ENGINEERING ECONOMICS &

MANAGEMENT

MARKET & NATIONAL

INCOME

Group Members:

Abhijit Panchmatiya(130280105030)

Paras Boricha(130280105004)

Gautam Parmar(130280105034)

Darshan Chaniyara(130280105006)

Anil Sindhav(130280105053)

Anil Nakum(130280105027)

Jignesh Ravliya(13028015049)

Divyang Viramgama(130280105062)

FACULTY : Prof. J.D.Mistry

MARKET

MEANING :

- A market is one of the many varieties

of systems, institutions, procedures, social

relations and infrastructures whereby parties engage in exchange.

- While parties may exchange goods and services

by barter, most markets rely on sellers offering their goods or

services (including labor) in exchange for money from buyers. It

can be said that a market is the process by which the prices of

goods and services are established.

- Markets facilitate trade and enables the distribution

and allocation of resources in a society. Markets allow any trade-

able item to be evaluated and priced

MARKET According to prof. R.P.Chapman, “The term market refers not

necessarily to a place but always to a commodity and the buyersand sellers who are in direct competition with one another.”

According to A.A.Cournot, “Economists understand by the termmarket, not any particular place in which things are brought andsold but the whole of any region in which buyers and sellers arein such free intercourse with one another that the price of thesame good tend to equality, easily and quickly.”

According to Benham, “Any area over which buyers and sellersare in such close touch with one another, either directly orthrough dealers, that the prices obtainable in one part of themarket affect the prices paid on other part.”

TYPES

OF

MARKETS

PERFECT

COMPETITION

Its not a type of market but is a model of market proposed by

Alfred Marshall in his Principles of Economics .

In economic theory, perfect competition (sometimes called pure

competition) describes markets such that no participants are

large enough to have the market power to set the price of

a homogeneous product.

Because the conditions for perfect competition are strict, there

are few if any perfectly competitive markets.

A primary purpose of perfect competition is to illustrate

perfection, resource allocation & to provide a benchmark for

comparison with real world market structures.

CHARACTERISTICS Generally, a perfectly competitive market exists when every

participant is a "price taker", and no participant influences theprice of the product it buys or sells. Specific characteristics mayinclude:

1.A large number buyers and sellers

2. No barriers of entry and exit

3. Perfect factor mobility

4. Perfect information

5. Zero transaction costs

6. Profit maximization

7.Homogeneous products

8.No externalities

9. No selling costs

In the short run, perfectly competitive markets are

not productively efficient as output will not occur where

marginal cost is equal to average cost (MC = AC). They

are allocatively efficient, as output will always occur where

marginal cost is equal to marginal revenue (MC = MR).

In the long run, perfectly competitive markets are both

allocatively and productively efficient.

Allocative efficiency is a state of the economy in which production represents consumer preferences/ and Productive

efficiency occurs when the economy is using all of its resources efficiently.

EXAMPLES Though there is no actual perfectly competitive market in

the real world, a number of approximations exist:

-Horse betting is also quite a close approximation

-Another example is that of a large auction of identical

goods with all potential buyers and sellers present/

-EBAY

Monopoly is a market situation where there is only a single seller with complete control over an industry.

Features of monopoly• Single seller

• Price discrimination

• No close substitutes

• Unique product

• Entry is restricted

• Price maker

• True monopolies generally exist in government controlled markets.

• eg. Indian railway

• Monopoly in private business is rare.

• Private firms who have considerable market share.

• Ex,. Microsoft, intel, google,

BARRIERS OF MONOPOLY

POWER

ECONOMIC BARRIERS.

a) Capital requirements

b) Technological superiority

c) No substitute goods

d) Control of natural resources

LEGAL BARRIERS

a) legal rights provides opportunity to monopolise market.

b) Ex,. Patents and copyrights.

Application of monopoly Example TATA NANO

Monopoly in its segment.

Tata , the only seller.

No close substitutes for nano in the market.

Barriers to entry in the market(capital requirement,

technology,)

Meaning

features of Monopolystic Competition

Monopolystic competition refers to a market situation where there are various firms selling a variety of products.

In simple words , “ there is competition which is keen , though not perfect ,among many firms making very similar products ”.

According to R.F.Kahn :

“ Competition is imperfect if the demand for the individual firm’s product is not perfectly elastic ”.

According to Samuelson :

“Imperfect competition prevalls in an industry or group of industries wherever the individual sellers are imperfect competitiors , facing their own non-horizontal and curves and thereby having some measure of control over price ”.

In the market , there are number of sellers , who produce a close substitute products and services .

Every product in the market has some minor quality differntiation .

There not any control for entry or exit for competitor . It means number of companies may increases or decreases at any time .

All company has independent behaviour.

There is differentiation in the quality of all products; all product can be differentiating from each other.

Various types of products are sell-out in different geographical area by different companies to different customers.

Normally competition among firm arises due to quality and apperence of the product .

Due to specific quality and special apperence for the product or service , the company has some control over the prices for specific customers or for specific geographic location .

* Meaning

*Characteristics of Oligopoly Market

*Oligopoly is situation where a few giant comapanies are

competing against each other.

*There is independence in the decision – making of various

points like price of the product , major ingredients of the

product and other promotional strategies .

*For Example , Any policy change in telecommunication or

networking company like Vodafone , may direct effect to

other companies like airtel or idea who are operating in

the same industry.

*There are very few large companies ; hence ,they are

mainly interdependence .

*Since , due to lesser competitors, they try to capture the

market but their advertising and promotional scheme .

*Due to interdependence of the firm , group behaviour can

be observed .

*Since , there are very few competitors in the market ; they

can create a significant effect on customer’s mind.

* Due to lesser competitors , to create impart on

customer’s mind the constantly apply various marketing

strategy .

*All companies always apply various marketing strategy

for their profit maximization they very well aware about

the nature of market.

*On basis of nature of product , oligopoly market may be

defined into two parts as identical product oligopoly and

differential product oligopoly .

National income :

National income is the result of all economist activities of the nation in terms of money. It is the most important macroeconomics variable which determines the business level and environment of country.

National Income may be defined as aggregate factor, income i.e., earning of labour and poverty , which arise the current production of goods and services by the Nation Income.

National Income = National Product = National Expenditure

(1) Sum of values of all finished products and services produced.

(2) Sum of all incomes in cash and kind, accuring due to production in the year

(3) Sum of consumers expendiure,net investment expenditure and government expenditure of all goods and services

Terminology related to National Income :

(1) GNP- Gross National Product (2) GDP- Gross Domestic Product(3) NNP- Net National Product(4) NDP- National Domestic Product(5) Personal Income (6) Disposable Income

Stock and Flow

If every month person is deposit Rs 1000 into emergency fund account or for future saving scheme then at the end of year total saving or deposited amount is twelve thousand .

Here, monthly deposited is flow and yearly total balance is stock which accumulate flow. At the end pf year balanced should reflect between difference of inflow and outflow.

When inflow exceed outflow, balance is positive and when outflow exceed inflow, balance is negative.

Difficulties in Calculating National Income

Non availability of reliable StatisticsLiteracy and ignoranceBlack moneyThe services of housewives is not included in national incomeSocial ServicesEnvironmental Cost

N.I. AT CURRENT PRICE

It is also known as nominal year price.

It is refers to measure the value of an

economy’s activities on the basis of the

price which is ongoing time.

Current price concern with the counting

of the value of goods and services at a

price which is the price when the goods

and services are produced.

N.I. at constant price

It is also known as base year price.

It is measuring of national income on the

basis of a base year price.

The base year is previous year.

Base year is fixed by economist

Base year is year there is not any kind

of economical or political or social

problem.

National income is the money value of

an economy’s activities.

National income can be measure at

current year prices or constant year

prices

N.I. at constant price is batter then

current price.

Because the constant priced national

income can be used to compare

between years.

It can be used to analyse the changes in

price level in an economy.

Market & National Income

(1) What is National Income ?

(2) Stock & Flow Concept of National Income.

(3) National Income @ Current Price & Constant Price.

Now, we will learn about

CONCEPT OF NATIONAL INCOME

It has seven concept.

1) G.D.P.

2) N.D.P.

3) G.N.P.

4) N.N.P.

5) Per Capita Income

6) P.I.

7) D.I.

First four major concept of economy which whole economy studies concept depends on

G.D.P.

It is short form of “GROSS DOMESTIC PRODUCT”.

GROSS means “Value of all Goods and services produced within the country”.

Domestic means Not producing or selling out of the country

ORDon’t add income from abroad.

Example : Suppose factory produced goods with the help of so many things like labour, machinery, land and building etc…But that doesn't mean when the production of goods is finalised by factory charges on each and everything used to produced good.

Simplly intermidiate goods like labour, machinery whatever we use to produced goods, we exclude the intermediate (labour, machinery etc..).

How to Calculate G.D.P. ?

We have two types of G.D.P. .

Nominal GDP & Real GDP

Item Qty, Price

Bread 100 Rs. 1

Chees 20 Rs. 5

Year: 2013

Item Qty, Price

Bread 150 Rs. 2

Chees 25 Rs. 7

Year : 2014

Example :

Nominal GDP @2013 = 100(1) + 20(5)= 200

Nominal GDP @2014 = 150(2) + 25(7)= 475

Nominal Growth in GDP = [(475-200)/200] × 100 = 137.5%

GDP = P1*Q1 + P2*Q2 + ………………

Real GDP @2013 = 100(1) + 20(5)= 200

Real GDP @2014 = 150(1) + 25(5)= 275

Real Growth in GDP = [(275-200)/200]× 100= 37.5%

N.D.P.

GDP = Gross Domestic Product

NDP = Net Domestic Product

In GDP & NDP only difference is one word Gross and Net.

Gross means “not adding intermediate goods”.

So,

NDP = GDP + Intermediate Goods(labour, machinery, land etc..)

G.N.P.

GDP = Gross Domestic Product

GNP = Gross National Product

In GDP & GNP only difference is one word Domestic and National.

Domestic means Not producing or selling out of the country

ORDon’t add income from abroad.

So,

GNP = GDP + Income Arising From Abroad (NFIA)

N.N.P.

NNP = Net National Product

This Word Belong To

NDP

Adding Intermediate

Goods

This Word Belong To

GNP

Adding Abroad Income

So,NNP = NDP + GNP

PER CAPITA INCOME

It is also known as “Income Per Person”.

It means income of the people in Country.

It is calculate by Taking measure of all sources of income in aggregate and divinding it by the total population.

Per Capita Income = National Income of Particular YearPopulation In Particular Year

PERSONAL INCOME

Prsonal Income is the sum of all income, actually received by all households during a given year.

Personsl Income = All Income – (Social Security + Medicare + Incometax)

All three things deduction by IRS ( Internal Revenue Service )

Example :

Tax Owed > Tax Paid by Company Please pay Tax

Tax Owed < Tax Paid by Company Get Money Back

DISPOSABLE INCOME

Out of Personal Income, share paid to government in the form of personal taxes

Disposable Income = Personal Income – Personal Taxes

THE END