UNIT : 1.

1 NATURE AND
SCOPE OF BUSINESS ECONOMICS

Business Nature of Business

Economics may A few areas that Microeconomics Macroeconomics
be defined as
A few areas come under Macro Economics applied to applied to
that come Economics are: operational or environmental or
the use of under Micro • Nature of Business
internal Issues external issues
economic Economics are: • National Income
Economics .
analysis to make and National • Based on Micro
business • Product pricing Output; Economics.
• Consumer • The general price • Incorporates elements • Demand analysis • the type of economic
decisions behavior; level and interest of Macro Analysis. and forecasting. system.
involving • Factor pricing; rates; • Business Economics is • Production and • stage of business cycle
the best use of • The economic • Balance of trade
an art. Cost Analysis . • the general trends in
conditions of a and balance of
an organization’s payments;
• Use of Theory of • Inventory national income,
section of
scarce • External value of Markets and Private Management . employment, prices,
people;
Enterprises. • Market saving and investment.
resources. • Behavior of currency;
firms; and • The overall level of • Pragmatic in Approach. Structure and • price policy, foreign
• Location of savings and • Interdisciplinary in Pricing Policies. trade policy and
Micro investment; and nature. • Resource globalization policies.
industry .
• The level of Allocation. • working of financial
Economics • Normative in Nature.
employment and
• Theory of Capital sector and capital
rate of economic
growth. and Investment market.
Subject Decisions. • socio-economic
matter of • Profit Analysis. organizations like trade
• Risk and unions, producer and
economics Uncertainty consumer unions and
Macro
Analysis. cooperatives.
Economics
 UNIT :1.2 BASIC PROBLEMS OF AN
ECONOMY ROLE OF PRICE MECHANISM
How do capitalist
characteristics of Features of mixed
Central Economic economies solve
economy
What provision their central this economy
Problems (if any) are to problems? • Collective ▪ Co-existence of
For whom private and public
be made for ▪ Deciding ‘what to Ownership.
to sector .
How to economic produce’ ? • Economic
▪ In fact, in a mixed
produce ? produce? growth? ▪ Deciding ‘how to planning. economy, there are
What to produce’? • Absence of three sectors of
produce ? ▪ Deciding ‘for Consumer industries:
whom to
Choice. ❖ Private sector
produce’? ❖ Public sector
is an economic system in ▪ Deciding about • Relatively Equal
❖ Combined sector
we divide all the economies into

which all means of production consumption, Income

Capitalist economy are owned and controlled by saving and Distribution.
three broad classifications

private individuals for profit. Mixed economy

investment. • Minimum role
has the following
of Price
In this economy, the material means of merits:
Mechanism or
production i.e. factories, capital, mines etc. are • Economic freedom
owned by the whole community represented Market forces.
and existence of
Socialist economy by the State . A socialist economy is also called • Absence of private property.
as “Command Economy” or a “Centrally Competition. • Price mechanism and
Planned Economy” . competition forces .
• consumers’
The mixed economic system depends on both sovereignty and
markets and governments for allocation of resources. freedom of choice.
Mixed economy In fact, every economy in the real world makes use • Encourages
enterprise and risk
of both markets and governments and therefore is
taking.
mixed economy in its nature .
 UNIT : 2.1 THEORY OF DEMAND AND
SUPPLY

The concept ‘demand’

Effective demand for a According to the law of demand, other things being equal, if the price of a commodity falls, the
thing depends on : quantity demanded of it will rise and if the price of a commodity rises, its quantity demanded
refers to the quantity of
will decline.
a good or service that a. desire
consumers are willing b. means to purchase
and able to purchase at
Demand Schedule Market Demand Schedule
c. willingness to use
various prices during a
those means for that
given period of time.
purchase

Two things are to be noted about the quantity

demanded

A. The quantity demanded is always expressed at a

given price.
B. The quantity demanded is a flow.

The important factors that determine demand

are :

a. Price of the Commodity

b. Consumers’ Expectations
c. Other Factors
d. Tastes and preferences of consumers
e. Income of the consumers
f. Price of related commodities
 Rationale of the Law of Demand Exceptions to the Law Elasticity measures, meaning and
of Demand nomenclature
Law of diminishing marginal
• Conspicuous goods. Numerical
utility Verbal description Terminology
• Giffen goods measure of
elasticity
• Conspicuous necessities.
Quantity demanded does not Perfectly (or
Price effect • Future expectations
about prices . Zero change as price changes completely)
inelastic
a. Substitution effect • Demand for necessaries
b. Income effect
Greater Quantity demanded changes by
• Speculative goods. than zero, a smaller percentage than does Inelastic
but less price
• consumers to be
than one
Arrival of new consumers rational and
knowledgeable about Quantity demanded changes by Unit
market conditions. One exactly the same percentage as elasticity
does price.
Different uses 𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚 Greater Quantity demanded changes by
×𝟏𝟎𝟎 than one, a larger percentage than does elastic
𝑶𝒓𝒊𝒈𝒊𝒏𝒂𝒍 𝑸𝒖𝒂𝒏𝒕𝒊𝒕𝒚
EP = but less than
price
𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝑷𝒓𝒊𝒄𝒆 ×𝟏𝟎𝟎
Elasticity of demand is defined as the responsiveness of 𝑶𝒓𝒊𝒈𝒊𝒏𝒂𝒍 𝑷𝒓𝒊𝒄𝒆 infinity
the quantity demanded of a good to changes in one of In symbolic terms :
Purchasers are prepared to buy Perfectly
the variables on which demand depends. More precisely, (or
elasticity of demand is the percentage change in quantity ∆𝑞 𝑝 ∆𝑞 𝑝 Infinity all they can obtain at some price
and none at all at an even infinitely)
demanded divided by the percentage change in one of 𝐸𝑃 = × = ×
the variables on which demand depends.
𝑞 ∆𝑝 ∆𝑝 𝑞 slightly higher price elastic
Interpretation of the numerical
Determinants A rightward shift in the A leftward shift in the
values of elasticity of demand of Price demand curve (when more is demand curve (when less is
demanded at each price) can be demanded at each price) can be
Elasticity of caused by a rise in income, a caused by a fall in income, a fall
Demand rise in the price of a substitute, in the price of a substitute, a
rise in the price of a
a fall in the price of a
▪ Availability of complement, a change in tastes complement, a change in tastes
substitutes in favour of this commodity, an against this commodity, a
increase in population, and a decrease in population, and a
▪ Position of a redistribution of income to redistribution of income away
commodity in a groups who favour this from groups who favour this
consumer’s commodity. commodity.
budget
▪ Nature of the
need that a
commodity
satisfies
▪ Number of uses
to which a
commodity can
be put.
▪ Time period
▪ Consumer habits
▪ Tied demand
▪ Price range
Income Elasticity
Cross Elasticity of Demand
of Demand
Advertisement Elasticity
Price of Related Goods and Demand
% 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒅𝒆𝒎𝒂𝒏𝒅
%𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒊𝒏𝒄𝒐𝒎𝒆 EA =
Substitute Products Complementary Goods % 𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒅𝒆𝒎𝒂𝒏𝒅
This can be given % 𝒄𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒔𝒑𝒆𝒏𝒅𝒊𝒏𝒈 𝒐𝒏 𝒂𝒅𝒗𝒆𝒓𝒕𝒊𝒔𝒊𝒏𝒈
mathematically as
follows:
∆𝑸𝒅 /𝑸𝒅
EA =
∆𝑸 ∆𝒀 ∆𝑨/ 𝑨
Ei = ÷ Where
𝑸 𝒀
▪ ∆Qd denotes change in
∆𝑸 𝒀 demand.
× ▪ ∆A denotes change in
𝑸 ∆𝒀 expenditure on advertisement.
Qd denotes initial demand.
∆𝑸 𝒀 ▪ A denotes initial expenditure on
×
∆𝒀 𝑸 advertisement.
 DEMAND FORECASTING Methods of demand Forecasting Barometric
method of
Controlled
forecasting
Experiments
Statistical
Types of forecasts Expert
methods Factors affecting
Opinion
the demand for
Collective producer goods
Forecasting, in general, refers to knowing or method
measuring the status or nature of an event or opinion The demand for them
Survey of
variable before it occurs. method Factors affecting the demand depends upon the rate
Buyers’ of profitability of user
for durable-consumer goods industry and the size
Intentions
• A consumer can postpone the of the market of the
Demand Distinctions Factors replacement of durable goods. user industries. Hence
These goods require special
affecting •
facilities for their use .
data required for
a) Producer’s goods and Consumer’s goods estimating demand for
b) Durable goods and Non-durable goods demand for • As consumer durables are producer goods (capital
c) Derived demand and Autonomous demand non-durable used by more than one goods) are:
d) Industry demand and Company demand consumer person, the decision to (i) growth prospects
e) Short-run demand and Long-run demand purchase may be influenced. of the user
goods • Replacement demand is an industries;
important component of the (ii) norms of
The scope of the forecasting task will depend ▪ Disposable total demand for durables. consumption of
Demand for consumer capital goods per
upon the area of operation of the firm in the
income •
present as well as what is proposed in future. durables is very much unit of installed
▪ Price influenced by their prices . capacity.
▪ Demography
 UNIT : 2.2 THEORY OF CONSUMER
BEHAVIOUR

The Law of Diminishing Marginal

MARGINAL UTILITY

Total utility
Utility
• TU= MU1+MU2+.....+MUn “The additional benefit which a person derives
from a given increase in the stock of a thing
diminishes with every increase in the stock that he
ANALYSIS

Marginal utility already has.”

important relationships between total utility and
• MUn = TUn - TUn-1 marginal utility :
▪ Total utility rises as long as MU is positive, but
at a diminishing rate because MU is
diminishing
Assumptions of Marginal
Utility Analysis ▪ Marginal utility diminishes throughout.
▪ When marginal utility is zero, total utility is
▪ Rationality maximum. It is a saturation point.
▪ Cardinal Measurability of Utility ▪ When marginal utility is negative, total utility
▪ Constancy of the Marginal Utility is diminishing.
of Money
▪ MU is the rate of change of TU or the slope of
▪ The Hypothesis of Independent
TU.
Utility
▪ MU can be positive ,zero or negative.
 Consumer’s Surplus INDIFFERENCE
Limitations of the The surplus satisfaction cannot CURVE ANALYSIS
Law Marshall defined the concept be measured precisely.
of consumer’s surplus as the An indifference curve is
▪ Homogenous units “excess of the price which a a curve which
▪ Consumer’s surplus cannot be measured
▪ Standard units of consumer would be willing to
precisely - because it is difficult to represents all those
Consumption. pay rather than go without a
measure the marginal utilities of different combinations of two
▪ Continuous thing over that which he
Consumption actually does pay”, is called
units of a commodity consumed by a goods which give same
person. satisfaction to the
▪ The Law fails in the case consumer’s surplus.”
▪ In the case of necessaries, the marginal consumer. Since all the
of prestigious goods.
Thus consumer’s surplus = utilities of the earlier units are infinitely combinations on an
▪ Case of related goods.
what a consumer is ready to large. In such case the consumer’s surplus
▪ Based on unrealistic indifference curve give
pay - what he actually pays is always infinite.
assumptions equal satisfaction to the
▪ The consumer’s surplus derived from a
consumer, the consumer
commodity is affected by the availability
of substitutes.
is indifferent among
The concept of them. In other words,
consumer’s surplus is ▪ There is no simple rule for deriving the
utility scale of articles which are used for since all the
derived from the law of
diminishing marginal their prestige value . combinations provide
utility. the law of ▪ Consumer’s surplus cannot be measured in the same level of
diminishing marginal terms of money satisfaction the
utility, the more of a ▪ The concept can be accepted only if it is consumer prefers them
thing we have, the lesser assumed that utility can be measured in equally and does not
marginal utility it has. terms of money or otherwise. mind which combination
he gets.
 Indifference Curves Properties of Indifference Curves Consumer’s Equilibrium
▪ Indifference curves slope downward to the A consumer is in equilibrium when he is deriving
right. maximum possible satisfaction from the goods and
therefore is in no position to rearrange his
▪ Indifference curves are always convex to the
purchases of goods. We assume that:
origin.
▪ The consumer has a given indifference map which
▪ Indifference curves can never intersect each shows his scale of preferences for various
other. combinations of two goods X and Y.
▪ A higher indifference curve represents a ▪ He has a fixed money income which he has to
higher level of satisfaction than the lower spend wholly on goods X and Y.
indifference curve ▪ Prices of goods X and Y are given and are fixed.
▪ Indifference curve will not touch either axes. ▪ All goods are homogeneous and divisible, and
▪ The consumer acts ‘rationally’ and maximizes his
satisfaction.
Indifference Map

An Indifference map
represents a collection of
many indifference curves
where each curve
represents a certain level
of satisfaction. In short,
a set of indifference
curves is called an
indifference map.
UNIT : 2.3 SUPPLY

The term ‘supply’ refers to the Shifts in supply curves

amount of a good or service that the
LAW OF SUPPLY –
producers are willing and able to
offer to the market at various prices
during a given period of time. The law of supply can be stated as: Other
things remaining constant, the quantity
Two important points apply to
of a good produced and offered for sale
supply:
will increase as the price of the good rises
• Supply refers to what a firm offer
and decrease as the price falls.
for sale in the market, not
necessarily to what they succeed
in selling. What is offered may When the supply of a good increase as a
not get sold. result of an increase in its price, we say
• Supply is a flow. The quantity that there is an increase in the quantity ELASTICITY OF SUPPLY
supplied is ‘so much’ per unit of supplied and there is a upward
time, per day, per week, or per movement on the supply curve. The The elasticity of supply is defined as the
year. reverse is the case when there is a fall in
responsiveness of the quantity supplied of a
the price of the good.
good to a change in its price.
DETERMINANTS OF SUPPLY – 𝑬𝑰 =
𝐏𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐪𝐮𝐚𝐧𝐭𝐢𝐭𝐲 𝐬𝐮𝐩𝐩𝐥𝐢𝐞𝐝
𝐏𝐞𝐫𝐜𝐞𝐧𝐭𝐚𝐠𝐞 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐏𝐫𝐢𝐜𝐞

• Price of the good

𝒐𝒓
Prices of related goods.
𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝒔𝒖𝒑𝒑𝒍𝒊𝒆𝒅
• 𝒒𝒖𝒂𝒏𝒕𝒊𝒕𝒚 𝒔𝒖𝒑𝒑𝒍𝒊𝒆𝒅
• Prices of factors of production. 𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝒑𝒓𝒊𝒄𝒆
• State of technology. 𝒑𝒓𝒊𝒄𝒆
• Government Policy. ∆𝒒
• Nature of competition and size of 𝒒 ∆𝒒 𝒑
= =
industry ∆𝒑 ∆𝒑 𝒒
𝒑
 UNIT : 2.3 SUPPLY

Type of Supply Elasticity -

Relatively greater-elastic
Perfectly inelastic supply Relatively less-elastic supply Unit-elastic Perfectly elastic supply
supply

Measurement of supply- Equilibrium Price

elasticity
The elasticity of supply can be Equilibrium refers to a
considered with reference to a given market situation where
point on the supply curve or between quantity demanded is
two points on the supply curve. equal to quantity
When elasticity is measured at a supplied. The intersection
given point on the supply curve, it is of demand and supply
𝒅𝒒 𝒑 determines the
called point elasticity. 𝑬𝜹 × equilibrium price.
𝒅𝒑 𝒒
 UNIT : 3.1 THEORY OF PRODUCTION

“Production is the organized activity

of transforming resources into Land Assumptions of Production Function :
¬finished products in the form of
goods and services; and the objective ▪ First we assume that the relationship between inputs
of production is to satisfy the demand and outputs exists for a specific period of time. In other
of such transformed resources”.
Labour words, Q is not a measure of accumulated output over
time.
FACTORS OF
▪ Second, it is assumed that there is a given “state-of-
Production consists of various processes PRODUCTION the-art” in the production technology. Any innovation
to add utility to natural resources for would cause change in the relationship between the
gaining greater satisfaction from them Capital given inputs and their output.
by:
▪ Third assumption is that whatever input combinations
Changing the form of natural resources. are included in a particular function, the output
resulting from their utilization is at the maximum level.
Changing the place of the resources Entrepreneurs
from a place where they are of little or
no use to another place where they are The production function is a statement Short-Run Vs Long-Run Production
of greater use. This utility of place can of the relationship between a firm’s Function:
be obtained by: scarce resources (i.e. its inputs) and the In fact, it refers to the extent to which a firm can vary
output that results from the use of these the amounts of the inputs in the production process. A
 Extraction from earth
resources. More specifically, it states period will be considered short-run period if the amount
 Transferring goods from where they technological relationship between inputs of at least one of the inputs used remains unchanged
give little or no satisfaction, to places and output. during that period.
where their utility is more, Q = f (a, b, c, d …….n) Where ‘Q’ The long run is a period of time (or planning horizon) in
 Making available materials at times
stands for the rate of output of given which all factors of production are variable. It is a time
commodity and a, b, c, d…….n, are the period when the firm will be able to install new machines
 Making use of personal skills in the form different factors (inputs) and services and capital equipments apart from increasing the variable
of services used per unit of time. factors of production.
 UNIT : 3.1 THEORY OF PRODUCTION

The relationship between average

Cobb-Douglas Production product and marginal product
Function: A famous statistical ▪ when average product rises as a result of
production function is Cobb- an increase in the quantity of variable
Douglas production function. Paul input, marginal product is more than the
average product.
H. Douglas and C.W. Cobb of the
U.S.A. studied the production ▪ when average product is maximum,
function of the American marginal product is equal to average
product. In other words, the marginal
manufacturing industries. product curve cuts the average product
Cobb-Douglas production curve at its maximum. Stage 1: The Stage of Increasing Returns: In this stage,
function is stated ▪ when average product falls, marginal the total product increases at an increasing rate upto a
as: 𝑸 = 𝑲𝑳𝒂 𝑪 𝟏−𝒂 product is less than the average product. point (in figure upto point F), marginal product also
rises and is maximum at the point corresponding to the
point of inflexion and average product goes on rising.
The law operates under certain assumptions which are as follows:
Stage 2: Stage of Diminishing Returns: In stage 2, the
▪ The state of technology is assumed to be given and unchanged. If there is any total product continues to increase at a diminishing rate
improvement in technology, then marginal product and average product may rise until it reaches its maximum at point H, where the
instead of falling. second stage ends. In this stage, both marginal product
and average product of the variable factor are
▪ There must be some inputs whose quantity is kept fixed. This law does not apply to
diminishing but are positive
cases when all factors are proportionately varied.
Stage 3: Stage of Negative Returns: In Stage 3, total
▪ The law does not apply to those cases where the factors must be used in fixed
product declines, MP is negative, average product is
proportions to yield output.
diminishing. This stage is called the stage of negative
▪ We consider only physical inputs and outputs and not economic profitability in returns since the marginal product of the variable factor
monetary terms. is negative during this stage.
UNIT : 3.1 THEORY OF PRODUCTION

PRODUCTION OPTIMISATION Isocost or Equal-cost Lines: Isocost line, also known as budget
line or the budget constraint line, shows the various alternative
combinations of two factors which the firm can buy with given
outlay.

Least-cost Combination of
Factors: Producer’s Equilibrium
UNIT : 3.2 THEORY OF COST

Accounting costs relate to those costs Cost function refers SHORT RUN TOTAL COSTS
which involve cash payments by the to the mathematical relation
entrepreneur of the firm. Thus, between cost of a product
accounting costs are explicit costs and and the various determinants
includes all the payments and charges of costs. In a cost function,
made by the entrepreneur to the the dependent variable is unit
suppliers of various productive factors. cost or total cost and the
independent variables are the
price of a factor, the size of
the output or any other
Accounting costs do not relevant phenomenon which
include these costs. has a bearing on cost, such as
▪ the normal return on money capital technology, level of capacity
invested by the entrepreneur utilization, efficiency and
himself in his own business; time period under
▪ the wages or salary not paid to the consideration. Short run Total Cost Curves
entrepreneur, but could have been
earned if the services had been sold
There are some costs which may
somewhere else.
increase in a stair-step fashion,
▪ Outlay costs and Opportunity costs.
▪ Direct or Traceable costs and
Indirect or Non-Traceable costs
▪ Incremental costs and Sunk costs.
▪ Historical costs and Replacement
costs.
▪ Private costs and Social costs.
▪ Fixed and Variable costs.
 UNIT : 3.2 THEORY OF COST

Short run average costs Internal Economies and

LONG RUN AVERAGE COST CURVE :
▪ Average fixed cost (AFC) The long run average cost curve is often
Diseconomies:
▪ Average variable cost (AVC) called as ‘planning curve’ because a firm ▪ Technical economies and diseconomies:
▪ Average total cost (ATC) plans to produce any output in the long run
by choosing a plant on the long run average ▪ Managerial economies and
▪ Marginal cost diseconomies
cost curve corresponding to the given output.
▪ Commercial economies and
diseconomies
▪ Financial economies and diseconomies
▪ Risk bearing economies and
diseconomies

Short run Average Long run Average

External Economies and
▪ Relationship between Average Cost Cost Curves Cost Curve Diseconomies:
and Marginal Cost ▪ Cheaper raw materials and capital
equipment
Production on a large scale is a very important
❖ When average cost falls as a result of an increase feature of modern industrial society. As a ▪ Technological external economies.
in output, marginal cost is less than average cost.
consequence, the size of business undertakings
❖ When average cost rises as a result of an increase ▪ Development of skilled labour
has greatly increased. Large-scale production
in output, marginal cost is more than average
cost. offers certain advantages which help in ▪ Growth of ancillary industries.
When average cost is minimum, marginal cost is reducing the cost of production. Economies
❖ ▪ Better transportation and marketing
equal to the average cost. In other words, arising out of large-scale production can be
facilities.
marginal cost curve cuts average cost curve at its grouped into two categories; viz., internal
minimum point. economies and external economies. ▪ Economies of Information
UNIT : 4.1 MEANING AND TYPES OF
MARKETS
It is essential to understand how TYPES OF MARKET
price is determined. Since this is STRUCTURES: CONCEPTS OF TOTAL REVENUE, AVERAGE
done in the market, we can define ❖ Perfect Competition: REVENUE AND MARGINAL REVENUE
the market simply as all those Perfect competition is
buyers and sellers of a good or characterised by many Average revenue Symbolically, average revenue is:
service who influence price. The sellers selling identical
AR =TR/QWhere
elements of a market are: products to many buyers.
AR is average revenue
❖ Buyers and sellers ❖ Monopolistic Competition: TR is the total revenue
❖ A product or service; It differs in only one Q is quantity of a commodity sold
❖ Bargaining for a price; respect, namely, there are
OR AR=(P×Q)/Q Or AR = P
❖ Knowledge about market many sellers offering
differentiated products to
Marginal Revenue: Marginal revenue (MR) is the
conditions; and
many buyers. change in total revenue resulting from the sale of an
❖ One price for a product or
additional unit of the commodity. MR =∆TR/∆Q
service at a given time. ❖ Monopoly: It is a situation
Where -
where there is a single
seller producing for many
MR is marginal revenue ,
In Economics, generally the buyers. Its product is TR is total revenue ,
classification of markets is made necessarily extremely Q is quantity of a commodity sold
on the basis of : differentiated since there ∆ stands for a small change
• Geographical Area are no competing sellers For one unit change in output 𝑴𝑹𝒏 = 𝑻𝑹𝒏 −𝑻𝑹𝒏−𝟏
• Time producing products which • Where TR is the total revenue when sales are at
• Nature of transaction are close substitutes. the rate of n units per period.
• Regulation ❖ Oligopoly: There are a few • TR n-1 is the total revenue when sales are at the
• Volume of business
• Type of Competition.
sellers selling competing rate of (n – 1) units per period.
products to many buyers.
UNIT : 4.1 MEANING AND TYPES OF
MARKETS
RELATIONSHIP BETWEEN AR, MR, TR BEHAVIOURAL PRINCIPLES:
AND PRICE ELASTICITY OF DEMAND
▪ Principle 1- A firm should not
produce at all if its total variable
▪ MR=AR×(e-1)/e, Where e = price costs are not met.
elasticity of demand If price (AR) is greater than minimum
AVC, but less than minimum ATC, the
▪ Thus if e = 1, MR =AR ×(1-1)/1=0.
firm covers its variable cost and some
▪ and if e >1, MR will be positive but not all of fixed cost. If price is equal
▪ and if e <1, MR will be negative to minimum ATC, the firm covers both
fixed and variable costs and earns
normal profit or zero economic profit.
Relationship between If price is greater than minimum ATC,
AR, MR, TR and Price the firm not only covers its full cost,
Elasticity of Demand but also earns positive economic profit
or super normal profit.
• Principle 2 - The firm will be
making maximum profits by
expanding output to the level
where marginal revenue is equal
to marginal cost.
In other words, it will pay the firm
to go on producing additional units of
output so long as the marginal
revenue exceeds marginal cost i.e.,
additional units add more to
revenues than to cost. At the point of
equality between marginal revenue
and marginal cost, it will earn
maximum profits.
 UNIT : 4.2 DETERMINATION OF
PRICES
Prices of goods express their
CHANGES IN DEMAND AND SUPPLY
exchange value. Prices are also An increase (shift to
used for expressing the value of An increase (shift to A decrease (shift to the left) in
the right) in demand; the right) in supply; supply.
various services rendered by
different factors of production
such as land, labour, capital
and organization in the form
of rent, wages, interest and
profit.

Determination of Equilibrium Price

Simultaneous Changes in Demand and Supply

A decrease (shift to
the left) in demand;
 UNIT : 4.3 PRICE-OUTPUT DETERMINATION
UNDER DIFFERENT MARKET FORMS

PERFECT COMPETITION Price Determination under Perfect Competition OLIGOPOLY

▪ There are large number of Equilibrium of the Industry: An Equilibrium of the Firm: The firm Oligopoly is an important
buyers and sellers who industry in economic terminology is said to be in equilibrium when it
consists of a large number of maximizes its profit. The output form of imperfect
compete among themselves. independent firms. Each such unit in competition. Oligopoly is
which gives maximum profit to the
▪ The products supplied by all the industry produces a homogeneous firm is called equilibrium output. In often described as
product so that there is competition the equilibrium state, the firm has
firms are identical or are amongst goods produced by different ‘competition among the few’.
homogeneous in all respects no incentive either to increase or
units. decrease its output. Prof. Stigler defines oligopoly
so that they are perfect as that “situation in which a
substitutes.
firm bases its market policy,
▪ Every firm is free to enter in part, on the expected
the market or to go out of behaviour of a few close
it. rivals”.
▪ There is perfect knowledge
of the market conditions on Types of Oligopoly:
the part of buyers and Conditions for equilibrium of a firm: ✓ Pure oligopoly or perfect
sellers. oligopoly
▪ The marginal revenue should be equal to the marginal cost. i.e. MR = MC. If
▪ Perfectly competitive MR is greater than MC, there is always an incentive for the firm to expand ✓ Open and closed oligopoly
markets have very low its production further and gain by selling additional units. If MR is less than
✓ Collusive and Competitive
transaction costs MC, the firm will have to reduce output since an additional unit adds more
oligopoly
to cost than to revenue. Profits are maximum only at the point where MR =
▪ Under prefect competition, MC. ✓ Partial or full oligopoly
all firms individually are ▪ The MC curve should cut MR curve from below. In other words, MC
✓ Syndicated and organized
price takers. should have a positive slope.
oligopoly
 UNIT : 4.3 PRICE-OUTPUT DETERMINATION
UNDER DIFFERENT MARKET FORMS

Short-Run Profit Maximization by a Supernormal Profits: There is a difference

▪ The optimality is shown by the following outcomes associated
with the long run equilibrium of the industry:
Competitive Firm between normal profits and supernormal
profits. When the average revenue of a ▪ The output is produced at the minimum feasible cost.
firm is just equal to its average total cost,
a firm earns normal profits or zero ▪ Consumers pay the minimum possible price which just covers
economic profits. the marginal cost i.e. MC = AR. (P = MC).
▪ Plants are used to full capacity in the long run, so that there is
no wastage of resources i.e. MC = AC.
▪ Firms earn only normal profits i.e. AC = AR.
Short run supply curve of the firm ▪ Firms maximize profits (i.e. MC = MR), but the level of profits
in a competitive market will be just normal.
▪ There is optimum number of firms in the industry.
▪ In other words, in the long run, LAR = LMR = P = LMC = LAC
and there will be optimum allocation of resources.
Long Run Equilibrium of a
Competitive Firm How do monopolies arise?
• Strategic control over a scarce resources, inputs or technology by a
single firm limiting the access of other firms to these resources.
MONOPOLY: • Through developing or acquiring control over a unique product that is
difficult or costly for other companies to copy.
The word ‘Monopoly’ means “alone to sell”. • Governments granting exclusive rights to produce and sell a good or a
Monopoly is a situation in which there is a service.
single seller of a product which has no close • Patents and copyrights given by the government to protect intellectual
substitute. Pure monopoly is never found in property rights and to encourage innovation.
practice. However, in public utilities such as • Business combinations or cartels (illegal in most countries) where former
transport, water and electricity, we generally competitors cooperate on pricing or market share.
find a monopoly form of market. • Enormous goodwill enjoyed by a firm for a considerably long period
create difficult barriers to entry.
 UNIT : 4.3 PRICE-OUTPUT DETERMINATION
UNDER DIFFERENT MARKET FORMS

How do monopolies arise? The relationship between AR and MR of a

Extremely large start-up costs even to
Kinked Demand Curve :
monopoly firm can be stated as follows:
•
enter the market in a modest way and It has been observed that in many
requirement of extraordinarily costly and ✓ AR and MR are both negatively by sloped (downward sloping) oligopolistic industries prices remain
sophisticated technical know-how curves. sticky or inflexible for a long time.
discourage firms from entering the They tend to change infrequently,
✓ The slope of the MR curve is twice that of the AR curve. MR
market. even in the face of declining costs
curve lies half-way between the AR curve and the Y axis. i.e. it
• Natural monopoly arises when there are
cuts the horizontal line between Y axis and AR into two equal
very large economies of scale. A single firm
parts.
can produce the industry’s whole output at
a lower unit cost than two or more firms ✓ AR cannot be zero, but MR can be zero or even negative.
could. It is often wasteful (for consumers
and the economy) to have more than one Profit maximisation in a Monopolised
such supplier in a region because of the
high costs of duplicating the infrastructure. Market: Equilibrium of the Monopoly Firm
• Stringent legal and regulatory
requirements effectively discourage entry Long Run Equilibrium
of new firms without being specifically Short run Equilibrium Long run is a period long enough to allow the
prohibited. monopolist to adjust his plant size or to use his
existing plant at any level that maximizes his
Monopolist’s Revenue Curves :In the absence of Equilibrium of a
profit.
government intervention, a monopolist is free to monopolist (Short run)
set any price it desires and will usually set the price
that yields the largest possible profit.

profits or losses
in the short
run
 UNIT : 4.3 PRICE-OUTPUT DETERMINATION
UNDER DIFFERENT MARKET FORMS

Price Discrimination : Conditions for price discrimination: Prof. Pigou classified three degrees of price
Price discrimination is possible only
Price discrimination is a method of discrimination
under the following conditions:
pricing adopted by a monopolist in ✓ Under the first degree price discrimination, the
order to earn abnormal profits. It • The seller should have some control over the
supply of his product . monopolist separates the market into each individual
refers to the practices of charging
• The seller should be able to divide his market consumer and charges them the price they are willing
different prices for different units
into two or more sub-markets. and able to pay and thereby extract the entire
of the same commodity.
• The price-elasticity of the product should be consumer surplus.
Further examples of price different in different sub-markets. The
✓ Under the second degree price discrimination,
monopolist fixes a high price for his product
discrimination are: for those buyers whose price elasticity of different prices are charged for different quantities of
▪ Railways separate high-value or demand for the product is less than one. sold. The monopolist will take away only a part of the
relatively small-bulk commodities • It should not be possible for the buyers of consumers’ surplus. The two possibilities are:
which can bear higher freight low-priced market to resell the product to a) Different consumers pay different price if they buy
charges from other categories of the buyers of high priced market different quantity. Larger quantities are available at lower
goods.
unit price.
Some countries dump goods at low b) Each consumer pays different price for consecutive
▪
prices in foreign markets to capture
Objectives of Price discrimination:
purchases. For example, suppliers of services such as
them.
telephone, electricity, water, etc., sometimes charge
Some universities charge higher ▪ to earn maximum profit
▪ higher prices when consumption exceeds a particular
tuition fees from evening class ▪ to dispose off surplus stock limit.
students than from other scholars. ▪ to enjoy economies of scale.
▪ A lower subscription is charged ▪ to capture foreign markets ✓ Under the third degree price discrimination, price
from student readers in case of varies by attributes such as location or by customer
and
certain journals. segment. Here the monopolist will divide the
▪ to secure equity through consumers into separate sub-markets and charge
Lower charges on phone calls at off
▪
peak time.
pricing different prices in different sub-markets.
 UNIT : 4.3 PRICE-OUTPUT DETERMINATION
UNDER DIFFERENT MARKET FORMS

Equilibrium under price IMPERFECT COMPETITION-MONOPOLISTIC COMPETITION

discrimination : ▪ Large number of sellers: In a monopolistically competitive market, there are large number of
Under simple monopoly, a single price is independent firms who individually have a small share in the market.
charged for the whole output; but under ▪ Product differentiation: In a monopolistic competitive market, the products of different sellers are
price discrimination the monopolist will differentiated on the basis of brands.
charge different prices in different sub-
markets the discriminating monopolist has ▪ Freedom of entry and exit: Barriers to entry are comparatively low and new firms are free to
to make three decisions: enter the market

❑ How much total output should he produce? ▪ Non-price competition: In a monopolistically competitive market, firms are often in fierce
competition with other firms offering a similar product or service, and therefore try to compete
❑ How the total output should be distributed on bases other than price,
between the two sub-markets? and
❑ What prices he should charge in the two
sub-markets? Short run equilibrium of a firm under monopolistic
competition: Supernormal profits

Conditions for the Equilibrium

of an individual firm: .
(i) MC = MR
(ii) MC curve must cut MR
curve from below.
Fixation of total output and price in the two sub-
markets by the discriminating monopolist
UNIT : 4.3 PRICE-OUTPUT DETERMINATION
UNDER DIFFERENT MARKET FORMS
UNIT :5 BUSINESS CYCLES
These rhythmic fluctuations in PHASES OF CAUSES OF BUSINESS CYCLES
aggregate economic activity that BUSINESS CYCLE :
an economy experiences over a Internal Causes: The Internal causes External Causes: The
period of time are called business or endogenous factors which may External causes or exogenous
The business cycles or the
cycles or trade cycles. A trade lead to boom or bust are:
periodic booms and slumps factors which may lead to
cycle is composed of periods of in economic activities ▪ Fluctuations in Effective boom or bust are:
good trade characterised by rising reflect the upward and
prices and low unemployment Demand
downward movements in ▪ Wars
percentage, altering with periods economic variables. A ▪ Fluctuations in Investment
of bad trade characterised by ▪ Post War Reconstruction
typical business cycle has
falling prices and high four distinct phases. These ▪ Variations in government
▪ Technology shocks
unemployment percentages. are: spending
▪ Natural Factors
▪ Expansion (also called ▪ Macroeconomic policies
Boom or Upswing) ▪ Population growth
▪ Money Supply
▪ Peak or boom or
Prosperity
▪ Psychological factors

▪ Contraction (also called

Downswing or RELEVANCE OF BUSINESS CYCLES IN BUSINESS
Recession) DECISION MAKING :
▪ Trough or Depression Business cycles affect all aspects of an economy.
Understanding the business cycle is important for businesses
of all types as they affect the demand for their products and
in turn their profits which ultimately determines whether a
business is successful or not.
CHAPTER – 1 BUSINESS AND COMMERCIAL
KNOWLEDGE - AN INTRODUCTION

INTRODUCTION BCK Domains- An Overview DOMAINS OF BUSINESS AND COMMERCIAL

▪ Activities : Manufacturing, Trading (Domestic, Foreign), KNOWLEDGE (BCK)
Humans engage themselves
Commerce (Aids to Trade or Auxiliaries to Trade) Services.
alternatively between work • BCK is Vast
▪ Scale : Micro Enterprises, Small Enterprises, Medium
and life. We work to earn Enterprises , Large Enterprises • BCK is Eclectic (Multidisciplinary)
income. We spend (and also ▪ Geographic Scope : Local, National, Multinational . • BCK is Ever Evolving and Expanding
save) the income for the ▪ Geographic Scope : Local, National, Multinational
sustenance of the self and the ▪ Ownership : State owned/ Public Sector, Private Sector
family. In the process, daily (Sole Proprietorship, Partnership, Company/ Corporate IMPORTANCE OF BCK FOR
we engage in numerous Sector).
transactions and exchange
▪ Markets : [Natural] Resources, Equipments, Commodities, CHARTERED ACCOUNTANTS
our income for buying various Capital, Labour, Product Markets .
The Chartered Accountants are the custodians of a
▪ Stakeholders : Entrepreneurs, Promoters, Customers,
goods and services. nation’s resources. They are responsible for putting in
Investors, Business Owners, Directors, Shareholders,
place a credible system of truthful and fair accounting and
Managers, Employees, Suppliers, Laws & Regulators/Policy
reporting of the society’s resources, their deployment and
DOMAINS OF makers, Supporting / Facilitating Organisations, Society at
utilisation. Business and commercial sector comprises a
BUSINESS AND large.
large share of their work arena.
▪ Functions : Production/ Operations, Marketing,
COMMERCIAL Accounting Finance & Taxation, Human Resource.
KNOWLEDGE (BCK) ▪ Focus : Company/ Enterprise wide, A particular business Distinguishing Characteristics of
line, A particular function.
▪ BCK is Vast
▪ Concerns : Survival, Proftiability, Growth, Sustainability, Economic Activities
▪ BCK is Eclectic
Social Responsibilities, Governance, Values & Ethics. • Economic activities are income generating
▪ Mode : Tradtional/ Physical/ Brick & Mortar/In-store, • Economic activities are productive
(Multidisciplinary) Digital/ Online.
▪ BCK is Ever Evolving ▪ Underlying disciplines : Economics, Laws, Philosophy, • Even consumption is an economic activity
and Expanding Psychology, Sociology. • Savings, Investment and Wealth
Business as an Economic Distinguishing FORMS OF Sole Proprietorship Hindu Undivided Family
Activity Characteristics of BUSINESS (HUF) Business
When an individual makes
Business vis-à-vis ORGANISATION a choice to start a business
It is common to refer to shift from HUF is an entity formed
subsistence driven production
Other Economic of one’s own, to be one’s automatically by members of
❖ Business ownership
toward market driven production Occupations is a bundle of
own boss sole- the common ancestry including
as commercialisation of production proprietorship emerges. As their wives and daughters. A
▪ Employment rights
or production on a commercial such it can be regarded as HUF cannot be formed by a
scale. Profession ❖ Business may be the easiest and the earliest
▪ group of people who do not
owned singly or form of business as a
From the broader perspective Job creator, not constitute a family. As such, a
▪ jointly human occupation. This
business may be defined as an job seeker joint Hindu family in India is,
form of business
economic activity comprising the ❖ Business may be in fact and by default, a HUF.
organisation is much
entire spectrum of activities ▪ Provides organised as a A HUF enjoys a separate entity
appreciated in
pertaining to production, momentum to proprietary or a status under the Income Tax
entrepreneurship
distribution and trading economic growth corporate concern Act.
literature.
(exchange) of goods and services ▪ Investment
intensive Company
From the medium perspective, Partnership Limited Liability
business refers to a particular type ▪ Gestation and Partnership (LLP)
of activity or industry such as Retail Partnership implies
uncertainties Company form of business
Business, Real Estate Business, and contractual co-ownership of LLP form of business organization is the flag bearer
IT Business, Iron & Steel Industry, ▪ Systematic, business. It is a relationship organization is the one where
between two or more of corporate businesses.
Transport Business, etc. organised, the liability of the partners is
persons who agree to share Company indeed is a body
eflciency oriented limited. However, there is
From a narrow perspective business the profits of a business. The corporate, having an existence
activity much more to this form. It
may be defined as one’s usual business may be carried on independent of all its
has to be mandatorily
occupation of creating, owning and by all or by some of the members. The word company
▪ Objective incorporated /registered
actively operating an economic partners (called active literally implies an association
oriented/ partners) for and on behalf
under the Limited Liability
organisation of two or more persons.
purposeful Partnership Act, 2009.
of all.
CHAPTER – 2 BUSINESS ENVIRONMENT

MEANING
The environment consists of a number of Mobile phones IMPORTANCE OF BUSINESS
COMPLEX factors, events, conditions and influences making music
ENVIRONMENT
arising from different sources. It is diflcult to system, computers
According to Gluek and Jauch: “The
comprehend at once the factors constituting a books obsolete ▪ Determining Opportunities and
environment includes factors outside the given environment. Threats
firm which can lead to opportunities for, All in all, environment is a complex that is
or threats to the firm. Although, there are ▪ Giving Direction for Growth
somewhat easier to understand in parts but
many factors, the most important of the diflcult to grasp in totality ▪ Continuous Learning
factors are socio- economic, technological,
The environment is constantly changing in The film industry Image Building
suppliers, competitors, and government.” ▪
DYNAMIC nature. Due to the many and varied influences generates revenue
operating, there is dynamism in the from ring tones / ▪ Meeting Competition
RELATIONSHIP BETWEEN environment causing it to continuously change caller tunes rather
ORGANIZATION AND ITS its shape and character. than sale of music CD ORGANIZATION’S RESPONSE
ENVIRONMENT What shape and character an environment LCD and Plasma TV’s TO ITS ENVIRONMENT
▪ Exchange of information: The organization MULTI- assumes depends on the perception of the giving way to LED Three classes of responses are
scans the external environmental observer. A particular change in the and now LED’s giving described below:
FACETED environment, or a new development, may be way to 3D TV's
variables, their behaviour and changes, Administrative Response: The most
generates important information and uses viewed differently by different observers. This
common organizational responses to the
it for its planning, decision-making and is frequently seen when the same development
environment are administrative. These
control purposes. is welcomed as an opportunity by one include the formation or clarification of
company while another company perceives it the organization’s mission; the
▪ Exchange of resources: The organization as a threat. development of objectives, policies, and
receives inputs—finance, materials, The environment has a far-reaching impact on An organisation like budgets; or the creation of scanning
manpower, equipment etc. from the units.
FAR REACHING organizations. The growth and profitability of Aditya Birla Group
external environment through contractual an organization depends critically on the has moved from Competitive Response: Competitive
IMPACT
and other arrangements. The resources environment in which it exists. Any textile to cement to ressponses to the environment typically
are often categorised as 5 M’s Men, environmental change has an impact on the retail and to financial are associated with for-profit firms but
Money, Method, Machine, Material. can also apply to non-profits and
organization in several different ways services as well as governmental organizations.
▪ Exchange of influence and power: telecom due to
changing Collective Response: Organizations can cope
Another area of organizational- with problems of environmental dependence
environmental interaction is in the circumstances and uncertainty through increased
exchange of power and influence coordination with other organizations.
CHAPTER – 2 BUSINESS ENVIRONMENT

ENVIRONMENTAL INFLUENCES ON ENVIRONMENTAL COMPONENTS OF SWOT Analysis :

BUSINESS SCANNING BUSINESS A systematic approach to
understanding the environment
Environment factors or constraint are largely if ▪ Events are important and specific ENVIRONMENT is the SWOT analysis. Business
not totally, external and beyond the control of occurrences taking place in firms undertake SWOT analysis
Internal Environment : Internal
individual industrial enterprises and their different environmental sectors. to understand the external and
environment is composed of
managements. Business functions as a part of Events are certain happening in internal environment. SWOT,
multiple elements existing
broader environment. The inputs in the form of the internal or external which is the acronym for
within the organization,
human, physical, financial and other related organisational environment which strengths, weaknesses,
including management, current
resources are drawn from the environment. can be observed and tracked. opportunities and threats.
employees and corporate
Business converts these resources through various An effective organizational
▪ Trends are the general tendencies culture. Internal environment is
processes into outputs of products and/or services. strategy, therefore, is one that
or the courses of action along the conditions, people, events
capitalises on the opportunities
which events take place. Trends and factors within an through the use of strengths and
Framework to understand the are grouping of similar or related organization that influence its neutralises the threats by
events that tend to move in a activities and choices,
environmental influences minimizing the impact of
given direction, increasing or particularly the behaviour of the weaknesses.
Firstly, it is useful to take an initial view of the nature decreasing in strength of employees.
PESTLE ANALYSIS
of the organizations environment in terms of how frequency of observation; usually
uncertain it is. Is it relatively static or does it show signs External Environment : A
suggests a pattern of change in a
of change, and in what ways? Is it simple or complex to business does not operate in a
particular area. The term PESTLE is used to
comprehend? This helps in deciding what focus the rest vacuum. It has to act and react
to what happens outside the describe a framework for analysis
of the analysis is to take. ▪ Issues are the current concerns
of macro environmental factors.
that arise in response to events factory and with is the office
Secondly, The next step might be the auditing of PESTLE analysis involves
environmental influences. Here the aim is to identify and trends. Identifying an walls. These factors that happen identifying the political, economic,
which of the many different environmental influences emerging issue is more diflcult. outside the business are known socio-cultural, technological, legal
are likely to affect the organization's development or Emerging issues start with a value as external factors or influences. and environmental influences on an
performance shift, or a change in how an issue There are two major types of organization and providing a way
is viewed. external environment: of scanning the environmental
The final step is to focus more towards an explicit
▪ Micro Environment influences that have affected or are
consideration of the immediate environment of the ▪ Expectations are the demands likely to affect an organization or
organization - for example, the competitive arena in ▪ Macro Environment
made by interested groups in the its policy.
which the organization operates. light of their concern for issues.
 CHAPTER – 3 BUSINESS ENVIRONMENT

IMPORTANT POINTS TO BE IMPORTANT POINTS TO BE IMPORTANT POINTS TO

REMEMBER REMEMBER BE REMEMBER
▪ ICICI Bank ▪ COAL INDIA LIMITED ▪ Deutsche Bank
▪ HDFC Bank ▪ NTPC LTD. ▪ American Express
▪ Axis Bank
▪ POWER GRID CORPORATI ON OF ▪ NESTLE
▪ STATE BANK OF INDIA INDIA LTD. (PGCIL)
▪ INFOSYS LTD. ▪ MICROSOFT CORPORATION
▪ RELIANCE INDUSTRIES LIMITED
▪ Wipro Ltd (RIL) ▪ IBM CORPORATION
▪ CIPLA LIMITED ▪ LARSEN & TOUBRO LTD.
▪ INTEL CORPORATION
▪ DR. REDDY’S LABORATORIES LTD. ▪ Tata Sons Limited
▪ HP
▪ OIL & NATURAL GAS CORPORATION ▪ ITC Limited
▪ APPLE
LTD.
▪ Bajaj Auto Ltd
▪ INDIAN OIL CORPORATION LTD.
(IOCL) ▪ BHARTI AIRTEL LIMITED
▪ BHARAT PETROLEUM CORPORATION ▪ Asian Paints
LTD
▪ Adani Ports and Special Economic
▪ GAIL (India) Ltd Zone Ltd.
 CHAPTER – 4 GOVERNMENT POLICIES FOR
BUSINESS GROWTH

Policy in the Contemporary Global FOREIGN DIRECT INVESTMENT IN INDIA

PUBLIC POLICY THE ECONOMIC
(FDI)
Economies CHANGE PROCESS
• Public Policies are always goal
Foreign Direct Investment (FDI) plays a very
In the contemporary world, the strong oriented. ▪ There is dual route of important role in the process of development of
economies like US, European nations like approval of FDI.
▪ Public policy represents the a nation.
Germany, France, Switzerland, Denmark, outcome of the government’s
Sweden and Japan from Asia have clear cut collective actions. • Automatic permission was Here are a few sectors where FDI is prohibited
policies on governance, economy, market, taxes granted for technology under both the Government Route as well as the
and duties and military spending. These efforts ▪ Public policy is what the agreements in high Automatic Route:
are commonly referred to as Liberalization, government actually decides or priority industries
Privatization and Globalization (LPG). chooses to do. ▪ Atomic Energy
▪ Permission was granted to ▪ Lottery Business
➢ Liberalization of economic policy refers to ▪ Public policy is positive in the Gambling and Betting
Non-Resident Indians ▪
the gradual decrease in government sense that it depicts the concern Business of Chit Fund
of the government and involves
(NRIs) and Overseas ▪
command and control over the economic Corporate Bodies (OCBs) ▪ Nidhi Company
policies. Simplification of tax structure, its action to a particular problem Agricultural (excluding Floriculture,
on which the policy is made to invest up to 100 per ▪
removing quotas, bars and economic cent capital in high Horticulture, Development of seeds, Animal
restrictions are some examples of Husbandry, Pisciculture and cultivation of
priorities sectors.
liberalization. THE NATURE OF PUBLIC vegetables, mushrooms, etc. under controlled
POLICY ▪ Hike in the foreign equity conditions and services related to agro and
➢ Privatization, in its purest form means
participation limits to 51 allied sectors) and Plantations activities
transfer of government ownership to private
▪ Restrictive policies curtail all per cent for existing (other than Tea Plantations)
hands. In real life, it is done in different benefits in some particular issue. companies and ▪ Housing and Real Estate business (except
forms. In some cases, ownership of all shares
liberalisation of the use of development of townships, construction of
is transferred from government to a single ▪ Regulatory practices regulate
foreign “brands name”. residential/ commercial premises, roads or
highest bidder (VSNL was taken by Tata the activities of a particular
bridges to the extent specified)
Telecom. sector of economy. ▪ Signing the Convention of ▪ Trading in Transferable Development Rights
➢ Globalization refers to taking off restrictions ▪ Facilitating policies are the ones Multilateral Investment (TDRs)
in export and import of goods and services. which facilitates an activity. The Guarantee Agency (MIGA) ▪ Manufacture of cigars, cheroots, cigarillos
It also covers the measures of lifting the conducive policies towards the for protection of Foreign and cigarettes, of tobacco or of tobacco
trade barriers. development of MSMEs Investments. substitutes.
 CHAPTER –5 ORGANIZATIONS
FACILITATING BUSINESS

INTRODUCTION Government NON-FUNDING INSTITUTIONS FOR BUSINESS FACILITATION IN INDIA (INDIAN

as a Business REGULATORY BODIES)
▪ a freight forwarder . a person or
company who organizes shipments Facilitator : ❖ Reserve Bank of India (RBI) : The Reserve Bank of India (RBI) was established on April 1, 1935
for the business firms to get goods in accordance with the provisions of the Reserve Bank of India Act, 1934. Though originally privately
from the manufacturer or producer The New owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India.
to a market, customer or final point
of distribution Economic
❖ Securities and Exchange Board of India (SEBI) : SEBI is an authority to regulate and
Policy of
▪ a business incubator helps create develop the Indian capital market and protect the interest of investors in the capital market.
and grow young businesses by 1991 which is Controller of Capital Issues has been repealed by the SEBI, an authority under Capital Issue
providing them with necessary better known (Control) Act, 1947.
support and financial and technical
services; and a business accelerator as the LPG or ❖ Competition Commission of India (CCI) : Competition is a contest between organisms, animals,
helps a budding business quickly GPL policy i.e. individuals, groups, etc. in the context of business, competition is the best means of ensuring that the‘
launch a product and put it in the
fast lane of commercial success;
the policy of Common Man' has access to the broadest range of goods and services at the most competitive prices..
liberalisation,
▪ a financial consultant who advises
the business on the various sources privatisation ❖ The Competition Act, 2002 : Basically, Competition law is a tool to implement and enforce
of finance- domestic as well as and competition policy and to prevent and punish anti-competitive business practices by firms and
foreign; debt as well as equity;
globalisation is unnecessary Government interference in the market. The Competition Act, 2002, as amended by
short-term as well as long-term the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws
and helps it mobilise its regarded as
requirements too. It may be noted the watershed ❖Insurance Regulatory and Development Authority of India (IRDAI) is an
that merchant bankers/ financial autonomous apex statutory body which regulates and develops the insurance industry in India. It was
consultants are not themselves the development
constituted under Insurance Regulatory and Development Authority Act, 1999 and duly passed by
financing institutions- the in business the Parliament.
auxiliaries or aids to trade;
facilitation in
❖ FUNDING INSTITUITONS (INDIAN DEVELOPMENT BANKS ) : Development Banks are those
• a merchandiser who helps the India. financial institutions that provide funds and financial assistance to new and upcoming business
business e.g. a fashion house obtains
its supplies- fabrics, accessories, etc. enterprises. Development banks are distinguishable from commercial banks
 CHAPTER –6 COMMON
BUSINESS TERMINOLOGIES
BUSINESS - MANY FINANCE, STOCK AND COMMODITY MARKET TERMINOLOGY
FACETS OF THE Agent Brokerage Firm Balance sheet
✓ ✓ ✓ ✓ Yield
SAME REALITY
✓ Amortize ✓ Book Closure ✓ Bond ✓ Vision
▪ Technical Facet Annuity Due Business Day Book Value
✓ ✓ ✓ ✓ Value At Risk (VAR)
▪ Commercial Facet ✓ Appreciation ✓ Breakeven point ✓ Bull Market ✓ Unique Selling Proposition
▪ Financial Facet ✓ Arbitrage ✓ Business Day ✓ Budget ✓ Turnaround
▪ HR Facet ✓ Asset ✓ Bid and Offer ✓ Bears ✓ Triple Bottom Line (TBL)-
▪ Administrative Facet ✓ Ask/Offer ✓ Business Risk ✓ Base Price ✓ Thin Market
✓ Audit ✓ Niche Marketing ✓ Basket ✓ Target Marketing
Trading
✓ Bad debts ✓ Capital Gains Yield ✓ Bear Market ✓ Syndicated Loan
✓ Badla ✓ Capital Markets ✓ Blue Chips ✓ Reverse Repo Rate
✓ Beta ✓ Acceptance ✓ Bid ✓ Repo Rate
✓ Bonds ✓ Administered Rates ✓ Amortize ✓ Privatization
✓ Bonus ✓ Zero Down Payment ✓ Risk ✓ Price Skimming
Mortgage
✓ Brokerage ✓ Zero Coupon Bond ✓ Pre-Emptive ✓ Price Sensitivity
Pricing
✓ Bull ✓ Price Discrimination ✓ Portfolio ✓ PESTLE
✓ Close Price ✓ Stock Split ✓ Overdraft ✓ Personal Selling
✓ Cash Budget ✓ Mutual Fund ✓ Mission ✓ Merger