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GENERAL ECONOMICS MODULE

FOR
JKSSB ACCOUNT ASSISTANT EXAM

youtube.com/c/WingsekUdaan
 INDEX
I. INTRODUCTION OF ECONOMICS BASIC CONCEPT AND PRINCIPLES 01

II. GROSS DOMESTIC PRODUCT(GDP) 04

III. FISCAL POLICY,MEANING,SCOPE AND METHODOLOGY 06

IV. GROWTH AND DEVELOPMENT. 07

V. INFLATION; MEANING,TYPES,EFFECTS. 08

VI. PRODUCTION, COST&EFFECTS. 16

VII. FACTORS OF PRODUCTION AND LAWS 18

VIII. DEMAND ANALYSIS 22

IX. THEORY OF CONSUMER DEMAND USING IN DIFFERENCE CURVE 26

TECHNIQUE

X. PRICING UNDER VARIOUS FORMS OF MARKETS 27

DISCLAIMER

Although the author has made every effort to ensure that the information in this book is correct the author do not assume and hereby
disclaim any liability to any party for any loss, damage, or disruption caused by errors or omissions. We encourage readers to help us
fix the errors, if any.

ALL RIGHTS RESERVED. NO PART OF THIS DOCUMENT MAYBE REPRODUCED, STORED IN THE RETRIEVAL SYSTEM
OR TRANSMITTED IN ANY FORM OR BY ANY MEANS, ELECTRONIC, MECHANICAL, PHOTOCOPYING OR OTHERWISE
WITHOUT THE PERMISSION OF WINGS EK UDAAN

1
 CHAPTER I
INTRODUCTION TO ECONOMICS-BASIC CONCEPT AND PRINCIPLES.

 Economics is a social science concerned with the production, distribution, and consumption of goods
and services. It studies how individuals, businesses, governments, and nations make choices on
allocating resources to satisfy their wants and needs, trying to determine how these groups should
organize and coordinate efforts to achieve maximum output.
 Economics is the study of how people choose to use their scarce resources in order to satisfy their
wants or needs. Thus, economics deals with the production and distribution of goods and services. The
term economics comes from oikonomikos, which means skilled in household management.
The field began with the observations of the earliest economists, such as Adam Smith, the Scottish
philosopher popularly credited with being the father of economics—although scholars were making
economic observations long before Smith authored An Inquiry Into the Nature and Causes of the Wealth of
Nations in 1776.
 The founding of modern Western economics generally credited to the publication of Scottish
philosopher Adam Smith's 1776 book, Branches of Economics
 PHYSICISTS LOOK AT the big world of planets, stars, galaxies, and gravity. But they also study the
minute world of atoms and the tiny particles that comprise those atoms. Economists also look at two
realms.
 There is big-picture macroeconomics, which is concerned with how the overall economy works.
Little-picture microeconomics is concerned with how supply and demand interact in individual
markets for goods and services.
 Macroeconomics studies such things as employment, gross domestic product, and inflation. In
macroeconomics, the subject is typically a nation. Macroeconomics often extends to the international
sphere because domestic markets are linked to foreign markets through trade, investment, and capital
flows.
 Microeconomics is the branch of economics that focuses on the interactions among the individual
decision-making units within an economy. Microeconomics is the older of the two branches of
economics, occupying much of the attention of the early schools of economic thought. The most
important participants in the microeconomy are households, business firms, and the government.
 The private sector, or nongovernmental sector of the economy, consists of households and firms.
o Households, for example, consume the lion’s share of all goods and services produced in the
Indian economy.
o Hence, one important microeconomic topic analyzes consumer demand, why people choose to
buy certain goods or services and not others. Economists who study the microeconomics are
concerned with how firms make pricing, output, hiring, and other production decisions. These
business decisions are guided by the desire to maximize profits in a market economy—another
major topic in the field of microeconomics.
 In the realm of microeconomics, the object of analysis is a single market—
o For example, whether price rises in the automobile or oil industries are driven by supply or
demand changes.
In macroeconomics the government is a major object of analysis
o For example, studying the role it plays in contributing to overall economic growth or fighting
inflation. But microeconomics can have an international component as well. Single markets
often are not confined to single countries; the global market for petroleum is an obvious
example.

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 o The macro/micro split is institutionalized in economics, from beginning courses in “principles
of economics” through to postgraduate studies. Economists commonly consider themselves
micro economists or macroeconomists.

For video on this topic Watch our Lecture on Basics of Economics:

https://www.youtube.com/watch?v=wry_k7-0YDM&list=PLHXdDd0FVE8oQ3KYccuDRxkmbXD9n4XlD

3
 CHAPTER II
GROSS DOMESTIC PRODUCT(GDP)

 Gross domestic product (GDP) is the total monetary or market value of all the finished goods and
services produced within a country's borders in a specific time period.
 It counts all of the output generated within the borders of a country. GDP is composed of goods and
services produced for sale in the market and also includes some nonmarket production, such as defense
or education services provided by the government.
 An alternative concept, gross national product, or GNP, counts all the output of the residents of a
country. So if a U.S.-owned company has a factory in the INDIA, the output of this factory would be
not be included in Indian GNP, but it’d be included in India’s GDP.
 Not all productive activity is included in GDP. For example, unpaid work (such as that performed in
the home or by volunteers) and black-market activities are not included because they are difficult to
measure and value accurately. That means, for example, that a baker who produces a loaf of bread for
a customer would contribute to GDP, but would not contribute to GDP if he baked the same loaf for
his family (although the ingredients he purchased would be counted).
Theoretically, GDP can be calculated in three different ways:
● The production approach sums the “value-added” at each stage of production, where value-added
is defined as total sales less the value of intermediate inputs into the production process. For
example, flour would be an intermediate input and bread the final product; or an architect’s services
would be an intermediate input and the building the final product.
● The expenditure approach adds up the value of purchases made by final users—for example, the
consumption of food, televisions, and medical services by households; the investments in
machinery by companies; and the purchases of goods and services by the government and
foreigners.
● The income approach sums the incomes generated by production—for example, the
compensation employees receive and the operating surplus of companies (roughly sales less costs).
Real GDP and Nominal GDP
Nominal Gross Domestic Product is GDP evaluated at present market prices. GDP is the financial
equivalent of all the complete products and services generated within a nation’s in a definite time. Nominal
varies from real GDP, and it incorporates changes in cost prices due to an increase in the complete cost price.
Generally, economists utilize a gross domestic factor to change nominal GDP to real GDP also known as
current dollar GDP or chained dollar GDP.
Real GDP is an inflation-adjusted calculation that analyzes the rate of all commodities and services
manufactured in a country for a fixed year. It is expressed in base year prices and is referred to as a fixed cost
price. Inflation rectified GDP or fixed dollar GDP. Real GDP is regarded as a reliable indicator of a nation’s
economic growth as it solely only considers production and free from currency fluctuations.
Real GDP is regarded as a reliable indicator of a nation’s economic growth as it solely only considers
production and free from currency fluctuations.

Basis Nominal GDP Real GDP

Meaning The aggregate financial business value The measure of GDP modified
manufactured within a country is known as according to the changes in the
Nominal GDP general price level

What is it? Inflation without GDP GDP Inflation-adjusted

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 Communicated Present year prices Beginning year prices or regular
in prices

Worth High Low

Uses Compares different quarters of a particular Compares two or more financial year
year

Financial Analyzing is not easy Measures economic growth in an

Growth excellent manner

What is Base Year?

 The base year of the national accounts is chosen to enable inter-year comparisons.
 It gives an idea about changes in purchasing power and allows calculation of inflation-adjusted growth
estimates.
 The last series has changed the base to 2011-12 from 2004-05.
 The base year is a benchmark with reference to which the national account figures such as gross
domestic product (GDP), gross domestic saving, gross capital formation are calculated.
What GDP does not reveal
 It is also important to understand what GDP cannot tell us. GDP is not a measure of the overall standard
of living or well-being of a country.
 Although changes in the output of goods and services per person (GDP per capita) are often used as a
measure of whether the average citizen in a country is better or worse off, it does not capture things
that may be deemed important to general well-being.
 So, for example, increased output may come at the cost of environmental damage or other external
costs such as noise. Or it might involve the reduction of leisure time or the depletion of nonrenewable
natural resources. The quality of life may also depend on the distribution of GDP among the residents
of a country, not just the overall level.
 To try to account for such factors, the United Nations computes a Human Development Index, which
ranks countries not only based on GDP per capita, but on other factors, such as life expectancy, literacy,
and school enrollment.
 Other attempts have been made to account for some of the shortcomings of GDP, such as the Genuine
Progress Indicator and the Gross National Happiness Index, but these too have their critics.
For video on this topic click here :
https://www.youtube.com/watch?v=uo3VNS4qBXs&list=PLHXdDd0FVE8oQ3KYccuDRxkmbXD9n4XlD&index=2

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 CHAPTER III
FISCAL POLICY. MEANING, SCOPE, AND METHODOLOGY
Fiscal policy is an estimate of taxation and government spending that impacts the economy. It can be
either expansionary or contractionary. Along with RBI's policy that influences a nation's money supply, it is
used to direct a country's economic goals.
Fiscal policy is based on Keynesian economics, a theory by economist John Maynard Keynes. This
theory states that the governments of nations can play a major role in influencing the productivity levels of
the economy of the nation by changing (increasing or decreasing) the tax levels for the public and thus by
modifying public spending.
It’s of two types:
An expansionary fiscal policy is one which is used at the times of an economic slump. Government
cuts taxes to spur economic growth. On the other hand, a contractionary fiscal policy is aimed at lowering
inflation as it tends to reduce,the quantum of money by raising taxes and reducing spending.
Main objectives of Fiscal Policy
 Economic growth: Fiscal policy helps maintain the economy’s growth rate so that certain economic
goals can be achieved.
 Price stability: It controls the price level of the country so that when the inflation is too high, prices
can be regulated.
 Full employment: It aims to achieve full employment, or near full employment, as a tool to recover
from low economic activity.
Importance of Fiscal Policy
 In a country like India, fiscal policy plays a key role in elevating the rate of capital formation both in
the public and private sectors.
 Through taxation, the fiscal policy helps mobilise considerable amount of resources for financing its
numerous projects.
 Fiscal policy also helps in providing stimulus to elevate the savings rate.
 The fiscal policy gives adequate incentives to the private sector to expand its activities.
 Fiscal policy aims to minimise the imbalance in the dispersal of income and wealth.

For video on this topic click here :

Part 1
https://www.youtube.com/watch?v=V3RiACk87qc&list=PLHXdDd0FVE8oQ3KYccuDRxkmbXD9n4XlD&index=7
Part 2
https://www.youtube.com/watch?v=Yf_TVgrbWek&list=PLHXdDd0FVE8oQ3KYccuDRxkmbXD9n4XlD&index=9

6
 CHAPTER IV
GROWTH AND DEVELOPMENT
Economic growth is an increase or decrease in the production of economic goods and services,
compared from one period of time to another. It can be measured in nominal or real (adjusted for inflation)
terms. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or
gross domestic product (GDP), although alternative metrics
Economic growth comes in two forms
 An economy can either grow extensively by using more resources (i.e., physical, human or natural
capital).
 Intensively by using the same amount of resources more efficiently (productively).
For example, Saffron grows naturally in Kashmir, a wealthy German traveler discovered the Saffron
and brought samples back to Germany. His German friends also loved it, so the traveler funded a large saffron
exporting business in Kashmir. The new saffron exporting business hired hundreds of Indians to farm, harvest,
box and ship the saffron to grocers in Germany.
In one financial year, the saffron exporting business added over one million dollars to India's GDP
because that's the total value of the goods and services produced by the new saffron exporting business. Since
India's GDP increased, this means that India experienced economic growth.
Economic Development
Now let's take a look at economic development. A country's economic development is usually
indicated by an increase in citizens' quality of life. 'Quality of life' is often measured using the Human
Development Index, which is an economic model that considers intrinsic personal factors not considered in
economic growth, such as literacy rates, life expectancy and poverty rates.
While economic growth often leads to economic development, it's important to note that a country's
GDP doesn't include intrinsic development factors, such as leisure time, environmental quality or freedom
from oppression. Using the Human Development Index, factors like literacy rates and life expectancy
generally imply a higher per capita income and therefore indicate economic development.
Example of Economic Development
Now if the same saffron exporting business provided employment, to the locals in Kashmir, and
increased their purchasing power , ultimately increasing their quality of life. Then it can be said that economic
development has taken place.

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 CHAPTER V
INFLATION: MEANING, TYPES, EFFECTS
Inflation refers to a sustained/continuous rise in the general price level of goods and services in an economy
over a period of time.
Here we must understand that inflation is rise in prices of basket of goods and services. If the price of
only one good has gone up (for example, only there is price rise for 1 product), it does not constitute inflation.
Let us try to understand Inflation in terms of Aggregate Demand and Aggregate Supply and General
Price level.
Aggregate Demand – It is the total demand of all products (goods and services) in an economy. It consists of
four components of demands
1. Consumption (C)
2. Investment (I)
3. Government Spending (G)
4. Net Exports (i.e. Export-Import) (X-M)
Thus, Aggregate Demand = C + I + G + (X-M)
Aggregate Demand Curve represents the total demand in an economy at different price levels.

P1

X1 X2
Figure 1: the Aggregate Demand at different price levels
Any change in the four components (mentioned above) will cause a change in the aggregate demand curve.
For example – Government increases its expenditure (e.g. – increase in amount of financial support given by
government through Swachch Bharat or Beti Bachao Beti Padhao), it will increase aggregate demand and
aggregate demand curve will shift right. Similarly, Rise in net exports will increase the aggregate demand.
Aggregate Supply – Aggregate supply is the total output of goods and services that firms want to produce at
each possible price level.
Above diagram represents Aggregate Supply at various price levels
Equilibrium – As per the British Economist, John Maynard Keynes,when economy is functioning at full
employment, aggregate supply will match aggregate demand. At this Equilibrium we will have general price
level.
Now consider, due to any reason, aggregate demand rises at this equilibrium level, it will lead to
inflation. It is because since economy is at full employment, so it is producing at its full capacity. It cannot

8
produce any further. Thus any increase in aggregate demand will result in increase in price levels, i.e. Inflation.
This type of inflation is known as Demand Pull Inflation
Similarly, if due to any reason, aggregate supply in economy (at equilibrium) declines, it will also lead
to Inflation. This type of Inflation is known as Cost Push Inflation.
Causes of Inflation
Inflation is mainly caused either by demand Pull factors or Cost Push factors. Apart from demand and
supply factors, Inflation sometimes is also caused by structural bottlenecks and policies of the government
and the central banks. Therefore, the major causes of Inflation are:
 Demand Pull Factors (when Aggregate Demand exceeds Aggregate Supply at Full employment level).
 Cost Push Factors (when Aggregate supply increases due to increase in the cost of production while
Aggregate demand remains the same).
 Structural Bottlenecks (Agriculture Prices fluctuations, Weak Infrastructure etc.)
 Monetary Policy Intervention by the Central Banks.
 Expansionary Fiscal Policy by the Government.
Demand and Supply factors can be further sub divided into the following:

Types of Inflation
1. Demand Pull Inflation (Aggregate demand for goods and services is rising and it exceeds aggregate
supply at full employment level).
2. Cost Push Inflation Aggregate Supply of goods and services decreases (due to rise in cost of
production) while aggregate demand remains constant at full employment level
3. Structural Inflation

1. Demand-Pull Inflation
 Demand Pull Inflation is mainly due to increase in Aggregate demand. The increase in
Aggregate demand mainly comes from either increase in Government Expenditure
(Expansionary Fiscal Policy) or by an increase in expenditure from Households and Firms.
 The root cause of demand pull inflations is- Aggregate demand > Aggregate Supply. This
simply means that the firms in the economy are not capable of producing the goods and services
demanded by the households in the present time period. The shortages of goods and services
due to increase in demand fuels inflation.
 Imagine what happened when outbreak of Corona Virus(SARS COV 2) happened in march in
India. Due to the outbreak, the government notified a warning that people should wear
Breathing Masks to protect them from the infection. As a result, the demand for mask has risen

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 to a very high level, but the supply being limited as the producers of the mask had no
anticipation of the epidemic. Due to the high demand and limited supply of masks, the prices
had risen manifold. The case above captures the mechanism of demand pull inflation.
 The above example only captures the mechanism of Demand led inflation and that too for a
particular product.

2. Cost Push Inflation

 There exists a situation in an economy where inflation is fuelled up, not because of increase in
Aggregate Demand but mainly due to increase in the cost of producing goods and services.
 The cost can be increased mainly due to three factors:

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 Wage Push Inflation Profit Push Inflation Raw Material Push Inflation
When the employees push for The firms sometimes The raw material push inflation
an increase in wages which decide to increase their also known as supply shock
are not justifiable either on profit margins and starts inflation is the main and the most
the grounds of employee charging higher prices for important reason for cost push
productivity or increase in the their product. This inflation.
cost of living. In such phenomenon pushes the If for any reason the economy
scenarios, an unwarranted price upward and results under goes a supply shock in the
wage increase leads to in Profit Push Inflation. form of a rise in the price of
increase in the cost of essential raw materials like crude
production and hence cost oil, it will fuel inflation due to
push inflation. rise in the cost of production.

Wage Push Inflation The Profit Push Inflation For Example, during the 1970s,
generally happens during generally happens when the OPEC countries decided to
high growth periods. During there are few of single increase the price of crude oil,
which workers anticipate a producer producing the this acted as a supply shock for
hike in their wages due to goods for the entire the entire World economy and
rising cost of living. The market. price of petroleum products (an
employer responds to their essential raw material) went up,
demand by increasing wages fuelling inflation.
in the hope that he will pass
them on to the consumers in
the form of higher prices.
Let’s understand Cost Push Inflation with an Example.
Suppose, Indian economy is operating at its maximum potential. Prices are stable, resources are fully
utilised, everyone who is willing to work is getting the work (unemployment is at its minimum). In such a
scenario people will form the expectation that the future of the economy is good and they planned their saving
and investment decision accordingly.
However, one day there starts a war in Middle East. As a repercussion of the attack, the crude oil prices
around the world start moving up. India who imports 90 percent of its oil imports suddenly find itself in
trouble. The rise in crude oil price puts a break on booming Indian economy and cost of essential products
start rising (crude oil is a key input for many industries and is a lifeline of transport economy). As a result of
increase in cost of production, the manufacturers decide to increase the price of their product. Hence fuelling
first round of cost push inflation (Raw material).
After a lag of sometime, the final consumer gets to know that the prices of the product have increased.
The consumer expectations about the future movement of prices will change as he expects prices to rise further
in future. To compensate himself against the future price rise, he starts demanding more wages from his/her
employer. This will fuel the second round of cost push inflation (wage push).
Cost Push Inflation/Supply Shock

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Stagflation: The most important difference between the Demand Pull and Cost Push Inflation is that while in
the case of Demand Pull Inflation the overall output in the economy does not fall. Whereas, in case of Cost
Push Inflation, along with an increase in prices the output level of the economy also falls.
The fall in output will cause employment to fall in the economy along with fall in growth. The falling
growth along with rising prices makes cost push inflation more dangerous than the demand-pull inflation. The
situation of rising prices along with falling growth and employment is called as stagflation.
Hyperinflation: Hyperinflation is a situation when inflation rises at an extremely faster rate. The rate of
inflation can increase from 50 times to 300 times.
The effects of hyperinflation can be devastating for the economy. The situation can lead to total
collapse of the value of the currency of the economy along with economic crisis and rising external debt and
fall in purchasing power of money.
The major causes of the hyperinflation are; government issuing too much currency to finance its
deficits; wars and political instabilities and unexpected increase in people’s anticipation of future inflation.
When people anticipate that future inflation will rise at a very fast pace, they start consuming more
goods and services due to the fear that higher inflation in the future will destroy the purchasing power of
money. As a result of this, the demand for goods and services rises and fuels further inflation. The cycle
continues and results in a hyperinflation scenario.
3. Structural Inflation
 Structuralist Inflation is another form of Inflation mostly prevalent in the Developing and Low-
Income Countries.
 This type of inflation in the developing countries are mainly due to the weak structure(lack of
infrastructure like roads,railways,waterways etc) of their economies.
 The economies of developing countries like, Latin America and India are structurally
underdeveloped as well as highly volatile due to the existence of weak institutions and
imperfect working of markets.
 As a result of these imperfections, some sectors of the economy like agriculture will witness
shortages of supply, whereas some sectors like consumer goods will witness excessive demand.
Such economies face the problem of both shortages of supply, under utilisation of resources as
well as excessive demand in some sectors.
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  Example: In India, let’s assume that the farmer produces fruits and vegetables at 10000 per
quintal. But the final consumer gets the same at 20000 per quintal. The huge disparity between
what farmer receives and consumer pays is due to infrastructure and agriculture bottlenecks.
The bottleneck arises mainly due to lack of roads, highways, cold chains and underdeveloped
agriculture markets. All these increases the cost of transporting goods from farmers to
consumers leading to inflation.
 The major bottlenecks/road blocks of developing economies that fuels Structuralist form of
inflation are:

Related concepts.
Deflation versus Disinflation
Deflation: Deflation is when the overall price level in the economy falls for a period of time.
Disinflation: Disinflation is a situation in which the rate of inflation falls over a period of time. Remember
the difference; disinflation is when the inflation rate is falling from say 5% to 3%.
Deflation is when, for instance, the price of a basket of goods has fallen from Rs 100 to Rs 80. It’s the
reduction in overall prices of goods.
Headline versus Core Inflation
The headline inflation measure demonstrates overall inflation in the economy. Conversely, the core
inflation measures exclude the prices of highly volatile food and fuel components from the inflation index.
The inflation process in India is dominated to a great extent by supply shocks. The supply shocks (e.g.,
rainfall, oil price shocks, etc.) are temporary in nature and hence produce only temporary movements in
relative prices. The headline CPI inflation in India tends to increase whenever there is a surge in food and fuel
prices. Since monetary policy is a tool to manage aggregate demand pressures, the response of the policy to
such temporary shocks is least warranted according to traditional wisdom.
Core inflation excludes the highly volatile food and fuel components and therefore represents the
underlying trend inflation. The trend inflation drives the future path of overall inflation. Hence, even when
food and fuel inflation moderates over time, persistently high inflation in non-food, non-fuel components pose
an upward risk to overall future inflation, creating challenges to monetary policy.
How to Control Inflation
Let’s understand some basic relationship before proceeding further.
Money Supply and Interest Rate
The Money supply in an economy is controlled by the Central Banks. Whenever there is a threat of
Inflation, the central bank intervenes to control the money supply to control the inflation.
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 The mechanism through which the central banks controls inflation depends on interest rate. Interest
Rate and Money supply moves in opposite directions. As money supply is increased the interest has the
tendency to fall and vice versa.
Effects of Inflation
The effects are: 1. Effects on Distribution of Income and Wealth 2. Effects on Production 3. Effects
on Income and Employment 4. Effects on Business and Trade 5. Effects on the Government Finance 6. Effects
on Growth.
1. Effects on Distribution of Income and Wealth:
The impact of inflation is felt unevenly by the different groups of individuals within the national
economy—some groups of people gain by making big fortune and some others lose.
We may now explain in detail the effects of inflation on different groups of people:
(a) Creditors and debtors:
During inflation creditors lose because they receive in effect less in goods and services than if they
had received the repayments during a period of low prices. Debtors, on other hand, as a group gain during
inflation, since they repay their debts in currency that has lost its value (i.e., the same currency unit will now
buy less goods and services).
(b) Producers and workers:
Producers gain because they get higher prices and thus more profits from the sale of their products. As
the rise in prices is usually higher than the increase in costs, producers can earn more during inflation. But,
workers lose as they find a fall in their real wages as their money wages do not usually rise proportionately
with the increase in prices. They, as a class, however, gain because they get more employment during inflation.
(c) Fixed income-earners:
Fixed income-earners like the salaried people, rent-earners, landlords, pensioners, etc., suffer greatly
because inflation reduces the value of their earnings.
(d) Investors:
The investors in equity shares gain as they get dividends at higher rates because of larger corporate
profits and as they find the value of their shareholdings appreciated. But the bondholders lose as they get a
fixed interest the real value of which has already fallen.
(e) Traders, speculators, businesspeople and black-marketers:
They gain because they make more profits from the persistent rise in prices.
(f) Farmers:
Farmers also gain because the rise in the prices of agricultural products is usually higher than the
increase in the prices of other goods.
Thus, inflation brings a shift in the pattern of distribution of income and wealth in the country, usually making
the rich richer and the poor poorer. Thus during inflation there is more and more inequality in the distribution
of income.
2. Effects on Production:
The rising prices stimulate the production of all goods—both of consumption and of capital goods. As
producers get more and more profit, they try to produce more and more by utilising all the available resources
at their disposal.
But, after the stage of full employment the production cannot increase as all the resources are fully
employed. Moreover, the producers and the farmers would increase their stock in the expectation of a further
rise in prices. As a result hoarding and cornering of commodities will increase.
But such favourable effects of inflation upon production are not always found. Sometimes, production
may come to a standstill position despite rising prices, as was found in recent years in developing countries
like India, Thailand and Bangladesh. This situation is described as stagflation.

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3. Effects on Income and Employment:
Inflation tends to increase the aggregate money income (i.e., national income) of the community as a
whole on account of larger spending and greater production. Similarly, the volume of employment increases
under the impact of increased production. But the real income of the people fails to increase proportionately
due to a fall in the purchasing power of money.
4. Effects on Business and Trade:
The aggregate volume of internal trade tends to increase during inflation due to higher incomes, greater
production and larger spending. But the export trade is likely to suffer on account of a rise in the prices of
domestic goods. However, the business firms expand their businesses to make larger profits.
During most inflation since costs do not rise as fast as prices profits soar. But wages do not increase
proportionate with prices, causing hardships to workers and making more and more inequality. As the old
saying goes, during inflation prices move in escalator and wages in stairs.
5. Effects on the Government Finance:
During inflation, the government revenue increases as it gets more revenue from income tax, sales tax,
excise duties, etc. Similarly, public expenditure increases as the government is required to spend more and
more for administrative and other purposes. But the rising prices reduce the real burden of public debt because
a fix sum has to be paid in instalment per period.
6. Effects on Growth:
A mild inflation promotes economic growth, but a runaway inflation obstructs economic growth as it
raises cost of development projects. Although a mild dose of inflation is inevitable and desirable in a
developing economy, a high rate of inflation tends to lower the growth rate by slowing down the rate of capital
formation and creating uncertainty.
Conclusion:
But inflation, especially a runaway inflation, is an unstable situation. It makes the business world
uneasy and uncertain. Society gets disturbed as there grows discontentment among the salaried people and
they demand an increase in their wages and salaries.
The middle-class people suffer hard as the real value of their income becomes very low. Inflation is
also unjust as it makes one class of people richer and the other poorer. But the most serious effect of inflation
from the standpoint of the economy is that it makes the economic environment of business unstable.

Video link for Inflation

https://www.youtube.com/watch?v=EhbYVH8nbbs&list=PLHXdDd0FVE8oQ3KYccuDRxkmbXD9n4XlD
&index=6

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 CHAPTER VI
PRODUCTION, COST & EFFICIENCY
Production is the process by which inputs are transformed into ‘output’. Production is carried out by
producers or firms. A firm acquires different inputs like labour, machines, land, raw materials etc. It uses these
inputs to produce output. This output can be consumed by consumers, or used by other firms for further
production.
For e.g. A car manufacturer uses land for a factory, machinery, labour, and various other inputs
(steel,aluminium, rubber etc) to produce cars.
A farmer uses his land, labour, a tractor, seed, fertilizer, water etc to produce wheat.
In order to acquire inputs a firm has to pay for them.This is called the cost of production. Once output
has been produced, the firm sells it in the market and earns revenue. The difference between the revenue and
cost is called the firm’s profit
PRODUCTION FUNCTION
The production function of a firm is a relationship between inputs used and output produced by the
firm. For various quantities of inputs used, it gives the maximum quantity of output that can be produced.
A production function in this manner tells us the exact relation between inputs and output. Consider
the farmer we mentioned above. For simplicity, we assume that the farmer uses only two inputs to produce
wheat: land and labour. A production function tells us the maximum amount of wheat he can produce for a
given amount of land that he uses, and a given number of hours of labour that he performs. Suppose that he
uses 2 hours of labour/ day and 1 hectare of land to produce a maximum of 2 tonnes of wheat. Then, a function
that describes this relation is called a production function.
One possible example of the form this could take is:
Q= Y × Z
Q is the amount of wheat produced,
Y is the area of land in hectares, Z is the number of hours of work done in a day.
A production function can be expressed in a functional form as the right side of
Q= f(X1,X2,X3…………..Xn)
Where Q is the quantity of output and X1,X2,……Xn are the quantities of factor inputs (such as
capital, labour, land or raw materials)
COSTS
In order to produce output, the firm needs to employ inputs. But a given level
of output, typically, can be produced in many ways. There can be more than
one input combinations with which a firm can produce a desired level of output.
In the short run, some of the factors of production cannot be varied, and therefore, remain fixed. The
cost that a firm incurs to employ these fixed inputs is called the total fixed cost (TFC). Whatever amount of
output the firm produces, this cost remains fixed for the firm. To produce any required level of output, the
firm, in the short run, can adjust only variable inputs.
Accordingly, the cost that a firm incurs to employ these variable inputs is called the total variable cost
(TVC). Adding the fixed and the variable costs, we get the total cost (TC) of a firm
TC = TVC + TFC
In order to increase the production of output, the firm must employ more of
the variable inputs. As a result, total variable cost and total cost will increase.
Therefore, as output increases, total variable cost and total cost increase short run average cost (SAC) incurred
by the firm is defined as the total cost per unit of output. We calculate it as
SAC =TC/q

16
 Similarly, the average variable cost (AVC) is defined as the total variable
cost per unit of output. We calculate it as
AVC =TVC/q
average fixed cost (AFC) is
AFC =TFC/q
In the long run, all inputs are variable. There are no fixed costs. The total cost
and the total variable cost therefore, coincide in the long run. Long run average
cost (LRAC) is defined as cost per unit of output, i.e.
LRAC =TC/q

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17
 CHAPTER VII
FACTORS OF PRODUCTION AND LAWS
The factors of production are resources that are the building blocks of the economy; they are what
people use to produce goods and services. Economists divide the factors of production into four categories:
land, labor, capital, and entrepreneurship.

Land, labor, and capital as factors of production were originally identified by the early
political economists such as Adam Smith, David Ricardo, and Karl Marx. Today, capital and labor remain the
two primary inputs for the productive processes and the generation of profits by a business. Production, such
as in manufacturing, can be tracked by certain indexes, including the ISM Manufacturing Index.
Land as a Factor
Land has a broad definition as a factor of production and can take on various forms, from agricultural
land to commercial real estate to the resources available from a particular piece of land. Natural resources,
such as oil and gold, can be extracted and refined for human consumption from the land. Cultivation of crops
on land by farmers increases its value and utility. For a group of early French economists called the physiocrats
who pre-dated the classical political economists, the land was responsible for generating economic value.
While the land is an essential component of most ventures, its importance can diminish or increase
based on industry. For example, a technology company can easily begin operations with zero investment in
land. On the other hand, the land is the most significant investment for a real estate venture.
Labor as a Factor
Labor refers to the effort expended by an individual to bring a product or service to the market. Again,
it can take on various forms. For example, the construction worker at a hotel site is part of labor as is the waiter
who serves guests or the receptionist who enrolls them into the hotel.
Within the software industry, labor refers to the work done by project managers and developers in
building the final product. Even an artist involved in making art, whether it is a painting or a symphony, is
considered labor.
For the early political economists, labor was the primary driver of economic value. Production workers
are paid for their time and effort in wages that depend on their skill and training. Labor by an uneducated and
untrained worker is typically paid at low prices. Skilled and trained workers are referred to as human capital
and are paid higher wages because they bring more than their physical capacity to the task. For example, an
accountant’s job requires synthesis and analysis of financial data for a company. Countries that are rich in
human capital experience increased productivity and efficiency.

18
 The difference in skill levels and terminology also helps companies and entrepreneurs arbitrage
corresponding disparities in pay scales. This can result in a transformation of factors of production for entire
industries. An example of this is the change in production processes in the Information Technology (IT)
industry after jobs were outsourced to countries with a trained workforce and significantly lower salaries.
Capital as a Factor
In economics, capital typically refers to money. But money is not a factor of production because it is
not directly involved in producing a good or service. Instead, it facilitates the processes used in production by
enabling entrepreneurs and company owners to purchase capital goods or land or pay wages. For modern
mainstream (neoclassical) economists, capital is the primary driver of value.
As a factor of production, capital refers to the purchase of goods made with money in production. For
example, a tractor purchased for farming is capital. Along the same lines, desks and chairs used in an office
are also capital.
It is important to distinguish personal and private capital in factors of production. A personal vehicle
used to transport family is not considered a capital good. But a commercial vehicle that is expressly used for
official purposes is considered a capital good. During an economic contraction or when they suffer losses,
companies cut back on capital expenditure to ensure profits. During periods of economic expansion, however,
they invest in new machinery and equipment to bring new products to market.
An illustration of the above is the difference in markets for robots in China versus the United States
after the financial crisis. China experienced a multiyear growth cycle after the crisis and its manufacturers
invested in robots to improve productivity at their facilities and meet growing market demands. As a result,
the country became the biggest market for robots. Manufacturers within the United States, which had been in
the throes of an economic recession after the financial crisis, cut back on their investments related to
production due to tepid demand.
Entrepreneurship as a Factor
Entrepreneurship is the secret sauce that combines all the other factors of production into a product or
service for the consumer market. An example of entrepreneurship is the evolution of social media behemoth
Facebook Inc. (FB). Mark Zuckerberg assumed the risk for the success or failure of his social media network
when he began allocating time from his daily schedule towards that activity. At the time that he coded the
minimum viable product himself, Zuckerberg’s labor was the only factor of production.
After Facebook became popular and spread across campuses, Zuckerberg realized that he needed help
to build the product and, along with co-founder Eduardo Saverin, recruited additional employees. He hired
two people, an engineer (Dustin Moskovitz) and a spokesperson (Chris Hughes), who both allocated hours to
the project, meaning that their invested time became a factor of production. The continued popularity of the
product meant that Zuckerberg also had to scale technology and operations. He raised venture capital money
to rent office space, hire more employees, and purchase additional server space for development.
At first, there was no need for land. However, as business continued to grow, Facebook built its own
office space and data centers. Each of these requires significant real estate and capital investments.
Another example of entrepreneurship is Starbucks Corporation (SBUX). The retail coffee chain needs
all four factors of production: land (prime real estate in big cities for its coffee chain), capital (large machinery
to produce and dispense coffee), and labor (employees at its retail outposts for service). The company’s
founder Howard Schulz was the first person to realize that a market for such a chain existed and figured out
the connections between the other three factors of production.
While large companies make for excellent examples, a majority of companies within the United States
are small businesses started by entrepreneurs. Because entrepreneurs are vital for economic growth, countries
are creating the necessary framework and policies in order to make it easier for them to start companies.
Ownership of Factors of Production
The definition of factors of production in economic systems presumes that ownership lies with
households, who lend or lease them to entrepreneurs and organizations. But that is a theoretical construct and
is rarely the case in practice. With the exception of labor, ownership for factors of production varies based on
industry and economic system.
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 For example, a firm operating in the real estate industry typically owns significant parcels of land. But
retail corporations or shops lease land for extended periods of time. Capital also follows a similar model in
that it can be owned or leased from another party. Under no circumstances, however, is labor owned by firms.
Labor’s transaction with firms is based on wages.
Ownership of the factors of production also differs based on the economic system. For example, private
enterprise and individuals own most of the factors of production in capitalism. However, collective good is
the predominating principle in socialism. As such, factors of production, such as land and capital, is owned
and regulated by the community as a whole1.
Special Considerations: Technology's Role in Production
While it is not directly listed as a factor, technology plays an important role in influencing production.
In this context, technology has a fairly broad definition and can be used to refer to software, hardware, or a
combination of both used to streamline organizational or manufacturing processes.
Increasingly, technology is responsible for the difference in efficiency between firms. To that end,
technology, like money, is a facilitator of the factors of production. The introduction of technology into a labor
or capital process makes it more efficient. For example, the use of robots in manufacturing has the potential
to improve productivity and output. Similarly, the use of kiosks in self-serve restaurants can help firms cut
back on their labor costs.
Typically, Solow Residual or Total Factor Productivity (TFP), which measures the residual output that
remains unaccounted for from the four factors of production, increases when technological processes or
equipment are applied to production. Economists consider TFP to be the main factor driving economic growth
for a country. The more a firm or country’s total factor productivity, the more its growth.
Production possibility frontier is the graph which indicates the various production possibilities of
two commodities when resources are fixed. The production of one commodity can only be increased by
sacrificing the production of the other commodity. It is also called the production possibility curve or product
transformation curve
PPF also plays a crucial role in economics. It can be used to demonstrate the point that any nation's
economy reaches its greatest level of efficiency when it produces only what it is best qualified to produce and
trades with other nations for the rest of what it needs.
The PPF is also referred to as the production possibility curve or the transformation curve.
Opportunity Cost and the PPF
 Reallocating scarce resources from one product to another involves an opportunity cost
 If we increase our output of consumer goods (i.e. moving along the PPF from point A to point B) then
fewer resources are available to produce capital goods

20
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&index=14

21
 CHAPTER VII
DEMAND ANALYSIS
Demand analysis is the process of understanding the customer demand for a product or service in a
target market. Companies use demand analysis techniques to determine if they can successfully enter a market
and generate expected profits to expand their business operations. It also gives a better understanding of the
high-demand markets for the company’s offerings, using which businesses can determine the viability of
investing in each of these markets.
DEMAND
When clients want a product and are willing to pay for it, we say that there is a demand for the specific
product. There has to be a demand for a product before a manufacturer can sell it. Demand does not only have
to do with the need to have a product or a service, but also with the willingness and ability to buy it at the
price charged for it.
LAW OF DEMAND
 The law of demand is one of the most fundamental concepts in economics. It works with the law of
supply to explain how market economies allocate resources and determine the prices of goods and
services that we observe in everyday transactions.
 The law of demand states that quantity purchased varies inversely with price provided other factors
(the prices of related goods, Income, population, expectations) remain constant.

P1
P2

X1 X2

 In other words, the higher the price, the lower the quantity demanded.
This occurs because of diminishing marginal utility. That is, consumers use the first units of an
economic good they purchase to serve their most urgent needs first, and use each additional unit of the good
to serve successively lower valued ends.
Demand Curve Characteristics
According to convention, the demand curve is drawn with price on the vertical axis and quantity on
the horizontal axis. The demand curve usually slopes downwards from left to right; that is, it has a negative
association (two theoretical exceptions, Veblen good and Giffen good). The negative slope is often
referred to as the “law of demand”, which means people will buy more of a service, product, or resource as its
price falls.
Shift of a Demand Curve
The shift of a demand curve takes place when there is a change in any non-price determinant of
demand, resulting in a new demand curve.

22
 Non-price determinants of demand are those things that cause demand to change even if prices remain
the same—in other words, changes that might cause a consumer to buy more or less of a good even if the
good’s price remained unchanged.
Some of the more important factors are:
 the prices of related goods (both substitutes and complements)
 income
 population
 expectations
However, demand is the willingness and ability of a consumer to purchase a good under the prevailing
circumstances. Thus, any circumstance that affects the consumer’s willingness or ability to buy the good or
service in question can be a non-price determinant of demand. For example,weather could affect the demand
for cold drink in summers.
LAW OF SUPPLY
SUPPLY
The law of supply is the microeconomic law that states that, all other factors being equal, as the price
of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice
versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their
profits by increasing the quantity offered for sale.
Other things(income, technique of production, transportation cost etc.) remaining unchanged, the supply of a
commodity rises i.e., expands with a rise in its price and falls i.e., contracts with a fall in its price.In other-
words, it can be said that—”Higher the price higher the supply and lower the price lower the supply.

Important assumptions of the law of supply are as follows:

1. No change in the income:
There should not be any change in the income of the purchaser or the seller.
2. No change in technique of production:

23
 There should not be any change in the technique of production. This is essential for the cost to remain
unchanged. With the improvement in technique if the cost of production is reduced, the seller would
supply more even at falling prices.
3. There should be no change in transport cost:
It is assumed that transport facilities and transport costs are unchanged. Otherwise, a reduction in
transport cost implies lowering the cost of production, so that more would be supplied even at a lower
price.
4. Cost of production be unchanged:
It is assumed that the price of the product changes, but there is no change in the cost of production. If
the cost of production increases along with the rise in the price of product, the sellers will not find it
worthwhile to produce more and supply more. Therefore, the law of supply will be valid only if the
cost of production remains constant. It implies that the factor prices such as wages, interest, rent etc.,
are also unchanged.
5. There should be fixed scale of production:
ADVERTISEMENTS:
During a given period of time, it is assumed that the scale of production is held constant. If there is a
changing scale of production the level of supply will change, irrespective of changes in the price of
the product.
6. There should not be any speculation:
The law also assumes that the sellers do not speculate about the future changes in the price of the
product. If, however, sellers expect prices to rise further in future, they may not expand supply with
the present price rise.
7. The prices of other goods should remain constant:
Further, the law assumes that there are no changes in the prices of other products. If the price of some
other product rises faster than that of the product in consideration, producers might transfer their
resources to the other product—which is more profit yielding due to rising prices. Under this situation
and circumstances, more of the product in consideration may not be supplied, despite the rising prices.
8. There should not be any change in the government policies:
Government policy is also important and vital for the law of supply. Government policies like—
taxation policy, trade policy etc., should remain constant. For instance, an increase in or totally fresh
levy of excise duties would imply an increase in the cost or in case there is fixation of quotas for the
raw-materials or imported components of a product, then such a situation will not permit the expansion
of supply with a rise in prices.

Exceptions to the Law of Supply or Backward-Slopping Supply Curve:

As we have seen from the study above that supply of a commodity varies directly with its price. But
in some exceptional cases where supply may tend to fall with the rise in price or tend to rise with the fall in
price.
Such exceptional cases may be described as follows:
1. Exceptions about Future Price:
In this connection if the seller expects a rise in the price in future, he may withhold his stock of the
commodity. He will therefore reduce his supply in the market at the present price. Similarly, if he
expects a further fall in price in future, he will try to dispose of the commodity and will supply more
even at a lower price.
2. Supply of Labour:

24
 Supply of labour after a certain point, when the wage rate rises, its supply will tend to diminish. Why
such situation because workers normally prefer leisure to work after receiving a certain amount of
wage.
3. Rate of Interest and Savings Position:
When there is rise in the interest rate, more savings are induced. But after a certain point of rise in the
rate of interest households may tend to save less than before due to high income from the interest. In
that case savings tend to decline even with a rise in the rate of interest.

Supply and Demand As an Economic Model

Supply and demand is an economic model of price determination in a market. It concludes that in a
competitive market, the unit price for a particular good will vary until it settles at a point where the quantity
demanded by consumers (at current price) will equal the quantity supplied by producers (at current price).
This results in an economic equilibrium of price and quantity.
The four basic laws of supply and demand are:
 If demand increases and supply remains unchanged, then it leads to higher equilibrium price and higher
quantity.
 If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and lower
quantity.
 If demand remains unchanged and supply increases, then it leads to lower equilibrium price and higher
quantity.
 If demand remains unchanged and supply decreases, then it leads to higher equilibrium price and lower
quantity.
Graphical Representation of Supply and Demand
Although it is normal to regard the quantity demanded and the quantity supplied as functions of the
price of the good, the standard graphical representation, usually attributed to Alfred Marshall, has price
on the vertical axis and quantity on the horizontal axis, the opposite of the standard convention for the
representation of a mathematical function.
Since determinants of supply and demand other than the price of the good in question are not explicitly
represented in the supply-demand diagram, changes in the values of these variables are represented by moving
the supply and demand curves (often described as “shifts” in the curves). By contrast, responses to changes in
the price of the good are represented as movements along unchanged supply and demand curves.

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25
 Chapter VIII
THEORY OF CONSUMER DEMAND USING INDIFFERENCE CURVE
TECHNIQUE

 As discussed in the previous chapters, the demand curve that shows relationship between price of a
good and its quantity demanded
 Indifference analysis can help us understand how demand responds to changes in price. Indifference
curves can be used to derive a demand curve.
 In economics, an indifference curve connects points on a graph representing different quantities of
two goods, points between which a consumer is indifferent.
 That is, the consumer has no preference for one combination or bundle of goods over a different
combination on the same curve. One can also refer to each point on the indifference curve as rendering
the same level of utility (satisfaction) for the consumer.
 In other words, an indifference curve is the locus of various points showing different combinations of
two goods providing equal utility to the consumer. Utility is then a device to represent preferences
rather than something from which preferences come.
 The main use of indifference curves is in the representation of potentially observable demand patterns
for individual consumers over commodity bundles. There are infinitely many indifference curves: one
passes through each combination.
For e.g. In the given indifference Curve, a
Consumer is supposed to choose between
mangoes and peaches.
Mangoes Peach 10
A 2 10 5

B 3 5 3

C 4 3
2 3 4
D 5 2
Fig: Indifference curve showing consumer Preference for
combination of Mangoes and peaches

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 CHAPTER IX
PRICING UNDER VARIOUS FORMS OF MARKET
Economists have identified four types of competition—perfect competition, monopolistic
competition, oligopoly, and monopoly.
Perfect Competition
 Perfect competition refers to a market situation where there are a large number of buyers and sellers
dealing in homogenous products.
 Moreover, under perfect competition, there are no legal, social, or technological barriers on the entry
or exit of organizations.
 In perfect competition, sellers and buyers are fully aware about the current market price of a product.
Therefore, none of them sell or buy at a higher rate. As a result, the same price prevails in the market
under perfect competition.
 In perfect competition, the price of a product is determined at a point at which the demand and supply
curve intersect each other. This point is known as equilibrium point. At this point, the quantity
demanded and supplied is called equilibrium quantity.

Figure:Demand Curve for a Firm in a Perfectly Competitive Market: The demand curve for an individual firm is equal to
the equilibrium price of the market. The market demand curve is downward-sloping.

Monopolistic Competition
 In monopolistic competition, we still have many sellers (as we had under perfect competition). Now,
however, they don’t sell identical products. Instead, they sell differentiated products—products that
differ somewhat, or are perceived to differ, even though they serve a similar purpose.
 Products can be differentiated in a number of ways, including quality, style, and convenience,
location, and brand name. Some people prefer Coke over Pepsi, even though the two products are
quite similar.
 But what if there was a substantial price difference between the two? In that case, buyers could be
persuaded to switch from one to the other. Thus, if Coke has a big promotional sale at a supermarket
chain, some Pepsi drinkers might switch (at least temporarily).

27
How is product differentiation accomplished? Sometimes, it’s simply geographical; you probably buy petrol
at the station closest to your home regardless of the bran(HP,IOCL,BPCL ETC.)d. At other times, perceived
differences between products are promoted by advertising designed to convince consumers that one product
is different from another—and better than it. Regardless of customer loyalty to a product, however, if its price
goes too high, the seller will lose business to a competitor. Under monopolistic competition, therefore,
companies have only limited control over price.
Oligopoly

 Oligopoly means few sellers. In an oligopolistic market, each seller supplies a large portion of all the
products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic
industry is usually high, the number of firms entering it is low.
 Companies in oligopolistic industries include such large-scale enterprises as automobile companies
and airlines.
 As large firms supplying a sizable portion of a market, these companies have some control over the
prices they charge.
 But there’s a catch: because products are fairly similar, when one company lowers prices, others are
often forced to follow suit to remain competitive.
 You see this practice all the time in the airline industry: When Indigo Airlines announces a fare
decrease, SpiceJet, Jet Airways and others do likewise. When one automaker offers a special deal, its
competitors usually come up with similar promotions.
Monopoly
 In terms of the number of sellers and degree of competition, monopolies lie at the opposite end of the
spectrum from perfect competition.
 In perfect competition, there are many small companies, none of which can control prices; they simply
accept the market price determined by supply and demand.
 In a monopoly, however, there’s only one seller in the market. The market could be a geographical
area, such as a city or a regional area, and doesn’t necessarily have to be an entire country.
 Most fall into one of two categories: natural and legal. Natural monopolies include public utilities,
such as electricity and gas suppliers(e.g. Indane,). Such enterprises require huge investments, and it
would be inefficient to duplicate the products that they provide. They inhibit competition, but they’re
legal because they’re important to society.
 In exchange for the right to conduct business without competition, they’re regulated. For instance,
they can’t charge whatever prices they want, but they must adhere to government-controlled prices.
As a rule, they’re required to serve all customers, even if doing so isn’t cost efficient.
 A legal monopoly arises when a company receives a patent giving it exclusive use of an invented
product or process. Patents are issued for a limited time, generally 20 years.

28
 o During this period, other companies can’t use the invented product or process without
permission from the patent holder.
o Patents allow companies a certain period to recover the heavy costs of researching and
developing products and technologies.
o A classic example of a legal monopoly can be about company which invents a medicine to treat
cancer. This company will enjoy a patent-based legal monopoly in this medicine. Without
competition, in other words, it will enjoy a monopolistic position in regard to pricing.
o

 Demand curve is steeper for Monopoly Market than for monopolistic Market.

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