Blogs on Accounting, Finance & Economics

The pangs of inflation have been felt all around the world. In the US, the inflation rate was 7.7% in October 2022 and in India, it was 6.77%. The UK recorded its highest inflation rate at 11.1% in 41 years in 2022. After the Covid-19 pandemic, inflation has increased as a result of all the services re-opening but businesses not having the resources to provide the goods and services. But, let’s try to understand what is inflation.     What is inflation? A price rise is considered inflation. It increases the cost of living in a country. By definition, inflation is the rise in prices during a given time period.     What are the factors behind inflation or price rises? There are various reasons for price rises. Microeconomic theories like the law of demand, the law of supply, consumer preferences, cost of production, competition, and market condition are responsible for price rises. The book, Microeconomics Essentials You Always Wanted to Know deals with various microeconomic theories like demand, supply, consumer choice, the revenue of firms, cost of production, market, competition, etc. which are vital to understanding inflation in a country. The understanding of underlying reasons for inflation can help businesses and entrepreneurs take the right pricing decisions in an inflationary condition.     A piece of news dated January 12th, 2022 covered in www.usa.today.com comes with the tagline ‘Food prices up, shelves empty’. It blames the pandemic-related workers’ absence and warns about high inflation. The News report says the price of new cars went up during the last year by 11.8 %, and groceries were dearer by 6.3 %. Chicken and fish prices jumped by 10.4 and 8.4 % respectively.     How do we explain these changes in price? When we analyze the above situation, the price rise was due to the absence of workers in the production process. So, workers’ absence led to a short supply. In economics, we deal with the theory of supply and demand. If the demand increases, the price goes up. If the price goes up, demand falls. In case of an increase in supply, the price falls. Again, in case of an increase in price, suppliers are motivated to produce more and supply more. The price is dependent on the supply and demand of goods. There is a shift in consumer demand due to consumer preference and income level. It also shows how the production cost determines the supply of various materials. The production cost is determined by the prevailing wages, raw material cost, cost of electricity, and many other productions related factors”     Conceptually, purchasing power is the ability of the customer to pay for the goods. Now when the price goes up, consumers' purchasing power goes down. This may have a negative impact on the lifestyle of the consumers. This is the primary reason why Central Banks and Governments try to control inflation in a country. You can read more about purchasing power in the book, Financial Management Essentials You Always Wanted To Know.     Steps taken to control inflation Usually, the central bank in a country tries to taper the money flow in the economy to control inflation. When there is less money in the hands of the people, the demand for goods comes down, making the prices stable. However, this is not applicable when the inflation is due to supply-side constraints i.e. less production due to the unavailability of laborers or issues with the supply of raw materials. Sometimes, due to natural calamities, drought, etc. farm production may drop leading to price rises in food items.     Governments sometimes try to increase imports and curb exports to control inflation but economists do not find this sustainable.     About the Author - Prof. Amlan Ray is currently Senior Director & Dean at SRISIIM, New Delhi, a management and research Institution recognized by theMinistry of Science & Technology andMinistry of Education, Government of India. He has 27 years of experience working inCorporates, Consulting, Training, and Academia.                  

Market is a commonly used term in our day-to-day lives. However, in Economics, market has a deeper meaning. We often classify economies as market-driven economies. In this blog post, we explore the meaning of market and its types         What is a Market? A market is a place where buyers and sellers meet for transactions. For example, a  retail mall is a marketplace where lots of buyers meet sellers of various brands on a given day. A market need not necessarily be a physical place but can also be a virtual platform. In stock markets, both buyers and sellers are behind their computer screens, meeting on a virtual platform. Amazon provides a virtual marketplace for its online buyers.       What are the seven forms of market?       In economics, there are various forms of markets: Monopoly Duopoly Oligopoly Monopsony Monopolistic Competition Pure competition Perfect competition       What is Monopoly? Monopoly has a single seller. A monopoly is a situation in which the seller can decide the price at which he will sell his commodities. As there is a single seller, the market price and individual seller’s price is the same. The question remains whether buyers accept the price set by the monopoly seller or not. It is decided based on the buyer’s purchasing power and availability of substitutes.     Example of Monopoly The railways have a monopoly but still, they cannot set the price of train tickets at their discretion.       What is Duopoly? A duopoly is a situation in which there are only two major players in the market. It is the simplest form of oligopoly with two sellers.     Examples of Duopoly Worldwide, there are two main players selling soft drinks: Coke and Pepsi.  The size of the market catered by Coke and Pepsi with multiple brands is so large that they establish a duopoly with control over the market prices.       What is Oligopoly? Oligopoly is a market condition in which there are a number of sellers but the market is not too large. There are more than 2 sellers but the maximum number is not specified. Approximately, the maximum number can be assumed to be about 25. Here due to competition, the firms cannot set the prices at their discretion.   Example of Oligopoly A modern example of Oligopoly is the OTT market. Netflix, Amazon, Hotstar, Hulu etc are the main competitors in the market.       What is Monopsony? While Monopoly stands for a single seller; monopsony means a single buyer. It is the mirror image of a monopoly where there is a single buyer. Monopsony is more prevalent in the factor market.     Example of Monopsony Suppose, a city has a single mine; so all mining laborers have only one place to sell their labor. This is a form of monopsony. There is a close similarity in the operations of monopsony and monopoly.       What is Monopolistic Competition? In monopolistic competition, a large number of sellers produce differentiated products. In differentiated products, the important product features vary.   Example of Monopolistic Competition There are a large number of sellers of mobile phones across the world. The features of the phones vary from brand to brand. The camera, screen size, processor, and operating system all determine their demand and price. Though it is the same product, utility varies depending on the features. Quality is an important determinant for product differentiation. Buyers’ segments vary depending on the product quality. Brands like iPhone can create a monopoly-like advantage within the market with their product features and quality.       What is Perfect Competition? Perfect competition is an idealized form of market with a large number of buyers and sellers, offering homogenous products. As there are a large number of sellers and the product is homogenous without the scope of differentiation in value offered, the firms are price takers. They are bound to sell at the price determined by the market. In perfect competition, the factors of production have perfect mobility, there is free entry and exit for firms, no government interference, perfect knowledge of the market, and independent decision-making without forming any cartel.   Example of Perfect Competition The closest example of perfect competition is the market for cereals, pulses, or vegetables in which a large number of sellers offer similar products to a larger number of buyers.       What is Pure Competition? Perfect competition without the characteristics of perfect mobility of factors of production is termed Pure Competition. This is termed ‘pure’ as there is no element of monopoly in this.   However, often economists agree that in reality there is nothing called perfect or pure competition. Requirements for a passport and visa are not conducive for the mobility of labor. Perfect knowledge does not exist in a market due to trade secrets maintained by competitors. Government intervenes in the market more than often. Therefore, perfect competition still is a myth!     Markets is one of the various topics covered in the newly launched book Microeconomics Essentials You Always Wanted To Know; to know about markets in detail, check out the book here. The book also covers core concepts of microeconomics like demand, supply, factors of production, marginal utilities, and much more.      

Economics is a part of our everyday lives. From deciding which toothpaste to buy, which mode of transport to take, how much money to spend on leisure, and where to invest our money, we apply the concepts of economics, often unknowingly. Economics is nothing but a social science dealing with the production, distribution, and consumption of goods and services. But it can become difficult to understand all aspects of economics under one umbrella. Therefore, the subject is divided into two branches - Microeconomics and Macroeconomics.   Below is the excerpt from the conversation we had with Prof. Amlan Ray - author of our soon-to-release book Microeconomics Essentials You Always Wanted To Know.   Prof. Amlan Ray is currently Senior Director & Dean at SRISIIM, New Delhi, a management and research Institution recognized by the Ministry of Science & Technology and Ministry of Education, Government of India. He has 27 years of experience in corporates, consulting, training, and academia. Read on to find out more about the subject.         How does Economics help?  Economics is essential for the world of business and finance. It helps to formulate national and global policies. Economics also determines what we choose to buy in our daily life. Resources are scarce and we cannot buy anything and everything with limited income. Hence comes the need for resource planning or budgeting. In the future, if a situation evolves in which we have abundant items across the supermarkets and enough money for every person in the society to buy those, will we have the subject of economics? Human wants are infinite and probably never a situation will arise when all our needs will be fulfilled.  Economics will remain at the center place of policymaking as economics helps in increasing societal welfare by optimizing resources.         How do you differentiate between microeconomics and macroeconomics? In present days, economics is categorized into two subfields – Microeconomics and Macroeconomics. Norwegian economist Ragnar Frisch first used the terms microeconomics and macroeconomics in 1933.   Adam Smith is considered to be the father of Microeconomics. Microeconomics studies economic phenomena at the individual level. It shows how individuals make their purchase decisions. It also shows how consumer decisions affect demand and supply. The interaction between buyers and sellers and related decisions of purchase and production are dealt with in microeconomics. It shows how the prices of goods and services are determined in the market with the interaction of buyers and sellers. It also deals with the cost, production, revenue, and profit of individual firms that are constituents of an industry.   Macroeconomics deals with the economy as a whole at the country or global level. It is concerned about the aggregate demand, supply, savings, income, and expenditure at the national or global level. It provides inputs for policy making at the national level. The concerns of employment, production, and productivity are addressed by macroeconomics. It also suggests taxation and monetary policies.     In the book, Microeconomics Essentials, I have discussed all the necessary concepts of Microeconomics.         What does the book have to offer? Microeconomics Essentials You Always Wanted To Know makes the readers understand the practicalities of the subject. Examples taken from various industries in this book demonstrate the applications of the subject in real life.  The book uses simple language to unravel the jargon of microeconomics. The topics in this book are streamlined to help readers grasp the concepts easily. The purpose of the book is to make people without an economics background comfortable with the subject.         Who can use this book? Business professionals can use this book to understand decision-making in companies and various industries. Entrepreneurs will be benefited from learning the basics of microeconomics to understand policy matters. Undergraduate students can use this as a textbook that covers their syllabus. Students at master’s level in programs like MBA who don’t have an economics background will benefit from this book as it will be useful for them to understand the basics of economics.         By the end of the book, how will the readers be benefitted? The book introduces the readers to core economics concepts like demand and supply and takes them through theories of consumer choice, markets, factors of production and international trade. At the end of the book, the readers will be able to understand the following concepts of microeconomics: Concept of scarcity and choice Law of demand and supply Price elasticity of demand and supply Consumer behavior with both cardinal and ordinal utility theory Theory of cost and production Various forms of market ranging from monopoly to perfect competition Concepts of revenue, cost, and profit Overview of factors of production Basics of trade including free trade and trade barriers         Studying the concepts of microeconomics will enable us to understand our own reactions and behavior towards fluctuations in factors that we can’t control. Lastly, it helps us to make economic decisions in our day-to-day lives efficiently and cleverly.   Microeconomics Essentials You Always Wanted To Know is currently available for review on Netgalley.   Stay tuned for the launch date!