Price control refers to a direct measure on the part of the Government in fixing the prices for achieving certain macro economic goals like social welfare, efficient resource allocation, prevention of exploitation of the consumers etc. The Price Control may be informal or formal. In case of informal price control the producers voluntarily agree to regulate the prices which are within limits suggested by the Government whereas under formal price control, the prices are statutorily fixed by the Government and have to be accepted by the producers. The government regulation that makes it illegal to charge a price higher than a specified level is Price ceiling. There are two types of price ceilings: one is set above the equilibrium price and one that is set underneath. The one that is set above the equilibrium has no effect because it does not constrain the market forces. The one that is set Continue reading
Economics Concepts
Definition of Inflation – Types of Inflation
Definition of Inflation Inflation is commonly understood as a situation of substantial and rapid general increase in the price level and consequent fall the value of money over a period of time. Inflation means persistent rise in the general level of prices. Inflation is a long term operating dynamic process. By and large, inflation is also a monetary phenomenon. It is usually characterized by an overflow of money and credit. In fact, the root cause of inflation is the expansion of money supply beyond the normal absorbing capacity of the economy. The behavior of general prices is measured through price indices. The trend of price indices reveals the course of inflation or deflation in the economy. Read More about Inflation: Causes and Effects of Inflation The Stages of Inflation Inflation in a Developing Economy Definition of Inflation by Different Economists There is no generally accepted definition of inflation and different Continue reading
Cost-Output Relationship
A proper understanding of the nature and behavior of costs is a must for regulation and control of cost of production. The cost of production depends on money forces and an understanding of the functional relationship of cost to various forces will help us to take various decisions. Output is an important factor, which influences the cost. The cost-output relationship plays an important role in determining the optimum level of production. Knowledge of the cost-output relation helps the manager in cost control, profit prediction, pricing, promotion etc. The relation between cost and its determinants is technically described as the cost function. C= f (S, O, P, T ….) Where; C= Cost (Unit or total cost) S= Size of plant/scale of production O= Output level P= Prices of inputs T= Technology Considering the period the cost function can be classified as (1) short-run cost function and (2) long-run cost function. In Continue reading
Gross National Product (GNP)
Gross National Product (GNP) may be defined as the aggregate market value of all final goods and services produced during a given year. The concept of final goods and services stands for finished goods and services, ready for consumption of households and firms, and exclude raw materials, semi-finished goods and such other intermediary products. More clearly, all sales to households, business investment expenditure, and all government expenditures are obviously regarded as final goods. In an open economy (an economy which has economic relationship with the rest of the world in the form of trade, remittances, investment etc-all economies are open economies), Gross National Product (GNP) may be obtained by adding up: The value of all consumption goods which are currently produced The value of all capital goods produced which is defined as Gross Investment. Gross Investment, in the real sense, here implies the increase in inventories plus gross products of Continue reading
Determinants of Demand
The knowledge of the determinants of market demand for a product or service and the nature of relationship between the demand and its determinants proves very helpful in analyzing and estimating demand for the product. It may be noted at the very outset that a host of factors determines the demand for a product or service. In general, following factors determine market demand for a product or service: Price of the product Price of the related goods-substitutes, complements and supplements Level of consumers income Consumers taste and preference Advertisement of the product Consumers expectations about future price and supply position Demonstration effect or ‘bend-wagon effect’ Consumer-credit facility Population of the country Distribution pattern of national income. These factors also include factors such as off-season discounts and gifts on purchase of a good, level of taxation and general social and political environment of the country. However, all these factors are not Continue reading
The Concept of Supply
Like the term ‘demand’, the term ‘supply’ is also often misused in the ordinary language. Supply of a commodity is often confused with the ‘stock’ of that commodity available with the producers. Stock of a commodity, more or less, will equal the total quantity produced during a period less the quantity already sold out. But we know that the producers do not offer whole of their stocks for sale in the market, a part of industrial produces is kept back in godowns and is offered for sell in the market when it can fetch better prices. In other words the amount offered for sale may be less (or at the most in rare circumstances equal to) than the stocks of the commodity. The term ‘supply’ shows a relationship between quantity and price. By supply we mean various quantities of a commodity which producers will offer for sale at a particular Continue reading