Economic dualism refers to the existence of a developed sector side by side with an under developed or undeveloped sector. We will come across the co-existence of sophistication and primitive characteristics in every walk of life. For example, in the urban areas, one will find the use of modem technology in the production field as well as households, while in the rural areas, the age old, antiquated techniques will be used in the production as well as in households. This dualism retards economic growth. That is, the subsistence sector in the rural areas will pull down whatever little economic progress is achieved with the developed and modem sector. Further in the urban areas, one can come across the existence of dualism, in every activity. For instance there will be modern, technologically sophisticated industries existing side by side with industries with labor intensive and poor technology. There will be high wage executives existing with poorly paid slum dwellers. Firms with international collaboration producing ultra modem products will be found along with the domestic firms using inferior technology.…
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Cost Reduction in Managerial Economics
The Institute of Cost and Works Accounts of London has defined cost reduction as “the achievement of real and permanent reductions in the unit costs of goods manufactured or services rendered without impairing their suitability for the use intended”. Thus, cost reduction is confined to savings in the cost of manufacture, administration, distribution and selling by eliminating wasteful and unnecessary elements from the product design and from the techniques and practices carried out in connection with cost control.
Cost Control and Cost Reduction
According to the Institute of Cost and Works Accounts, London, “cost control, as generally practiced, lacks the dynamic approach to many factors affecting costs, which determine the need of cost reduction.” For example, under cost control, the tendency is to accept standards once they are fixed and leave them unchallenged over a period. In cost reduction, on the other hand, standards must be constantly challenged for improvement. And there is no phase of business, which is exempted from the cost reduction.…
Read More »Determinants of Demand
The knowledge of the determinants of market demand for a product or service and the nature of relationship between the demand and its determinants proves very helpful in analyzing and estimating demand for the product. It may be noted at the very outset that a host of factors determines the demand for a product or service. In general, following factors determine market demand for a product or service:
- Price of the product
- Price of the related goods-substitutes, complements and supplements
- Level of consumers income
- Consumers taste and preference
- Advertisement of the product
- Consumers expectations about future price and supply position
- Demonstration effect or ‘bend-wagon effect’
- Consumer-credit facility
- Population of the country
- Distribution pattern of national income.
These factors also include factors such as off-season discounts and gifts on purchase of a good, level of taxation and general social and political environment of the country. However, all these factors are not equally important. Besides, some of them are not quantifiable. For example, consumer’s preferences, utility, demonstration effect and expectations, are difficult to measure.
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Measures to Control Inflation
Inflation should be controlled in the beginning stage, otherwise it will take the shape of hyper-inflation which will completely run the country. The different methods used to control inflation are known as anti-inflationary measures. These measures attempt mainly at reducing aggregate demand for goods and services on the basic assumption that inflationary rise in prices is due to an excess of demand over a given supply of goods and services.
Read more: Economic Policies to Control Inflation
Anti-inflationary measures are of four types:
- Monetary policy
- Fiscal policy
- Price control and rationing
- Other methods
1. Monetary Policy
It is the policy of the central bank of the country, which is the supreme monetary and banking authority in a country. The central bank may use such methods as the bank rate, open market operations, the reserve ratio and selective controls in order to control the credit creation operation of commercial banks and thus restrict the amounts of bank deposits in the country. This is known as tight money policy.…
Read More »Sectoral Demand-Shift Theory of Inflation
Under demand-pull inflation, we have shown how expansion in aggregate demand without a proportionate increase in the supply of goods and services leads to an inflationary situation. However, it is not necessary to have a general increase in demand to bring about inflationary pressure. Sometimes, the increase in demand may be confined to some sector of the economy and this increase in demand and the consequent rise in the price in a particular sector may spread to other sectors. Suppose the demand for agricultural goods rises because of inadequate supplies of these goods, there would be a consequent rise in the price of agricultural goods. Thus, the rise in prices spreads to all other sectors in the economy, through rise in the prices of raw materials and wages. The rise in prices in the agricultural sector may push up prices in the industrial sector. Therefore, the inflationary rise in the price level is due to sectoral shifts in demand.
The “sectoral demand theory” of inflation emphasizes the fact that prices are highly flexible upwards but relatively rigid downwards, for example, there may be rise in prices in the agricultural sector where there is scarcity whereas price stability in the industrial sector where there is an excess supply.…
Read More »Demand-Pull and Cost-Push Inflation
The term ‘inflation’ is used in many senses and it is difficult to give a generally accepted, precise and scientific definition of the term. Popularly, inflation refers to a rise in price level.
Read More:
- Definition of Inflation and it’s Types
- Causes and Effects of Inflation
- The Stages of Inflation
- Keynesian View of Inflation
- Effects of Inflation on Different Groups of Society
We can distinguish between two kinds of inflation on the basis of their causes, viz., demand-pull and cost-push inflation.
Demand-Pull Inflation
The most common cause for inflation is the pressure of ever-rising demand on a stagnant or less rapidly increasing supply of goods and services. The expansion in aggregate demand may be due to rapidly increasing private investment or expanding government expenditure for war or economic development. At a time when demand is expanding and exerting pressure on prices, attempts are made to expand production. However, this may not be possible either due to non-availability of employed resources or shortages of transport, power, capital and equipment.…
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