Task 13 Afzal

TASK:- 13
QUESTION 1
A.Explain how firms and individuals participate and interact in the product
market and in the factor market?
Answer:
In the product market, households buy goods and services
from businesses in exchange for money.
While in the factor market, the businesses buy labour from households in
exchange for money. Households interact with businesses in the factor
market every time a person does paid work for a company.
B.What role does profit plays in Market System?

Answer:
Profit plays two primary roles in the free-market system:
First, it acts as a signal to producers to increase or decrease the rate of
output, or to enter or leave an industry.
Second, profit is a reward for entrepreneurial activity, including risk taking
and innovation.
While profit maximisation is the most important objective of the firm
which result in:
1. Maximisation of sales revenue.
2. Maximisation of firm’s growth rate
3. Maximisation of manager’s own utility or satisfaction
4. Making a satisfactory rate of profit.
5. Long-run survival of the firm
6. Entry-prevention and risk avoidance.
QUESTION 02
Explain the concept and various determinants of market demand.
Answer:
Market Demand is the total quantity of a commodity demanded by all the
buyers/individuals at a given price, other things remaining same is called
the market demand.
Determinants of Market Demands:-
1) Price of the product:
As the market determinant, the price of a product and its
quantity demanded are inversely related.
According to law of demand, the quantity demanded increases when
the price falls and decreases when the price rises, other things
remaining the same.
2) Price of the Related Goods:
The related goods may be
the substitute or complementarygoods.
A substitute good is the one, if they satisfy the same want of an
individual(tea and coffee). Change in the price of one
commodity affects the demand for another in the same
direction.
A complimentary good is the one, which is used as a
compliment of each other such as tea and sugar. Their market
demand increase or decrease simultaneously.
3) Consumer’s Income:
It decides the purchasing power of the consumers.
Thus, people with higher disposable income spend a larger
amount of income on consumer goods and services as
compared to those with lower disposable income.
4) Consumers’ tastes and preferences:
Tastes and preferences often depend on the lifestyle, culture,
social customs, hobbies, age and sex of the consumers and the
religious sentiments attached to a commodity.
Write a detailed note on - Price output decisions in multi plant firms.
Answer:
The Multiplan monopolist will need to decide whether to produce in both
plants or just in one plant. This decision depends on each plant’s marginal
costs.
If it has increasing marginal costs, the Multiplan monopoly will produce in
either plant, taking into account the marginal total cost of both firms. If
there are decreasing marginal costs, it will produce only in one plant, the
one with the steepest marginal cost curve, provided it has equal or
lower fixed costs than the other plant.
If marginal costs are constant and equal in both plants, the multiplant
monopolist can produce in either plant, as long as capacity allows it. If
demand can be reached with only one plant, the others must be shut
down.
If marginal costs are constant but different in each plant, production
should take place only in the plant with lowest marginal costs, as long as
maximum capacity is not reached. When this maximum capacity is
reached, production will be moved to the other plant.
QUESTION 03
Elaborate the meaning and various types of cost in detail.
Answer:
Cost is defined as the cash amount (or the cash equivalent) given up for an
asset. Cost includes all costs necessary to get an asset in place and ready
for use.
Types of cost:-
1) Direct Costs:
Direct costs are related to producing a good or service. A direct
cost includes raw materials, labor, and expense or distribution costs
associated with producing a product.
2) Indirect Costs:
Indirect costs, on the other hand, are expenses unrelated to
producing a good or service. An indirect cost cannot be easily traced
to a product, department, activity, or project.
3) Fixed Costs:
Fixed costs do not vary with the number of goods or services a
company produces over the short term. For example, suppose a
company leases a machine for production for two years.
4) Variable Cost:
Variable costs fluctuate as the level of production output
changes, contrary to a fixed cost. This type of cost varies depending
on the number of products a company produces. A variable cost
increases as the production volume increases, and it falls as the
production volume decreases.
Discuss meaning of risk. Explain the decision making under risk in detail.
Answer:
Risk is defined in financial terms as the chance that an outcome or
investment's actual gains will differ from an expected outcome or
return. Risk includes the possibility of losing some or all of an original
investment.
Decision making under risk and Uncertainty example
In case of decision-making under uncertainty the probabilities of
occurrence of various states of nature are not known. When these
probabilities are known or can be estimated, the choice of an optimal
action, based on these probabilities, is termed as decision making under
risk.
The process is as follows:
1) The problem is defined and all feasible alternatives are
considered. The possible outcomes for each alternative are evaluated.
2) Outcomes are discussed based on their monetary payoffs or net
gain in reference to assets or time.
3) Various uncertainties are quantified in terms of probabilities.
4) The quality of the optimal strategy depends upon the quality of
the judgments. The decision-maker should identify and examine the
sensitivity of the optimal strategy with respect to the crucial factors.
QUESTION 04
Explain composition and functions of money market in India.
Answer:
A market can be described as a money market if it is composed of
highly liquid, short-term assets. Money market funds typically invest in
government securities, certificates of deposit, commercial paper of
companies, and other highly liquid, low-risk securities.
Functions of Indian money markets
The major functions of such market instrument are to cater to the
short-term financial needs of the economy. Some other functions are as
following:
1) It helps in effective implementation of the RBI’s monetary policy.
2) This market helps to maintain demand and supply equilibrium
with regard to short-term funds.
3) It also meets the need for short-term fund requirement of the
government.
4) It helps in maintaining liquidity in the economy.
Discuss role of Securities and Exchange Board of India (SEBI) in monitoring

regulating capital market in India
Functions of SEBI
The functions and powers of SEBI have been listed in the SEBI
Act,1992. SEBI caters to the needs of three parties operating in the Indian
Capital Market.
These three participants are mentioned below:
1) Issuers of the Securities:
Companies that issue securities are listed on the stock exchange.
They issue shares to raise funds. SEBI ensures that the issuance of
Initial Public Offerings (IPOs) and Follow-up Public Offers (FPOs)
can take place in a healthy and transparent way.
2) Protects the Interests of Traders & Investors:
It is a fact that the capital markets are functioning just because
the traders exist. SEBI is responsible for safeguarding their
interests and ensuring that the investors do not become victims of
any stock market fraud or manipulation.
3) Financial Intermediaries:
SEBI acts as a mediator in the stock market to ensure that all the
market transactions take place in a secure and smooth manner. It
monitors every activity of the financial intermediaries, such as
broker, sub-broker, NBFCs, etc
QUESTION 05
Write note on:
i) Difference between WTO and GATT:
GATT can be described as a set of rules, multilateral trade
agreement, that came into force, to encourage international trade and
remove cross-country trade barriers while WTO is an international
organization, that came into existence to oversee and liberalize trade
between countries.
The rules of GATT are only for trade in goods. While, the rules of
WTO includes services and aspects of intellectual property along with the
goods.
ii) GDP and PPP:
Nominal GDP does not take into account differences in the cost of
living in different countries. To account for the differences in the cost of
living between countries, we use the PPP exchange rate for conversion.
The PPP exchange rate is the ratio of the currencies' purchasing power.
Define following terms in relation with Union Budget:

i) Revenue Account:
As mentioned in the first part, the government has to present
a revenue budget (revenue account) and capital budget (capital account)
for all the three funds. The revenue account of the consolidated fund is
split into two parts, receipts and disbursements - simply, income and
expenditure
ii) Capital Account:
Deals with receipts and expenditures that lead to the creation or
dilution of assets. Needless to say, the capital account is divided into
receipts and disbursements. While the capital receipts lead to dilution of
an asset, the opposite is true about capital disbursements.
iii) Revenue deficit:
Revenue Deficit is the excess of its total revenue expenditure to its
total revenue receipts. Revenue Deficit is only related
to revenue expenditure and revenue receipts of the government. The
difference between total revenue expenditure to the
total revenue receipts is Revenue Deficit.
iv) Capital deficit:
When a company has a capital deficit, they lack this cash buffer. In
some instances, the company may lack a capital buffer all together and
instead be sustaining itself on loans or depending upon continued sales to
stay afloat. If this is the case, the company could experience difficulty
should the market take a turn for the worst.
v) Plan and non-plan expenditure
a) Plan Expenditure:Any expenditure that is incurred on programmes
which are detailed under the current (Five Year) Plan of the centre or
centre’s advances to state for their plans is called plan expenditure.
Provision of such expenditure in the budget is called Plan Expenditure.
Expressed alternatively, “plan expenditure is that public expenditure
which represents current development and investment outlays
(expenditure) that arise due to proposals in the current plan.” Such
expenditure is incurred on financing the Central plan relating to
different sectors of the economy.
b) Non-Plan Expenditure:This refers to the estimated expenditure
provided in the budget for spending during the year on routine
functioning of the government. Non- Plan expenditure is all expenditure
other than plan expenditure of the govt. Such expenditure is a must for
every country, planning or no planning.For instance, no government can
escape from its basic function of protecting the lives and properties of
the people and protecting the country from foreign invasions. For this,
the government has to spend on police, Judiciary, military, etc.
Similarly, the government has to incur expenditure on normal running
of government departments and on providing economic and social
services.
Afzal A
MBA RBS
TVM

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TASK:- 13

B.What role does profit plays in Market System?

Discuss role of Securities and Exchange Board of India (SEBI) in monitoring

Define following terms in relation with Union Budget:

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