and equity (sense of fairness). If the distribution of resources or goods in an economy is fair between different members of the society, it indicates equity. Efficiency is making the best out of scarce resources at the best possible price. Efficiency refers to the size of economic resource and equity refers to how this economic resource is distributed. When the resources are distributed we will be faced with a trade-off between efficiency and equity. This trade off is a central principle in economics. The best example of trade-off between equity and efficiency can be explained with environmental policy of the government. Who gets the most Continue reading
Income Elasticity of Demand – Concept and Types
The income elasticity of demand shows the responsiveness of quantity demanded of a certain commodity to the change in income of the consumer. The income elasticity of demand is also defined as the ratio of the percentage change in the demand for a commodity to the percentage change in income. Income elasticity of demand can be expressed as follows: Income elasticity (ey) = Percentage change in quantity demanded / Percentage change in income For example, consumer’s income rises from $ 100 to $ 102, his demand for good X increases from 25 units per week to 30 units per week then his income elasticity of demand X is: ey = 5/25 x 100/2 = 10. It means that 1 percent increase in income results 10 percent increase in demand and vice versa. The income elasticity may be positive or negative or zero depending upon the nature of a commodity. As a Continue reading