Monopoly refers to a market situation where there is a single firm selling the commodity and there is no close substitute of the commodity , e.g. , Posts and telegraphs ,Issue of currency notes by RBI, etc . Monopoly is opposite of perfect competition. Since a monopolist is more or less free to charge any price for his product, therefore, a monopolist is said to be the price taker not a price maker.
In monopoly, the distinction between the industry and firm is not there. The monopolist firm is not only a firm, it also constitutes the whole industry. It is the only firm producing the product in question. The firm, thus, takes on the characteristics of the industry and has a demand (average revenue) curve, which slopes downward just as the demand curve for the product of an industry. The demand curve of the monopolist coincides with the industry demand curve. Its slope represents the extent of control of the monopolist over the price of the product.
Features of monopoly
Single seller of the commodity:
There is only one seller or producer of a commodity in the market. As a result, the monopoly firm has full control over the supply of the commodity the monopolist may be an individual, affirm or a group of firms or a government corporation or even government itself.
Absence of close substitute of product:
The product sold by the monopolist has no close substitute. Though some Substitutes if the product may be available, yet they are no close substitutes in the sense that such substitutes are not identical to the product.
Difficult entry of a new firm:
The monopolist controls the situation in such a way that it becomes very difficult for a new firm to enter a monopoly market and complete with the monopolist by producing a homogeneous or identical product. The monopolist tries his utmost to block the entry of a new firm.
Negative sloped demand curve:
The demand curve (or AR curve) facing a monopolist is negatively sloped which indicates that a monopolist can sell more only by the lowering price. Price has to be reduced to sell additional units. Since monopolist is only seller in the market, therefore the demand curve facing him is the market demand curve.
Price maker with constraints:
Since a monopoly firm is the only seller and has no competitor, therefore it can fix the price partially. It has substantial influence over the price of its product by manipulating its supply. It is because of this position that monopolist is said to be a price maker.
Price discrimination:
Unlike uniform prices at which a product is sold in perfect competition, a monopolist can charge different prices for his product from different persons and in different markets areas. In other words, price discrimination takes place in monopoly.
REVENUE
Where,
P = price
Q = quantity
TR, MR AND AR
TR(Total revenue):
It may be defined as the total amount of money realised by the firm from the sale of its total output. It is the same thing as the total expenditure by the buyers on purchase of the product of the firm.
TOTAL REVENUE= PRICE PER UNIT * NUMBER OF UNIT SOLD
AR( Average revenue):
It is the revenue per unit of the product sold; AR is calculated by dividing the total revenue by the no of unit sold.
AVERAGE REVENUE = TOTAL REVENUE
NO OF UNITS SOLD
MR(Marginal revenue):
Marginal revenue is the addition to the total revenue from sale of an additional unit of a commodity; it is the net addition to the total revenue. When an additional unit of output is sold.
MARGINAL REVENUE = SUM OF TOTAL REVENUE
CHANGE IN UNITS
RELATIONSHIP BETWEEN TR, MR AND AR
TR increases when MR is positive, decreases when MR is negative (i.e. below zero) and becomes maximum when MR is zero.
MR decreases with an increase in output because more of a product can be sold by reducing its price. In the beginning MR is positive and after a certain level of output, MR becomes negative.
TR increases with output initially and then it decreases. Thus graphically TR curve rises initially and then falls. As a result, TR curve is inversely U- shaped.
AR curve of the firm is in fact, demand curve faced by the firm because AR of a firm is equal to price of the commodity. Monopolist AR curve like demand curve is downward sloping (or negatively sloped) which means more can be sold at a lower price.
MR is less than AR (MR< AR) and therefore, MR curves lies below AR curve. MR is less than AR because a monopolist firm can sell more by lowering price
.TR curve is inverse U- shaped because TR increases in the beginning and then decreases with output.
SCHEDULE AND DIAGRAM
OUTPUT
PRICE (RS)
TR (RS)
AR(RS)
MR(RS)
1
20
20
20
20
2
18
36
18
16
3
16
48
16
12
4
14
56
14
8
5
12
60
12
4
6
10
60
10
0
7
8
56
8
-4
8
6
48
6
-8
Q "Inferior goods are not those goods in case of which the law of demand fails, inferior goods are those goods in case of which income effect is negative or these are the goods the demand for which decreases when income increases. Yes, law of demand fails in case of GIFFIN GOODS. It is in the case of these goods that there is
{a} inverse relationship between income and demand
{b}positive relationship between price and demand"
In the light of above statement explains the following statement with the help of an example:
LAW OF DEMAND
The law of demand explains the relationship between the price and the quantity demanded of a commodity, assuming other factors affecting the demand to be constant. According to law, "others things being constant, quantity demanded of a commodity is inversely related to the price of the commodity. Price and demand moves in a opposite direction.
In economics, the law of demand is an economic law, which states that consumer buy more of a good when its price is lower and less when its price is higher.
The Law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant. That is, if the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good.
ASSUMPTIONS
There should be no change in the price of related goods.
There should be no change in the income of consumer.
There should be no change in the taste, preference and habits of the consumer.
There should be no change in the number of family members, weather etc.
DEMAND SCHEDULE:
It is a tabular statement showing different quantities of a commodity demanded at different prices during given period of time.
DEMAND CURVE:
A demand curve is graphical representation of the demand schedule.
Explaining with schedule & diagram
Price of sugar (Rs)
Quantity demanded (kg)
20
2
16
3
12
4
8
5
4
6
EXCEPTIONS TO THE LAW OF DEMAND
Inferior good or giffen good:
Giffen good are a special category of inferiors goods in whose cases demand for a commodity falls with a fall in its price. In case of certain inferior goods, when their price falls, their demand may not rise because extra purchasing power (caused by fall in price) is diverted on purchase of superior goods. For instance, if price of inferior food grain like 'jowar' falls in India, people may demand less of it and instead start eating wheat or rice . Here jowar is a case of giffen good whose fall in demand due to substitution effect.
It may be noted that goods whose demand falls with fall in price are called giffen goods. Between two effects (income effect & substitution effect) of price change, negatively effect is so strong that it overweights the positive substitution effect with the result that with a fall in price of a commodity its (here bajra) quantity demanded also falls.
Necessities :
The law of demand is not seen operating in the case of necessities of life such as food grains, salt, matches, milk for children etc…
Ignorance:
Besides ignorant of all prices, a consumer may buy more of a commodity when its price in fact gone up.
Goods expected to become scarce or costly in future:
They are purchased by the households in increased quantities even when their prices are soaring upwards. This is due to fear of future rise in the prices.
Goods of ostentation:
Status symbol goods are purchased not because of their intrinsic value but because of status or prestige value. The same jeweller when sold at a lower price sells poorly but offered at four times the price, sells quite well. Similarly, demand for Maruti cars has been rising in spite of fact that its price has been rising continuously.
Miscellaneous:
Future changes in prices, change in weather conditions, change in fashion and loss of faith are some of other exceptions where law may not hold good.
NORMAL GOODS
Normal goods are those goods whose income effect is positive, i.e demand for such goods increases as income increases. When rise in income of a consumer leads to rise in his demand for a good, that good is called a normal good.
In case of normal goods, income effect is positive, when income goes up, demand for such goods also goes up and when income falls demand also falls.
INFERIOR GOODS
INFERIOR GOODS are those goods whose income effect is negative, i.e. demand for such goods falls as income increases. In other words, when rise in income of a consumer leads to fall in his demand for a good that good is called inferior good. Thus there is a inverse relation between income and demand for an inferior good.
A good is called inferior when a rise in the income of its buyers results in a fall in its demand. In case of inferior good, income effect is negative.
INCOME EFFECT
Relationship between income and demand for a commodity.
In case of an inferior good, an increase in income leads to decrease in demand and shift the demand curve to left.
For e.g.:-
1.A rise in the income of a buyer of a commodity increases his demand for a normal good like full cream milk but decreases the demand of an inferior goods like toned milk. As income of a consumer rises from Rs.7000 to Rs. 8000, demand for toned milk at the same price OP decreases from OQ to OQ1. As a result, the demand curve DD shifts leftward as demand curve DD1
.
2. Transportation provides a good example. When income is low, it makes sense to ride the bus. But as income increases, people stop riding the bus and start buying cars. It's acceptable to most people to ride the bus when they can't afford a car. But as soon as they can afford one, they buy a car and stop riding the bus. Bus riding declines as income increases.
GIFFEN GOOD
A consumer good for which demand rises when the price increases, and the demand falls when the price decreases. The phenomenon is notable because it violates the law of demand, where by demand should increase as price falls and decrease as price rises. To be a giffen good, the item must lack easy substitutes and it must be an inferior good for which demand declines as the level of income in the economy increase
.
For eg:-
1.Fine wine can be used as an example. A fine wine is often judged by its price, high price is indicative of quality. If the price falls, less may be demanded because it is no longer considered a premium product, additionally, there are not a lot of close substitute for a fine, aged bottle of wine.
2.LETS's go through an example of a giffen good, using potatoes and steak as the choice set of the consumer. Imagine the consumer has a budget of $30, and the cost of a potato begins at $0.50 and the price of a steak is $10.00. Also consider that the consumer needs to buy meals for 10 days. With the original budget and prices, the consumer may choose to consume 2 steaks, at $20, and 20 potatoes for $10 over this time frame to use up their entire budget. This is a satisfactory amount because they will have on average 2 potatoes a day, and 2 steaks over the period.
Now imagine a price increase of potatoes to $1 each. The consumer could still buy 2 steaks, but could now only buy 10 potatoes. This might leave them hungry, so it is possible they will buy less steak, and more potatoes in order to get their calories. This means that 20 potatoes will still be purchased, but now only 1 steak is purchased.
If the price of a potato increased again, say to $1.25, then the consumer would only be able to get 16 potatoes for $20, which may not be enough calories to survive. They will decrease their steak consumption by one, and use that money to buy more potatoes in order to get the necessary energy. This shows how consumption of a good would rise with a price increase.
At this point, the consumer's entire budget is taken up by the giffen good, so any price increase now will result in a decrease of the amount of good the consumer is able to buy. Thus, we will have our typical downward sloping demand curve.
INCOME EFFECT
SUBSTITUTION EFFECT
QUANTITY DEMANDED
Price rises for a Normal good
Negative
Negative
Falls
Price rises for an inferior good
Positive but overpowered by -
Negative
Falls
Price rises for a giffen good
A strong positive effect overpowers
Negative
Rises
Why must a Giffen good be an inferior good, but an inferior good need not be a Giffen good?
The demand for inferior good decreases when income rises. Demand increases for normal goods when income rises. The classic example of an inferior good is Ramen noodles. When income rises, one will buy better food and no longer have to eat like a college student.
A Giffen good is any good where quantity demanded increases when price increases. Most goods have a negative elasticity of demand; that is to say, when price increases, quantity demanded decreases. Giffen goods have a positive elasticity of demand. Giffen goods also lack close substitutes. It is very difficult to find good examples of Giffen goods, but sometimes fine wines are used as an example. A fine wine is often judged by it's price - high price is indicative of quality. If the price falls, less may be demanded because it is no longer considered a premium product. Additionally, there are not a lot of close subsitutes for a fine, aged bottled of wine.
The negative income effect is always greater than the positive substitution effect (true for Giffen goods, but not all inferior goods). Since Giffen goods always always have negative income effects, they must always be inferior goods. Thus, a Giffen good is always an inferior good, but an inferior good is not always a Giffen good.
Q3. Mention latest changes in economies of different countries whose classification is on the following basis:
Advanced economies: post-industrial countries characterized by high per-capita income, highly competitive industries, and well-developed commercial infrastructure. E.g., Australia, Canada, Japan, United States, and Western European countries.
Developing economies: low-income countries characterized by limited industrialization and stagnant economies. E.g., most low income countries in Africa, Latin America, and Asia, such as Bangladesh, Nicaragua and Zaire.
Emerging market economies: a subset of former developing economies that have achieved substantial industrialization, modernization, improved living standards, and remarkable economic growth. They are some 27 countries in East and South Asia, Latin America, Middle East and Eastern Europe. Examples: Brazil, Russia, Africa, China.
DEVELOPED ECONOMIES
The developed countries are the high income countries such as the USA and Canada in North America; UK France, Germany, Norway, Switzerland, Japan and other countries etc. These countries have strong and diversified economic structures, well developed industrial, agriculture, and service sectors, efficient, skilled and well disciplined manpower, all of which contribute to their higher national and ensure descent living standard to their people. The country must have a strong and diversified economic structure. This means that the economy must consist of a number of diverse and varied economic activities that are well developed. The national product of the country should flow from all these diverse and varied activities and not from only a few activities. Thus, countries like Saudi Arabia, Kuwait, and some other oil exporting nations, are very rich, their people have high incomes that are comparable to the advanced economic countries. It is called a developed economy.
COUNTRY LIKE JAPAN
Economy of Japan
The economy of Japan is the third largest in the world [8] after the United States and the People's Republic of China and is the world's second largest developed economy [9] According to the International Monetary Fund, the country's per capita GDP (PPP) was at $34,739 or the 25th highest in 2011. Japan is a member of Group of Eight.
Japan is the world's 3rd largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world's most innovative countries leading several measures of global patent filings.[10] Facing increasing competition from China and South Korea, manufacturing in Japan today now focuses primarily on high-tech and precision goods, such as optical equipment, hybrid cars, and robotics.
Japan is the world's largest creditor nation,[11] generally running an annual trade surplus and having a considerable net international investment surplus. As of 2010, Japan possesses 13.7% of the world's private financial assets (the 2nd largest in the world) at an estimated $14.6 trillion.[12]
Economy of Japan
Skyscrapers of Shinjuku 2009 January.jpg
Financial centre in Tokyo
Rank
3rd
Currency
Japanese Yen (JPY)
Fiscal year
1 April - 31 March
Trade organisations
APEC, WTO, OECD, G-20, G8 and others
Statistics
GDP
$5.765 trillion (2011 est.)
$4.342 trillion (2011 est.)
GDP growth
1.3% ( Q2 2012)
GDP per capita
$45,934 (2011 est.)
$34,756 (2011 est.)
GDP by sector
agriculture: 1.4%, industry: 22.9%, services: 75.7% (2010 est.)
Inflation (CPI)
0.4%(April 2011)[1]
Population
below poverty line
14.7%[2]
Labour force
65.674 million (2010 est.)
Labour force
by occupation
agriculture: 4%, industry: 28%, services: 68% (2009 est.)
Unemployment
4.8% (April 2011)[1]
Main industries
motor vehicles, industrial and transportation equipment, electronics, chemicals, steel, machine tools, processed foods, non-ferrous metals
DEVELOPING ECONOMIES
Underdeveloped countries are these days referred to as the ' developing countries' signifying that these poor underdeveloped nations are capable of making reasonable economic progress through organized efforts well convinced policies and with a measure of economic assistance provided by the advanced countries. In fact most of these countries are making serious efforts to overcome their deep rooted problem of low income, poverty, unemployment, and backwardness. This approach to name poor economies as the 'developing countries' seeks to highlight their potential for development and places confidence in their capability to make better use of resources to catch up with the contemporary advanced countries.
In essence, a developing economy exhibits a mixture of some features of a backward and stagnant economy and those of a dynamic progressive economy. A developing economy is essentially an underdeveloped economy on the march to progress and prosperity. It is an economy which has, through conscious efforts, shed off some burden of its backwardness and stagnation and is making reasonable progress in many socio- economic spheres of activity. However, in many others areas, the economy may still be showing not much perceptible change and thus continue persisting with its backward character and underdeveloped status. The essential characteristic of a developing economy is its will to get rid of the perpetual problems arising out of its past stagnation and make a steady progress with courage and determination to achieve levels of prosperity for ensuring better quality of life enjoyed by the masses in the contemporary advanced countries. And all this, these developing nations want to achieve within a much shorter time frame compared to the countries of slow and gradual process of progress that the advanced countries took to achieve their present status.
Economy of India
The economy of India is the eleventh largest in the world by nominal GDP and the third largest by purchasing power parity (PPP) The country is one of the G-20 major economies and a member of BRICS. On a per capita income basis, India ranked 140th by nominal GDP and 129th by GDP (PPP) in 2011, according to the IMF.
After the independence-era Indian economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies, leading to massive inefficiencies and widespread corruption.
India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world. India has recorded a growth of over 200 times in per capita income in a period from 1947 (INR 249.6) to 2011. India is the nineteenth largest exporter and tenth largest importer in the world
Economy of The Republic of India
Mumbai Skyline at Night.jpg
Mumbai, financial centre of India.
Rank
11th (nominal) / 3rd (PPP)
Currency
1 Indian Rupee (INR) (INR) = 100 Paise
Fiscal year
1 April - 31 March
Statistics
GDP
$1.677 trillion (nominal: 11th; 2011)[1]
$4.458 trillion (PPP: 3rd; 2011)[1]
GDP growth
5.6% (Q1, 2012)[2]
GDP per capita
$1,388 (nominal: 140th; 2011)[1]
$3,695 (PPP: 129th; 2011)[1]
GDP by sector
agriculture: 17.2%, industry: 26.4%, services: 56.4% (2011 est.)
Inflation (CPI)
WPI: 7.56% (August 2012)[3]
CPI: 10.04% (August 2012)[4]
Population
below poverty line
29.9% (2010)
(Note: 32.8% live on less than $1.25 a day
68.8% live on less than $2 a day)[5]
Gini coefficient
36.89 (List of countries)
Labour force
487.7 million (2011 est.)
Labour force
by occupation
agriculture: 52%, industry: 14%, services: 34% (2009 est.)
Unemployment
9.9% (2011 est.)[6]
Average gross salary
$1,410 yearly (2011)[5]
Main industries
textiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, pharmaceuticals
Ease of Doing Business Rank
132nd[7] (2012)
External
Exports
$299.5 billion (2011 est.)
Export goods
petroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparel
Main export partners
UAE 14%, US 11.4%, China 6.3%, Singapore 5.4% (2011)
Imports
$461.3 billion (2011 est.)
Import goods
crude oil, precious stones, machinery, fertilizer, iron and steel, chemicals
Main import partners
China 12.2%, UAE 8.3%, Saudi Arabia 5.8%, US 5.1%, Switzerland 4.8% (2011)
FDI stock
$47 billion (2011-12)]
Gross external debt
$289.7 billion (31 December 2011 est.)
Public finances
Public debt
68.05% of GDP (2011 est.)[9]
Budget deficit
5.8% of GDP (2011-12)
Revenues
$195.4 billion (2011 est.)
Expenses
$309.8 billion (2011 est.)
Economic aid
$2.108 billion (2008)[10]
Emerging Market Economies
The term underdevelopment refers to that state of an economy where levels of living of masses are extremely low due to very low levels of per capita income resulting from low levels of per capita income resulting from low levels of productivity and high growth rate of population. According to the united Nation's definition, "An underdeveloped country is one which has a real per capita income that is lower in relation to the real per capita income of the USA, Canada, Australia and Western Europe". Emphasis here is on the low income relative to the advanced countries and lack of any perceptible success in making substantial improvements in quality of life of the masses. In other words, underdeveloped country is just another name by which a poor backward country is known.
Jacob Viner defines an underdeveloped country as one "which has good potential for using more capital or more labour or more available natural resources, or all of these , to support its population on a higher level of living".
Planning commission of india in its document 'THE FIRST FIVE YEAR PLAN' expressed similar views and observed "An underdeveloped country's economy is characterized by the existence in a greater or lesser degree, of unutilized or underutilized manpower, on the one hand and of unexploited natural resources on the other. This state of affairs may be due to stagnancy of techniques or to certain inhibiting socio- economic factors which prevent the more dynamic forces in an economy from asserting themselves".
Economy of Africa
The economy of Africa consists of the trade, industry, agriculture, and human resources. As of 2012[update], approximately 1.07 billion people were living in 54 different countries. Africa is a resource-rich continent but many African people are poor. Recent growth has been due to growth in sales in commodities, services, and manufacturing.
Africa is the world's poorest inhabited continent, as measured by GDP per capita. However, parts of the continent have made significant gains over the last few years. In recent years, African countries consist of the fastest growing economies in the world.
Economy of Africa
Population
1,365,000,001 (15%)(2012[1])
GDP
Currency: US$1.184 trillion, €1.80 trillion (2009)
PPP: US$ 2.100 trillion (2009)
GDP growth
Per capita: 5.17% (2004-2006)
GDP per capita
Currency: US$1,200, €1,000 (2009)
PPP: US$1,968, €1,500 (2009)
Millionaires (US$)
100,000 (0.02%)
Income of top 10%
44.8%
People living less than US$1 per day
36.3%
External debt as a percent of GDP
60.8%
25.6% (2007) IMF
External debt payments a as percent of GDP
4.3%
3.1% (2007) IMF
Foreign aid revenue as a percent of GDP
3.3%
POPULATION AND GROSS NATIONAL INCOME OF VARIOUS GROUPS OF COUNTRIES
Economies
Population
(million)
GNI
(Billion US $)
Relative share in the world (%)
Population
(i) Low income countries
2403
1562
37
(ii) Middle income
(a) lower
(b) upper
3086
9415
47
2276
4635
35
810
4790
12
(iii) Developing countries [(i)+(ii)]
5489
10978
84
(iv) High income countries
1029
37530
16
(v) World
6518
48482
100
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Estimates of per capita Gross National Income
Country
Estimates Based on
Exchange rate
Estimates based on purchasing power parity
Developed countries
USA
UK
CANADA
AUSTRALIA
NEW ZEALAND
FRANCE
GERMANY
JAPAN
SINGAPORE
44970
40180
36170
35990
27250
36550
36820
38410
29320
41400
35580
34610
34060
27220
33740
31830
33150
31710
Under developed countries
ETHIOPIA
NEPAL
BANGLADESH
AFRICA
PAKISTAN
CHINA
EGYPT
MALAYSIA
180
290
480
820
770
2010
1350
5490
1190
1630
2340
3800
2500
7740
4890
11300
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