201408 Semester I MB0042 Managerial Eco

Topics: Supply and demand, Monopoly, Perfect competition Pages: 6 (2225 words) Published: December 2, 2014
Q.No 1- Inflation is a global Phenomenon which is associated with high price causes decline in the value for money. It exists when the amount of money in the country is in excess of the physical volume of goods and services. Explain the reasons for this monetary phenomenon.

Inflation is commonly understood as a situation of substantial and rapid increase in the level of prices and consequent deterioration in the value of money over period of time. It refers to the advantage rise in the general level of prices and fall in the value of money. Inflation is upward movement in the average level of prices.

Cause of Inflation
1. Demand Side increase in aggregative effective demand is responsible for inflation. In this case, aggregate demand exceeds aggregate supply of goods and services. Demand rises much faster than supply. We can enumerate the following reasons for increase in effective demand. Increase in money supply

Increase in disposable income
Increase in private consumption expenditure & investment
Increase in exports
Existence of black money
Increase in foreign exchange reserves
Increase in population growth
High rates
Reduction in the rates of direct taxes
Reduction in the level of savings
2. Supply Side Generally, the supply of goods and services don’t keep pace with the ever increasing demand for goods and services. Thus, supply does not match the demand. Supply falls short of demand. Increase in supply of goods and services may be limited because of the following reasons. Shortage in the supply of factors of production

Operation of law of diminishing returns
Hoardings by traders and speculators
Hoardings by consumers
Role of trade unions
Role of natural calamities
International factors
Increase in prices of inputs within country
3. Role of Expectations Expectations also play a significant role in accentuating inflation. The following points are worth mentioning. If people expect further rise in prices, the current aggregate demand increases, which in turn causes a rise in prices Expectations about higher wages and salaries affect the prices of related goods Expectations of wage increase often induce some business houses to increase prices even before upward wage revisions are actually made

Q.No 2 Monopoly is the situation there exists a single control over the market producing a commodity having no substitutes with no possibilities for anyone to enter the industry to compete. In that situation, they will not charge a uniform price for all the customers in the market and also the pricing policy followed in that situation

Monopoly means existence of a single seller in the market. Monopoly is that market from I which a single producer controls the whole supply of a single commodity which has no close substitutes. MONOPOLY may be defined, as a condition of production in which a single firm has the power to fix the price of the commodity or the output of the commodity.

Features of Monopoly
Anti-Thesis of competition – Absence of competition in the market creates a situation of monopoly and hence, the seller faces no threat of competition. Existence of a single seller - there will be only one seller in the market who exercises single control over the market. Absence of substitutes – There are no close substitutes for the seller’s product with a strong cross elasticity of demand. Control over Supply – Seller will have complete control over output and supply for the commodity Price Maker – The monopolist is the price maker and in taking decisions on price fixation, he or she is independent .Hence the monopolist can either charge a high price for all customers or adopt price discrimination policy if there are different types of buyers Entry Barriers – Entry of new firms is difficult. Hence , monopolist will not have direct competitors in the market Nature of Firms – The monopoly firm may be a proprietary concern, partnership concern, joint Stock company or a public utility which...
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