Types of Goods With Example-Economics

Types of Goods With Example-Economics

Normal goods:

Normal goods - the quantity demanded of such commodities increases as the consumer’s income increases and decreases as the consumer’s income decreases. Such goods are called normal goods.
Example of Types of Goods: Bread, Clothings etc

Giffen goods:

Giffen goods - a Giffen good is an inferior good which people consume more of as price rises, violating the law of demand.. In the Giffen good situation, cheaper close substitutes are not available. Because of the lack of substitutes, the income effect dominates, leading people to buy more of the good, even as its price rises.
Example of Types of Goods:

Substitutes goods:

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Disadvantages of Monopolistic Competition

Disadvantages of Monopolistic Competition

1. They Can be Wasteful -- Liable of Excess Capacity-Monopolistic Competition

A negative factor of firms that are in monopolistic competition is that they don't produce enough output to efficiently lower the average cost and benefit from economies of scale. As if they were to do this (as from the graph)[4405] they are reducing their 'economic profits', as a result of the marginal revenue being less than that of the marginal cost. Moreover, the funding and expense that goes into packaging, marketing and advertising can deemed extremely wasteful on some levels.

2. Allocatively Inefficient -Monopolistic Competition

Compared with perfect competition, it can be shown that such firms (particularly from the video above) that there is an element of allocation efficiency as the price is above that of the marginal cost curve -- less so in the long run, due to more competition.

As the demand curve is one which is downward sloping this then implies the price has to be greater than the marginal cost for a monopolistically competitive firm. Hence it is allocatively inefficient as not enough of the product gets produced for society to benefit -- they want more, however this would force the company to lose money.

3. Higher Prices -Monopolistic Competition

Another drawback of a monopolistic competition, is that as a result of firms having 'some market power', they can extenuate a mark-up on the marginal cost of revenue. Compared to a perfectly competitive firm, who have their price equal to their marginal cost.

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Advantages of Monopolistic Competition

Monopolistic Competition

The model of monopolistic competition describes a common market structure in which firms have many competitors, but each one sells a slightly different product. Monopolistic competition as a market structure was first identified in the 1930s by American economist Edward Chamberlin, and English economist Joan Robinson.

Definition:

Many small businesses operate under conditions of monopolistic competition, including independently owned and operated high-street stores and restaurants. In the case of restaurants, each one offers something different and possesses an element of uniqueness, but all are essentially competing for the same customers.

Advantages of Monopolistic Competition

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Monopolistic Competition

Monopolistic Competition

The model of monopolistic competition describes a common market structure in which firms have many competitors, but each one sells a slightly different product. Monopolistic competition as a market structure was first identified in the 1930s by American economist Edward Chamberlin, and English economist Joan Robinson.

Many small businesses operate under conditions of monopolistic competition, including independently owned and operated high-street stores and restaurants. In the case of restaurants, each one offers something different and possesses an element of uniqueness, but all are essentially competing for the same customers.

Characteristics of Monopolistic Competition:

Monopolistic competitive markets exhibit the following characteristics:
(1) Each firm makes independent decisions about price and output, based on its product, its market, and its costs of production.
(2) Knowledge is widely spread between participants, but it is unlikely to be perfect. For example, diners can review all the menus available from restaurants in a town, before they make their choice. Once inside the restaurant, they can view the menu again, before ordering. However, they cannot fully appreciate the restaurant or the meal until after they have dined.
(3) The entrepreneur has a more significant role than in firms that are perfectly competitive because of the increased risks associated with decision making.
(4) There is freedom to enter or leave the market, as there are no major barriers to entry or exit.
(5) A central feature of monopolistic competition is that products are differentiated.

There are four main Types of differentiation:

(a) Physical product differentiation, where firms use size, design, colour, shape, performance, and features to make their products different. For example, consumer electronics can easily be physically differentiated.
(B) Marketing differentiation, where firms try to differentiate their product by distinctive packaging and other promotional techniques. For example, breakfast cereals can easily be differentiated through packaging.
(c) Human capital differentiation, where the firm creates differences through the skill of its employees, the level of training received, distinctive uniforms, and so on.

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Monopoly

Monopoly And Its Advantage/Disadvantage:

Monopoly is a market situaltion of a single seller or producer. As my previous topic was 

Perfect Compitition And Imperfect Compition‏ So you may see this by clicking on this topic. Today my topic is on monopoly that what is monopoly? What is its Advantage and Disadvantage from economy point of view. These all questions are resolved below:

A monopoly is simply a market with only one seller and no close substitutes for that seller's product. Technically, the term "monopoly" is supposed to refer to the market itself, but it's become common for the single seller in the market to also be referred to as a monopoly (rather than as having a monopoly on a market). It's also fairly common for the single seller in a market to be referred to as a monopolist.

Monopolies arise because of barriers to entry that inhibit other companies from entering the market and exerting competitive pressure on the monopolist. These barriers to entry exist in multiple forms, so there are a number of specific reasons that monopolies can exist. 

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Perfect Compitition And Imperfect Compition‏

Perfect Compitition And Imperfect Compition‏

Competition is very common and often times very aggressive in a free market place where a large number of buyers and sellers interact with one another. Economic theory describes a number of market competitive structures that takes into account the differences in the number of buyers, sellers, products sold, and prices charged. There are two extreme forms of market competitive conditions; namely, perfectly competitive and imperfectly competitive. The following article provides a clear overview of each type of market competitive structures and provides an explanation of how they are different to one another.

What is Perfect Competition?

Perfect competition is where the sellers within a market place do not have any distinct advantage over the other sellers since they sell a homogeneous product at similar prices. There are many buyers and sellers, and since the products are very similar in nature there is little competition as the buyer’s needs could be satisfied by the products sold by any seller in the market place. Since there are a large number of sellers each seller will have smaller market share, and it is impossible for one or few sellers to dominate in such a market structure.

Perfectly competitive market places also have very low barriers to entry; any seller can enter the market place and start selling the product. Prices are determined by the forces of demand and supply and, therefore, all sellers must conform to a similar price level. Any company that increases the price over competitors will lose market share since the buyer can easily switch to the competitor’s product.

What is Imperfect Competition?

Imperfect competition as the word suggests is a market structure in which the conditions for perfect competition are not satisfied. This refers to a number of extreme market conditions including monopoly, oligopoly, monopsony, oligopsony and monopolistic competition. Oligopoly refers to a market structure in which a small number of sellers compete with each other and offer a similar product to a large number of buyers. Since the products are so similar in nature, there is intense competition among market players, and high barriers to entry since most new firms may not have the capital, technology to startup.

A monopoly is where one firm will control the entire market place, and will hold 100% market share. The firm in a monopoly market will have control over the product, price, features, etc. Such firms usually hold a patented product, proprietary knowledge/technology or holds access to a single important resource. Monospsony is where there are many sellers in the market with just one buyer and oligopsony is where there are a large number of sellers and a small number of buyers. Monopolistic competition is where 2 firms within a market place sell differentiated products that cannot be used as substitutes to each other.

Perfect competition

A perfectly competitive market is a hypothetical market where competition is at its greatest possible level.  Neo-classical economists argued that perfect competition would produce the best possible outcomes for consumers, and society.

Key Characteristics

Perfectly competitive markets exhibit the following characteristics:
There is perfect knowledge, with no information failure or time lags.  Knowledge is freely available to all participants, which means that risk-taking is minimal and the role of the entrepreneur is limited.

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IMPORTANCE OF MACROECONOMICS

What is Importance Of Macro Economics

My last topic was MONOPOLY you may see after clicking this hyper linked word. Today my topic is about Importance of macro economics, The importance of macro-economics can be analysis on the basis of following headings:

Public policy formulation :

Macro-economics is useful for formulation and execution of government policies.The main concern of government is with the people.Hence,the attention of government is focused on general price level.Level of production,volume of trade and so on.

Simple study of all sectors:

The study of all sectors need the macro-economic approach.In modern days there are many things to be studies by men.It is almost impossible to study them individually.

Understand general unemployment :

The use of micro-economics is useful to solve complex economic problems of present day.The causes,effects and remedies of general unemployment can be understood from micro-economics.The general unemployment occurs due to the deficiency of effective demand.

Evaluate the performance of the economy :

Micro-economy is useful to evaluate the performance of the economy based on national income.One the basis of the analysis of national income we can say whether the economy is performing well or not.

Formulate the strategy of economic growth :

The study of economic growth the scope of macro-economics.The capacity and source of growth of the economy can be found out from macro-economics.The strategy to increase production income,investment and employment to augment economic growth can like fiscal and monetary policies.

Solution of monetary problems :

The monetary policy can be understand and analysis from macro-economics.The inflation and deflation have serious effects on the economy.

Understand trade cycle :

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Capital Factor Of Production

Factor Of Production

All four factors of production categories are important to the production of goods used in the wants-and-needs-satisfying process that keeps human beings alive from one day to the next and makes living just a little more enjoyable. Land provides the basic raw materials that become the goods. Labor does the hands-on work. Capital is the tools that makes the job easier. And entrepreneurship organizes the entire process. 

Capital

Capital has two economic definitions as a factor of production. Capital can represent the monetary resources companies use to purchase natural resources, land and other capital goods. Monetary resources flow through a nation’s economy as individuals buy and sell resources to individuals and businesses.

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Labor Factor Of Production

Labor

Labor represents the human capital available to transform raw or national resources into consumer goods. Human capital includes all able-bodied individuals capable of working in the nation’s economy and providing various services to other individuals or businesses. This factor of production is a flexible resource as workers can be allocated to different areas of the economy for producing consumer goods or services. Human capital can also be improved through training or educating workers to complete technical functions or business tasks when working with other economic resources.

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Land Factor Of Production

Land

Land is the economic resource encompassing natural resources found within a nation’s economy. This resource includes timber, land, fisheries, farms and other similar natural resources. Land is usually a limited resource for many economies. Although some natural resources, such as timber, food and animals, are renewable, the physical land is usually a fixed resource. Nations must carefully use their land resource by creating a mix of natural and industrial uses. Using land for industrial purposes allows nations to improve the production processes for turning natural resources into consumer goods.

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Organization‏ Factor Of Production

Factor Of Production

All four factors of production categories are important to the production of goods used in the wants-and-needs-satisfying process that keeps human beings alive from one day to the next and makes living just a little more enjoyable. Land provides the basic raw materials that become the goods. Labor does the hands-on work. Capital is the tools that makes the job easier. And entrepreneurship organizes the entire process. 

Factors of Production – Organization (Enterprise)

Organization (Enterprise): Organization of Enterprises means to plan a business, to start it and run it. It means to bring the factors i.e. land, labour and capital together to undertake a business or production process.

Organization implies not only running the business but also shouldering the loss, if any. The man who undertakes all this work is called as organizer or Entrepreneur.

Importance of Organization (Enterprise): 

Now a day, organization is very important as Production process has become too much complicated one. A small happening in the country or abroad influences the business. The organization if done properly the production process will not hamper. Hence proper planning and execution of business is necessary. In view of this the job of organizer becomes very important. Therefore whole time devotion of organizer is required for successful business. The other factors land is possessed by land owner, capital is possessed by capitalist and labourer is only ready to offer. They lay scattered hence these three needs to he combined and It is the job of organizer. Thus, organization would absent perhaps there would not be any production.

Functions of organizer (Entrepreneur): 

The following are the function of organizer.

1) Initiation: (Enterprise)

Taking the review of situation and availability of resources organizer initiates a business or production. Here planning of business is undertaken.

2) Organization: (Enterprise)

Organizer now combines the land, labour and capital resources and starts the business or production.

3) Direction and supervision: 

During the course of production proper direction and timely supervision is required. Thus, organize executes the business in a proper way.

4) Control: (Enterprise)

Organizer is keeping watch on changing situation. Because of changes in situation in respect of marketing, Govt. decision, etc. will hamper the business. Therefore control is also important.

5) Risk taking: (Enterprise)

Risk means uncertainty. It may be physical or market risk. The business can not be always in profit. Sometimes losses are required to accept. Risk taking is therefore becomes an important function of an organizer.

6) Innovation: (Enterprise)

A successful organizer is always innovative. He can introduce new method or commodity in the production process or in business.

CAPTITAL

LABOUR

LABOR

ORGANIZATION

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IMPORTANCE OF MICROECONOMICS

What are the Importance Of Micro Economics

Before Keynesian revolution, the body of economics mainly consisted of micro economics. The classical economics as well as the neo-classical economics belonged to the domain of micro economics. The importance and uses of micro economics in brief are as under:

Microeconomics important to understand the working of free market  economy. It tells us as to how the prices of the products and the factors of production are determined. It throws light as to how the goods and services produced are distributed among the various people for consumption through market mechanism.

Helps in knowing the conditions of efficiency. Micro economics helps in explaining the conditions of efficiency in consumption, production and in distribution of the rewards Of factors of production. It highlights the factors which are responsible for the departure from achieving the optimum efficiency. It suggests policies also which help in the promotion of economic efficiency of the people.

Working of the economy without central control. The micro economics reveals how a free enterprise economy functions without any central control.

It is a Study of welfare economy. Micro economics involves the study of welfare economics

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Money And Its Functions

The Economics Glossary defines money as:

Money is a good that acts as a medium of exchange in transactions. Classically it is said that money acts as a unit of account, a store of value, and a medium of exchange. Most authors find that the first two are nonessential properties that follow from the third. In fact, other goods are often better than money at being intertemporal stores of value, since most monies degrade in value over time through inflation or the overthrow of governments.

Function Of Money:

Money is any good that is widely accepted in exchange of goods and services, as well as payment of debts. Most people will confuse the definition of money with other things, like income, wealth, and credit. Three functions of money are:

1. Medium of exchange: 

Money can be used for buying and selling goods and services. If there were no money, goods would have to be exchanged through the process of barter (goods would be traded for other goods in transactions arranged on the basis of mutual need). For example: If I raise chickens and want to buy cows, I would have to find a person who is willing to sell his cows for my chickens. Such arrangements are often difficult. But Money eliminates the need of the double coincidence of wants.

2. Unit of account: 

Money is the common standard for measuring relative worth of goods and service

3. Store of value: 

Money is the most liquid asset (Liquidity measures how easily assets can be spent to buy goods and services). Money’s value can be retained over time. It is a convenient way to store wealth.

4.Standard of Deferred Payments:

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MONOPSONY

What is Monopsony

Monopsony is a market in which a single buyer completely controls the demand for a good. While the market for any type of good, service, resource, or commodity could, in principle, function as monopsony, this form of market structure tends to be most pronounced for the exchange of factor services.
While the real world does not contain monopsony in its absolute purest form, labor markets in which a single large factory is the dominate employer in a small community comes as close as any.

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MARKET EQUILIBRIUM

What is Market Equilibrium?

When the supply and demand curves intersect, the market is in equilibrium.  This is where the quantity demanded and quantity supplied are equal.  The corresponding price is the equilibrium price or market-clearing price, the quantity is the equilibrium quantity.

Figure#01

The market equilibrium, also known as the point where market forces meet is basically the intersection of the demand and supply. In economics, we talk about the effect of a price change on the whole market, therefore we include both consumers and producers in our analysis. Every market needs to be in equilibrium in order to prosper, and countries work towards finding the best equilibrium aswell as finding ways to keep up with the equilibrium price. Too much supply of a good will cause excess of supply whereas if too little is demanded, it results in excess of demand.

Surplus And Shortage:(Market Equilibrium)

If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus.  Market price will fall.

Example: if you are the producer, you have a lot of excess inventory that cannot sell. Will you put them on sale? It is most likely yes. Once you lower the price of your product, your product’s quantity demanded will rise until equilibrium is reached. Therefore, surplus drives price down.

Figure#02

If the market price is below the equilibrium price, quantity supplied is less than quantity demanded, creating a shortage. The market is not clear. It is in shortage. Market price will rise because of this shortage.

Example: if you are the producer, your product is always out of stock. Will you raise the price to make more profit? Most for-profit firms will say yes. Once you raise the price of your product, your product’s quantity demanded will drop until equilibrium is reached.  Therefore, shortage drives price up.

If a surplus exist, price must fall in order to entice additional quantity demanded and reduce quantity supplied until the surplus is eliminated.  If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.

Here at poitn "B" this is surplus because quantity supply is greater then the quantity demanded. And at the point of "A" quantity demanded is greater then quantity supply so there is a shortage point.

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LAW OF DEMAND

LAW OF SUPPLY

WHAT IS DEMAND

MARKET EQUILIBRIUM

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WHAT IS SUPPLY/ LAW OF SUPPLY

Definition of 'Supply'

A fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph. This relates closely to the demand for a good or service at a specific price; all else being equal, the supply provided by producers will rise if the price rises because all firms look to maximize profits.

Definition of 'Law Of Supply'

''A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity of goods or services offered by suppliers increases and vice versa''. 

SUPLLY CURVE

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Economics

Definition of 'Economics'

A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants. Economics can generally be broken down into: macroeconomics, which concentrates on the behavior of the aggregate economy; and microeconomics, which focuses on individual consumers.
Economics is often referred to as "the dismal science."

General Characteristics

Economics studies human welfare in terms of the production, distribution, and consumption of goods and services. While there is a considerable body of ancient and medieval thought on economic questions, the discipline of political economy only took shape in the early modern period. Some prominent schools of the seventeenth and eighteenth centuries were Cameralism (Germany), Mercantilism (Britain), and Physiocracy (France). Classical political economy, launched by Adam Smith's Wealth of Nations (1776), dominated the discipline for more than one hundred years. American economics drew on all of these sources, but it did not forge its own identity until the end of the nineteenth century, and it did not attain its current global hegemony until after World War II. This was as much due to the sheer number of active economists as to the brilliance of Paul Samuelson, Milton Friedman, and Kenneth Arrow, among others. Prior to 1900, the American community of economists had largely been perceived, both from within and from abroad, as a relative backwater. The United States did not produce a theorist to rival the likes of Adam Smith (1723–1790), David Ricardo (1772–1823), or Karl Marx (1818–1883).

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