HGCE ELECTRICAL : August 2014

Answer 5: Determinants of Demand are shown as below:
1. Income: A rise in a person’s income will lead to an increase in demand. A fall will lead to a decrease in demand for normal goods.
2. Consumer Preferences: Favorable change leads to an increase in demand, unfavorable change lead to a decrease.
3. Number of Buyers: the more buyers lead to an increase in demand; fewer buyers lead to decrease.
4. Price of related goods:
a. Substitute goods (those that can be used to replace each other): price of substitute and demand for the other good are directly related.
Example: If the price of coffee rises, the demand for tea should increase.
b. Complement goods (those that can be used together): price of complement and demand for the other good are inversely related.
Example: if the price of ice cream rises, the demand for ice-cream toppings will decrease.
5. Expectation of future:
a. Future price: consumers’ current demand will increase if they expect higher future prices; their demand will decrease if they expect lower future prices.
b. Future income: consumers’ current demand will increase if they expect higher future income; their demand will decrease if they expect lower future income

Answer1: SCOPE OF ECONOMICS

i) Economics - A Science and an Art
a) Economics is a science: Science is a body of knowledge that finds the relationship between cause and effect. Economics is a branch of knowledge where the various facts relevant to it is systematically collected, classified and analyzed. The motives of individuals and business firms can be very easily measured in terms of money. Thus, economics is a science.
Economics - A Social Science: There is a close inter-dependence of millions of people living in distant lands unknown to one another. In this way, the process of satisfying wants is not only an individual process, but also a social process. Thus, in economics one has to study social behaviour i.e., behaviour of men in-groups.
b) Economics is also an art. Economics offers us practical guidance in the solution of
economic problems. Science and art are complementary to each other and economics is both a science and an art.

ii) Positive and Normative Economics
Economics is both positive and normative science.
a) Positive science: Positive science does not indicate what is good or what is
bad to the society. It will simply provide results of economic analysis of a
problem.
b) Normative science: It makes distinction between good and bad. It prescribes
what should be done to promote human welfare. A normative statement involves ethical values.

iii) Methodology of Economics
Economics as a science adopts two methods for the discovery of its laws and principles
a) Deductive method: The deductive method is useful in analyzing complex economic
phenomenon where cause and effect are mixed up. However, the
deductive method is useful only if certain assumptions are valid. Eg. Traders earn
profit, if the demand for the commodity is more
b) Inductive method: This method begins with the observation of particular facts and then proceed with the help of reasoning founded on experience so as to formulate laws and theorems on the basis of observed facts. E.g. Data on consumption of poor, middle and rich
income groups of people are collected, classified, analyzed and important
conclusions are drawn out from the results.
In deductive method, we start from certain principles that are either
indisputable or based on strict observations and draw inferences about individual
cases. In inductive method, a particular case is examined to establish a general
or universal fact.

iv) Subject Matter of Economics
Economics can be studied through a) traditional approach and (b) modern
approach.
a) Traditional Approach: Economics is studied under five major divisions:
1.Consumption: The satisfaction of human wants through the use of goods and services is called consumption.
2.Production: Production means creation of utility or producing (or creating) things for satisfying human wants. For production, the resources like land, labour, capital and organization are needed.
3. Exchange: Goods are produced not only for self-consumption, but also for
sales. They are sold to buyers in markets. The process of buying and selling
constitutes exchange.
4. Distribution: The process of determining rent, wage, interest and profit is called distribution.
5. Public finance: It studies how the government gets money and how it spends
it.

b) Modern Approach
The study of economics is divided into: i) Microeconomics and ii) Macroeconomics.
1. Microeconomics
Microeconomics studies the flow of economic resources or factors of production from the households or resource owners to business firms and flow of goods and services from business firms to households.
2. Macroeconomics studies the behaviour of the economic system as a whole or
all the decision-making units put together. Macroeconomics deals with the
total employment, gross national product (GNP), national income, general price level, etc

Answer 13. Definition of organization:

An organization is an entity, such as an institution or an association, that has a collective goal and is linked to an external environment. The word is derived from the Greek word organon, itself derived from the better-known word ergon which means "organ" .
All organizations have a management structure that determines relationships between the different activities and the members, and subdivides and assigns roles, responsibilities, and authority to carry out different tasks. Organizations are open systems--they affect and are affected by their environment.
Principles of organization
1. Principle of unity of objectives: Organizational goals, departmental goals, and individual goals must be clearly defined. All goals and objectives must have uniformity. When there is contradiction among different level of goals desired goals can’t be achieved. Therefore, unity of objectives is necessary
2. Principle of specialization: When an employee takes special type of knowledge and skill in any area, it is known as specialization. Modern business organization needs the specialization, skill and knowledge by this desired sector of economy and thus, efficiency would be established.
3. Principle of coordination: In an organization many equipment, tools are used. Coordination can be obtained by group effort that emphasize on unity of action. Therefore, coordination facilitates in several management concepts
4. Principle of authority: Authority is the kind of right and power through which it guides and directs the actions of others so that the organizational goals can be achieved. It is also related with decision making. It is vested in particular position, not to the person because authority is given by an institution and therefore it is legal. It generally flows from higher level to lowest level of management.
5. Principle of responsibility: Authentic body of an organization is top level management, top level management direct the subordinates. Departmental managers and other personnel take the direction from top level management to perform the task. Authority is necessary to perform the work .Only authority is not provided to the people but obligation is also provided. So the obligation to perform the duties and task is known as responsibility. Responsibility can’t be delegated. It can’t be avoided.
6. Principle of delegation: Process of transferring authority and creation of responsibility between superior and subordinates to accomplish a certain task is called delegation of authority. Authority is only delegated, not responsibilities in all levels of management. The authority delegated should be equal to responsibility
7. Principle of efficiency: In enterprise different resources are used. There resources must be used in effective manner. When the organization fulfill the objectives with minimum cost, it is effective. Organization must always concentrate on efficiency.
8. Principle of unity of command: subordinates should receive orders from single superior at a time and all subordinates should be accountable to that superior. More superior leads to confusion, delay and so on.
9. Principle of span of control: unlimited subordinates cant be supervised by manager, this principle thus helps to determine numerical limit if subordinates to be supervised by a manager. This improves efficiency.
10. Principle of balance: the functional activities their establishment and other performances should be balanced properly. Authority, centralization, decentralization must be balance equally. This is very challenging job but efficient management must keep it.
11. Principle of communication: Communication is the process of transformation of information from one person to another of different levels. It involves the systematic and continuous process of telling, listening and understanding opinions ideas, feelings, information, views etc, in flow of information. Effective communication is important
12. Principle of personal ability: for sound organization, human resources is important. Employees must be capable. Able employees can perform higher. Mainly training and development programs must be encouraged to develop the skill in the employees
13. Principle of flexibility: organizational structure must be flexible considering the environmental dynamism. Sometimes, dramatically change may occur in the organization and in that condition, organization should be ready to accept the change
14. Principle of simplicity: this principles emphasizes the simplicity of organizational structure, the structure if organization should be simple with minimum number of levels do that its member an understand duties and authorities

Answer 14: Types of Organisation with its merits & demerits

Every staff of the organisation should know his position and status in the organisation and to whom he is accountable. Broadly, there are four forms of organisation like line organisation, functional organisation, line and staff organisation and committee organisation.
1. Line Organisation:
The oldest and simplest forms of organisation where authority flows directly from the topmost man to the lowest man in the organisation. In this form of organisation a superior exercises direct supervision over a subordinate. This form of organisation is adopted in charistian church and in Indian army. It is also called as military form of organisation.
Advantages of Line Organisation:
Line organisation offers the following advantages:
(a) It is simple to operate and easy to understand.
(b) It facilitates unity of control and the presence of scalar principle.
(c) It enables clear cut definition of authority and responsibility. Each staff is clear about his authority and responsibility.
(d) It facilitates better discipline because of unified control. The subordinates know the person who commands them and they will do their best to satisfy his commands.
(e) This organisation is flexible as the executive enjoy freedom within the defined sphere.
Disadvantages of Line Organisation:
(a) No specialisation in work is possible, as line organisation does not give emphasis on appointment of specialists.
(b) The top executives are overburdened and as such, it becomes difficult to manage on the key areas of the operation.
(c) It developes favouritism as one man decides on the issue of efficiency of individuals. It develops nepotism and jobbery hi work.
2. Functional Organisation:
Functional organisation has been advocated by F.W. Taylor who is known as the father of scientific management. The business unit is divided into various parts on the basis of major functions. Similar functions are grouped into one organisational unit called department and this department is placed in the charge of an expert. Thus functional organisation refers to a system of organisation in which functional departments are created to deal with problems of the business at departmental level.
Advantages of Functional Organisation:
(a) It encourages and facilitates division of labour, which results in specialisation of activities. As the head of the functional department is entrusted with one kind of work, he becomes a specialist in course of time.
(b) It brings separation of manual and mental function and received the advantages of proper planning.
(c) Functional techniques are improved through intensive study and research because special attention is given to the departmental work.
(d) It develops co-operation & team spirit in work. This results elimination of autocratic management.
(e) It facilitates mass production because in this, organisation specialisation is coupled with standardisation.
Disadvantages of Functional Organisation:
The disadvantages of functional organisation are:
(a) It gives too much emphasis on specialisation. Too much specialisation is undesirable because it makes organisation confused.
(b) This system of organisation leads to conflict among the foreman and supervisor for equal status.
(c) In this organisation the disciplinary controls are weak as a worker is commanded by more than one person.
3. Line and Staff Organisation:
A system of organisation which strikes a balance between the line organisation and staff organisation is called line and staff organisation. The need for a balance between the two is needed because line organisation over concentrates on control and functional organisation
on divide. In this system, primarily line type of organisation is followed. But some common and important functions are placed under the experts called staff functions. In this organisation line authority acts as an executor and staff authority function as on advisor.
Advantages of Line and Staff Organisation:
(a) In this organisation line authorities concentrate on execution of work and are relieved from thinking function.
(b) Line authorities are not autocrats as they are to take the advice from the experts or staff position.
(c) This results greater efficiency as the line managers are to devote much of their time on line functions. The line managers function more efficiently as they get support from staff positions.
(d) This organisation ensures co-ordination automatically as the line managers work along with staff officers.
Disadvantages of Line and Staff Organisation:
(a) It creates friction between line executive and staff executive. The success of this organisation largely depends on the proper understanding of the two.
(b) Staff officers may not give proper advice, as they are not to be responsible for the accomplishment of the job.
(c) The line authorities are to depend on staff executive. This results in too much dependancy. Too much dependent on staff will lose the creative thinking and initiative.
4. Committee Organisation:
A committee is a group of people specially designated to perform some administrative act. A committee is formed to consult various managers and to secure co-operation of various departments. The organisation that emphasises on formation of committee is called committee form of organisation.
Advantages of Committee Organisation:
The followings are some of the advantages of committee form of organisation.
(a) It provides pooled knowledge and judgement and there-by helps in increasing the efficiency of the organisatioin.
(b) It avoids too much concentration of power and allows dispersal of authority.
(c) Committees motivate managers better since managers occupy position or status in the committee.
(d) The line officials are relieved of many intricate problems as these committees handle these.
Disadvantages of Committee Organisation:
The followings are some of the disadvantages of committee organisation :
(a) Decisions are delayed, as many persons are to take decision in committee organisation.
(b) No one is held responsible if any faulty decision is taken. Everybody's responsibility is nobody's responsibility.
(c) It develops minority tyranny as the leader of a small pressure group may force" a decision to be taken.

Answer 15: Departmentalization

Grouping related functions into manageable units to achieve the objectives of the enterprise in the most efficient and effective manner is departmentalization. The primary forms of departmentalization are explained below:

FUNCTION
Perhaps the oldest and most common method of grouping related functions is by specialized function,such as marketing, finance, and production (or operations). Sometimes this form of departmentalization may create problems if individuals with specialized functions become more concerned with their own specialized area than with the overall business. An example of departmentalization by function appears below:

PROCESS
Departmentalization can also take place by process. This type of departmentalization, which often exists in manufacturing companies, is illustrated below.

PRODUCT
Whenever specialized knowledge of certain products or services is needed, departmentalization by product may be best. This usually occurs in large diversified companies. This form of departmentalization is illustrated below.

MARKET
When a need exists to provide better service to different types of markets, departmentalization by market
may be the appropriate form. An example of a business serving nonprofit markets, which uses the market form of
departmentalization, is shown in Figure below.

CUSTOMER
Sometimes key or major customers warrant departmentalization by customer. This is often the case in banks.

GEOGRAPHIC AREA
When organizations are spread throughout the world or have territories in many parts of a country, departmentalization by geographic area may provide better service to customers and be more cost effective. A typical example for this form of departmentalization. is shown in Figure

MATRIX (PROJECT ORGANIZATION)
Departmentalization by matrix, or project, has received considerable use in recent years, particularly in such industries as aerospace (e.g., NASA). In this method, personnel with different backgrounds and experiences that bear on the project are assembled and given the specific project to be accomplished within a certain time period. When the project is completed, these specialized personnel return to their regular work assignments. An
example of this form is illustrated below; it often takes the shape of a diamond.

COMBINATION APPROACH
Many organizations, particularly large, physically dispersed and diversified organizations, utilize several different forms of departmentalization. Figure shows an organizational chart showing the use of several forms of departmentalization.

Answer12: The different roles of a manager are:
1. Figurehead – who performs the duty in the same way as head of the family does.
2. Leader – who performs the work of motivating subordinates and leading them towards achieve the goal of the company.
3. Liaison(mediator) – It includes work like how to maintain relation with outsiders like creditors, suppliers, customers.
4. Monitor – This includes monitoring the work of subordinates.
5. Dissemination – It includes sending reports to others in the organizational hierarchy.
6. Spokesperson – Communicating to outsiders about the performance of the company.
7. Entrepreneur – It includes generating innovative ideas on various aspects of the company operations.
8. Disturbance Holder – Resolving any disputes among subordinates which may arise from time to time.
9. Resource allocator – It involves distribution of various resources to the departments according to their needs.
10. Negotiator – It involves negotiating with suppliers, creditors for better deals and also with workers in case of disputes.

Answer 4: Law of Demand

"The law of demand states that ,assuming all else is held constant, the quantity demanded for a good rises as the price falls. In other words, the quantity demanded and price are inversely related."
This fundamental economic principle indicates that a decrease the price of a commodity results in an increase in the quantity of the commodity that buyers are willing and able to purchase in a given period of time, if other factors are held constant
The law of demand is the scientific relation between demand price andquantity demanded that captures the demand side of the market.
The inverse relation of this law means that buyers are willing and able to buy more of a good if the price is lower and less of a good if the price is higher. From a scientific method perspective, this indicates that price causes quantity demanded. Or more specifically that a change in the demand price causes a change in the quantity demanded.
Working the Curve
Demand Curve

The law of demand is conveniently illustrated by a demand curve. In particular, it is illustrated by the negative slope of a demand curve, such as the one presented to the right. The negative slope of the demand curve means that higher prices are related to smaller quantities and that lower prices are related to larger quantities. Price goes up, quantity goes down. Price goes down, quantity goes up.

Two Effects
An initial look into why the law of demand exists reveals two effects--income effect and substitution effect.
⦁ Income Effect: This is the observation that a change in the price of a good alters the purchasing power of income. If the price increases, then buyers are able to buy a smaller quantity with available income. If the price decreases, then buyers are able to buy a larger quantity with available income. A change in price induces an inverse, or opposite, change in the quantity demanded.
⦁ Substitution Effect: This is the observation that a change in the price of a good alters the relative prices of substitute goods, which then motivates buyers to buy more or less of the substitute goods, and less or more of this good. If the price increases, then the price of substitute goods become relatively lower, inducing buyers to buy more of those goods and a smaller quantity of this good. If the price decreases, then the price of substitute goods become relatively higher, inducing buyers to buy less of those goods and a larger quantity of this good. A change in price induces an inverse, or opposite, change in the quantity demanded.
Law of Supply:
“If demand is held constant, an increase in supply leads to a decreased price, while a decrease in supply leads to an increased price”

The direct relationship between supply price and the quantity supplied, assuming ceteris paribus factors are held constant. This economic principle indicates that an increase in the price of a commodity results in an increase in the quantity of the commodity that sellers are willing and able to sell in a given period of time, if other factors are held constant. The law of supply is an important principle in the study of economics.
The law of supply is the scientific relation between supply price and quantity supply that captures the supply side of the market. When combined with the law of demand the result is the market model. The market provides a powerful tool for analyzing exchanges, resource allocation, and efficiency.
The direct relation of this law means that sellers who have ownership and control over resources are willing and able to sell more of a good if the price is higher and less of a good if the price is lower. From a scientific method perspective, this indicates that price causes quantity supplied. Or more specifically that a change in the supply price causes a change in the quantity supplied.
Working the Curve
Supply Curve

The law of supply is conveniently illustrated by a supply curve. In particular, it is illustrated by the positive slope of a supply curve, such as the one presented to the right. The positive slope of the supply curve means that higher prices are related to larger quantities and that lower prices are related to smaller quantities. Price goes up, quantity goes up. Price goes down, quantity goes down.

Answer 2: Difference between Microeconomics & Macroeconomics
Microeconomics is generally the study of individuals and business decisions, macroeconomics looks at higher up country and government decisions.

Microeconomics is the study of decisions that people and businesses make regarding the allocation of resources and prices of goods and services. This means also taking into account taxes and regulations created by governments. Microeconomics focuses on supply and demand and other forces that determine the price levels seen in the economy. For example, microeconomics would look at how a specific company could maximize it's production and capacity so it could lower prices and better compete in its industry.
Macroeconomics, on the other hand, is the field of economics that studies the behavior of the economy as a whole and not just on specific companies, but entire industries and economies. This looks at economy-wide phenomena, such as Gross National Product (GDP) and how it is affected by changes in unemployment, national income, rate of growth, and price levels. For example, macroeconomics would look at how an increase/decrease in net exports would affect a nation's capital account or how GDP would be affected by unemployment rate
Microeconomics takes a bottoms-up approach to analyzing the economy while macroeconomics takes a top-down approach.
Micro economics is concerned with:
⦁    Supply and demand in individual markets
⦁    Individual consumer behaviour. e.g. ⦁    Consumer choice theory
⦁    Individual labour markets – e.g. demand for labour, ⦁    wage determination
⦁    Externalities arising from production and consumption.
Macro economics is concerned with
⦁    Monetary / fiscal policy. e.g. what effect does interest rates have on whole economy?
⦁    Reasons for inflation, and unemployment
⦁    Economic Growth
⦁    International trade and globalisation
⦁    Reasons for differences in living standards and economic growth between countries.
⦁    Government borrowing
⦁    he main difference is that micro looks at small segments, and macro looks at the whole economy. But, there are other differences.
Microeconomics
⦁    Microeconomics is the study of particular firm, particular household, individual prices, wages, incomes, individual industries, and individual commodities.
⦁    Micro means very small or millionth part.
⦁    The subject or example of microeconomics is about person, an investor, a producer.
⦁    As it analyzes individually it provides a partial concept or partial figure of a country.
⦁    Micro economics is concerned with the individual entities.
Macroeconomics
⦁    Macroeconomics deals not with individual quantities as such but with aggregates of these quantities not with individual income but with national income, not with individual prices but with the price level not with individual output but with national output.
⦁    Macro means large or whole.
⦁    The subject of macro economics is about national production, national income, income level.
⦁    As it analyzes overall it provides full figure or complete reflection of a country.
⦁    Macroeconomics is concerned with the overall performance of the economy.