Q.1) Income elasticity of demand has various applications.Explain each application with the help of an example.

In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, ceteris paribus. It is calculated as the ratio of the percentage change in demand to the percentage change in income. For example, if, in response to a 10% increase in income, the demand for a good increased by 20%, the income elasticity of demand would be 20%/10% = 2.

A negative income elasticity of demand is associated with inferior goods; an increase in income will lead to a fall in the demand and may lead to changes to more luxurious substitutes. A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good. A zero income elasticity (or inelastic) demand occurs when an increase in income is not associated with a change in the demand of a good. These would be sticky goods. Income elasticity of demand can be used as an indicator of industry health, future consumption patterns and as a guide to firms investment decisions. For example, the "selected income elasticities" below suggest that an increasing portion of consumer's budgets will be devoted to purchasing automobiles and restaurant meals and a smaller share to tobacco and margarine. Income elasticitites are closely related to the population income distribution and the fraction of a the product's sales attributable to buyers from different income brackets. Specifically when a buyer in a certain income bracket experiences an income increase, their purchase of a product changes to match that of individuals in their new income bracket. If the income share elasticity is defined as the negative percentage change in individuals given a percentage increase in income bracket, then the income-elasticity, after some computation, becomes the expected value of the income-share elasticity with respect to the income distribution of purchasers of the product. When the income distribution is described by a gamma distribution, the income elasticity is proportional to the percentage difference between the average income of the product's buyers and the average income of the population. (Bordley and McDonald, "Estimating Income Elasticitities from the Average Income of a Product's Buyers and the Population Income Distribution. " Journal of Business and Economic Statistics. [edit]Mathematical definition

More formally, the income elasticity of demand, good is

, for a given Marshallian demand function

for a

or alternatively:

This can be rewritten in the form:

With income I, and vector of prices . Many necessities have an income elasticity of demand between zero and one: expenditure on these goods may increase with income, but not as fast as income does, so the proportion of expenditure on these goods falls as income rise. Income elasticity of demand measures the relationship between a change in quantity demanded and a change in income. The basic formula for calculating the coefficient of income elasticity is: Percentage change in quantity demanded of good X divided by the percentage change in real consumers' income

Normal Goods: Normal goods have a positive income elasticity of demand so as income rise more is demand at each price level. We make a distinction between normal necessities and normal luxuries (both have a positive coefficient of income elasticity). Necessities have an income elasticity of demand of between 0 and +1. Demand rises with income, but less than proportionately. Often this is because we have a limited need to consume additional quantities of necessary goods as our real living standards rise. The class examples of this would be the demand for fresh vegetables, toothpaste and newspapers. Demand is not very sensitive at all to fluctuations in income in this sense total market demand is relatively stable following changes in the wider economic (business) cycle. Luxuries on the other hand are said to have an income elasticity of demand > +1. (Demand rises more than proportionate to a change in income). Luxuries are items we can (and often do) manage to do without during periods of below average income and falling consumer confidence. When incomes are rising strongly and consumers have the confidence to go ahead with big-ticket items of spending, so the demand for luxury goods will grow. Conversely in a recession or economic slowdown, these items of discretionary spending might be the first victims of decisions by consumers to rein in their spending and rebuild savings and household financial balance sheets. Many luxury goods also deserve the sobriquet of positional goods. These are products where the consumer derives satisfaction (and utility) not just from consuming the good or service itself, but also from being seen to be a consumer by others. Inferior Goods Inferior goods have a negative income elasticity of demand. Demand falls as income rises. In a recession the demand for inferior products might actually grow (depending on the severity of any change in income and also the absolute co-efficient of income elasticity of demand). For example if we find that the income elasticity of demand for cigarettes is -0.3, then a 5% fall in the average real incomes of consumers might lead to a 1.5% fall in the total demand for cigarettes (ceteris paribus).

Within a given market, the income elasticity of demand for various products can vary and of course the perception of a product must differ from consumer to consumer. The hugely important market for overseas holidays is a great example to develop further in this respect. What to some people is a necessity might be a luxury to others. For many products, the final income elasticity of demand might be close to zero, in other words there is a very weak link at best between fluctuations in income and spending decisions. In this case the real income effect arising from a fall in prices is likely to be relatively small. Most of the impact on demand following a change in price will be due to changes in the relative prices of substitute goods and services.

The income elasticity of demand for a product will also change over time the vast majority of products have a finite life-cycle. Consumer perceptions of the value and desirability of a good or service will be influenced not just by their own experiences of consuming it (and the feedback from other purchasers) but also the appearance of new products onto the market. Consider the income elasticity of demand for flat-screen colour televisions as the market for plasma screens develops and the income elasticity of demand for TV services provided through satellite dishes set against the growing availability and falling cost (in nominal and real terms) and integrated digital televisions.

Q.2) when is the opinion survey method used and what is the effectiveness of the method. Q.2 When is the opinion survey method used and what is the effectiveness of the method. Ans :Survey of buyers intention or preference is one of the important methods of demand forecasting. It is also called .Opinion Survey Method.. Under this method, consumer buyers are requested to indicate their preference and

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} willingness about a particular product. They are about to reveal their future purchase plans with respect to specific items. They are expected to give answer to question like what items they intends to buy, in what quantity, why, where, what quality they expect, how much they are planning to spend etc. Generally, the field surveys are conducted by the marketing research departments of the company or hiring the services of outside research organization consisting of learned and highly qualified professionals. The heart of the survey is questionnaire. It is a comprehensive one covering almost all questions either directly or indirectly in a most intelligent manner. It is prepared by an expert body who are specialist in the field or marketing. The questionnaire is distributed among the consumer either through mail or in person by the company. Consumers are requested to furnish all relevant and correct information. The next step is to collect the questionnaire from the consumers for the purpose of evaluation. The materials collected will be classified, edited and analyzed. If any bias prejudices, exaggerations, artificial or excess demand creation are found at the time of answering they would be eliminated.

The information so collected will now be consolidated and reviewed by the top executives with lot of experiences. It will be examined thoroughly. Inferences are drawn and conclusions are arrived at. Finally a report is prepared and submitted to the management for taking final decisions. The success of the survey method depends on many factors:

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} 1. The nature of the question asked. 2. The ability of the surveyed. 3. The representative of the sample 4. Nature of the product 5. Characteristics of the market 6. Consumer behavior 7. Techniques of analysis 8. Conclusion drawn etc. The management should not entirely depend on the result of survey reports t project future demand. Consumer may not express their honest and real views and as such they may give only the broad trends in the market. In order to arrive, at right conclusion, field surveys should be regularly checked and supervised. This method is simple and useful to the producers who produce goods in bulk. Here the burden of forecasting is put on the customers. However this method is not much useful in estimating the future demand of the

household as they run in a large numbers and also do not freely express their future demand requirements. It is expensive and so difficult. Preparation of questionnaire is not an easy task. At best it can be used for short term forecasting.

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} Q.3 Show how price is determined by the forces of demand and supply, by using forces of equilibrium. Ans The word equilibrium is derived from the Latin word .aequilibrium. which means equal balance. It means a state of even balance in which opposing forces or tendencies neutralize each other. It is a position of rest characterized by absence of change. It is a state where there is complete agreement of the economic plans of the various market participants so that no one has a tendency to revise or alter his decision. In the words of professor Mehta: .Equilibrium denotes in economics absence of change in movement.. Market Equilibrium There are two approaches to market equilibrium viz., partial equilibrium approach and the general equilibrium approach. The partial equilibrium approach to pricing explains price determination of a single commodity keeping the prices of other commodities constant. On the other hand, the general equilibrium approach explains the mutual and simultaneous determination of the prices of all goods and factors. Thus it explains a multi market equilibrium position. Earlier to Marshall, there was a dispute among economists on whether the force of

demand or the force of supply is more important in determining price. Marshall gave equal importance to both demand and supply in the determination of value or price. He compared supply and demand to a pair of scissors . We might as reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production. . Thus neither the upper blade nor the lower blade taken separately can

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} cut the paper; both have their importance in the process of cutting. Likewise neither supply alone, nor demand alone can determine the price of a commodity, both are equally important in the determination of price. But the relative importance of the two may vary depending upon the time under consideration. Thus, the demand of all consumers and the supply of all firms together determine the price of a commodity in the market. Equilibrium between demand and supply price: Equilibrium between demand and supply price is obtained by the interaction of these two forces. Price is an independent variable. Demand and supply are dependent variables. They depend on price. Demand varies inversely with price, a rise in price causes a fall in demand and a fall in price causes a rise in demand. Thus the demand curve will have a downward slope indicating the expansion of demand with a fall in price and contraction of demand with a rise in price. On the other hand supply varies directly with the changes in price, a rise in price causes a rise in supply and a fall in price causes a fall in supply. Thus the supply curve will have an upward slope.At a point where these two curves intersect with each other the equilibrium price is established. At this price quantity demanded is equal to the quantity demanded. This we can explain with the help of a table and a diagram Price in rs Demand in units

Supply in units State of market Pressure on price 30 5 25 D<S P decreases 25 10 20 D<S P decreases 20 15 15 D=S Neutral 10 20 10 D>S P increases 5 30 5 D>S P increases

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} .

In the table at Rs.20 the quantity demanded is equal to the quantity supplied. Since the price is agreeable to both the buyer and sellers, there will be no tendency for it to change; this is called equilibrium price. Suppose the price falls to Rs.5 the buyer will demand 30 units while the seller will supply only 5 units. Excess of demand over supply pushes the price upward until it reaches the equilibrium position supply is equal to the demand. On the other hand if the price rises to Rs.30 the buyer will demand only 5 units while the sellers are ready to supply 25 units. Sellers compete with each other to sell more units of the commodity. Excess of supply over demand pushes the price downward until it reaches the equilibrium. This process will continue till the equilibrium price of Rs.20 is reached. Thus the

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a In the diagram DD is the demand curve, SS is the supply curve. Demand and supply are in equilibrium at point E where the two curves intersect each other. OQ is the equilibrium output. OP is the equilibrium price. Suppose the price OP2 is higher than the equilibrium price OP. at this point price quantity demanded is P2D2. Thus D2S2 is the excess supply which the seller wants to push into the market, competition among the sellers will bring down the price to the equilibrium level where the supply is equal to the demand. At price OP1, the buyers will demand P1D1 quantity while the sellers are ready to sell P1S1. Demand exceeds supply. Excess demand for goods pushes up the price; this process will go until equilibrium is reached where supply becomes equal to demand. Q.4 Distinguish between fixed cost and variable cost using an example. Ans: Fixed cost: These costs are incurred on fixed factors like land, building, equipments, plants, superior types of labour, top management etc. fixed costs in the short run remains constant because the firm does not change the size of plant and the amount of the fixed factors employed. Fixed costs do not vary with either expansion or contraction in output. These cost are to be incurred by a firm even output is zero. Even if the firm close down its operation for some time temporarily in the short run, but remains in business, these cost have to be borne by it. Hence, these costs are independent of output and are referred to as unavoidable contractual cost. Prof. Marshall called fixed cost as supplementary costs. They include such items as

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} contractual rent payments, interest on capital borrowed, insurance premium, depreciation and maintenance allowance, administrative expenses like managers salary or salary of the permanent staff, property and business taxes, license fees, etc. They are called as over- head costs because these costs are to incurred whether there is production or not. These costs are to be distributed on each units of output produced by a firm. Hence, they are called as indirect costs. Variable Costs: The costs corresponding to variable factors are described as variable costs. These costs are incurred on raw materials, ordinary labour, transport, power, fuel, water etc, which directly vary in the short runs. Variable costs are directly and proportionately increases or decreases with the level of output. If a firm shut down for some times in the short run; then it will not use the variable factors of production and will not therefore incurs any variable costs. Variable costs are incurred only when some amount of output is produced. Total variable cost increases with the level of increase in the level of production and vice-versa. Prof. Marshall called variable costs as prime costs or direct costs because the volume of output produced by a firm depends directly upon them. It is clear from the above description that a production cost consists of both fixed as well as variable costs. The difference between the two is meaningful and relevant only in the short run. In the long run all costs become variable because all factors of production become adjustable and variable in the long run. However, the distinction between the fixed and variable costs is very important in

theshort because it influences the average costs behavior of the firm. In the short run, even if a firm wants to close down its operation but wants to remain in the business, it will have to incur fixed costs but it must cover at least its variable costs.

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} Q.5 Discuss Marris Growth Maximization model ? Profit maximization is traditional objective of a firm. Sales maximization objective is explained by Prof. Boumal. On similar lines, Prof. Marris has developed another alternative growth maximization model in recent years. It is a common factor to observe that each firm aims at maximizing its growth rate as this goal would answer many of the objectives of a firm. Marris points out that a firm has to maximize its balanced growth rate over a period of time. Marris assumes that the ownership and control of the firm is in the hands of two groups of people, i.e. owner and managers. He further points out that both of them have two distinctive goals. Managers have a utility function in which the amount of salary, status, position, power, prestige and security of job etc are the most import variable where as in case of are more concerned about the size of output, volume of profits, market shares and sales maximization. Utility function of the manager and that the owner are expressed in the following mannerUo= f [size of output, market share, volume of profit, capital, public esteem etc.] Um= f [salaries, power, status, prestige, job security etc.] In view of Marris the realization of these two functions would depend on the size

of the firm. Larger the firm, greater would be the realization of these functions and vice-versa. Size of the firm according to Marris depends on the amount of corporate capital which includes total volume of the asset, inventory level, cash reserve etc. He

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} further points out that the managers always aim at maximizing the rate of growth of the firm rather than growth in absolute size of the firms. Generally managers like to stay in a grouping firm. Higher growth rate of the firm satisfy the promotional opportunity of managers and also the share holders as they get more dividends.

Q.6 Explain how fiscal policy is used to achieve economic stability. Ans: In order to achieve a stable economic condition, fiscal policy has to play a positive and constructive role both in developed and developing nations. The specific role to be played by fiscal policy can be discussed as follows: .. To act as optimum allocator of resources: As most of the resources are scarce in their supply, careful planning is needed in its allocation so as to achieve the set targets. Rational allocation would ensure fulfillment of various objectives. ..

To act as a saver: 1. It should follow a rational consumption policy reduces the MPC and raises the MPS. 2. Taxation policy has to be modified to raise the rates of old taxes, introduces new additional taxes, and extends the tax-nets. 3. Profit earning capacity of public sector units are to be raise substantially to mopup financial resources. 4. The government should borrow more money both in the country and outside the country.

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\ -x, & x < 0 \end{cases} n! \equiv \begin{cases} n \cdot (n-1)!, & n \ge 1 \\ 1, & n = 0 \end{cases} \sum_{i=0}^n x_i = x_0 + x_1 + x_2 + \cdots + x_n \sum_{i=1}^4 2i = 2(1) + 2(2) + 2(3) + 2(4) = 2 + 4 + 6 + 8 = 20 \sum_{k=0}^\infty r^k = \frac{1}{1-r}, \left| r \right| < 1 f\left(x_i\right) \approx \frac{f\left(x_{\lceil i \rceil}\right) - f\left(x_{\lfloor i \rfloor}\right)}{x_{\lceil i \rceil} x_{\lfloor i \rfloor}} \cdot \left(x_i - x_{\lfloor i \rfloor}\right) + f\left(x_{\lfloor i \rfloor}\right) x_{\lfloor i \rfloor} x_{\lceil i \rceil} 5. Higher the rate of interest are to be offered for government bonds and security. To act as an investor: Mere mobilization of financial resources is not an end in itself. It should result in the creation of real resources which are more important in accelerating the growth process. Rapid economic growth depends upon the volume of investment. Hence, fiscal policies have to be ensuring higher volume of investment in both private and public sectors. To act as price stabilizer: price stability is of paramount of importance in an economy.Extreme levels of both inflation and deflation would disrupt and disturb the normal and regular working of an economic system. This would come in the way of stable and persistent growth. Hence all measures are to be taken to check these two dangerous situations so as to create necessary congenial atmosphere to prepare the background for rapid economic growth. To act as an economic stabilizer: Price stability would create the necessary background for over all economics stability. Upswing and downswing in the level of economic activities are to be avoided. If an economy is subject to frequent fluctuation in the form of trade cycle, certainly, it would undermine and disturb the growth process. Instability would come in the way of persistent and consistent growth in a country. Hence all measure to be taken to ensure economic stability. To act as an employment generator: Fiscal policy should help in mobilizing

more financial resources, convert them in to investment and create more employment opportunity to absorb the huge unemployed man power. To act as balancer: There must be proper balance between aggregate saving and

http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image146.gif;pv90f292098aa7c15b http://www.unesco.org/webworld/idams/advguide/images5/Image147.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image148.gif;pva36f455d2878bb67 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image149.gif;pv4753d6f7a6f6aad1 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image150.gif;pvf72a71b5f749ea38 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Imagex1.gif;pv72173db72e36b7b5 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image151.gif;pve965ec5590261b07 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image152.gif;pve3c8abf4042b54df http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image153.gif;pvc072cc058ffca61c http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image154.gif;pvdef9b5ed25d05d82 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image155.gif;pvca1808ef0328a68a http://www.unesco.org/webworld/idams/advguide/images5/Image156.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image157.gif;pvb795d467fd2f00d7 http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image158.gif;pv0a186116232bc57e http://www.unesco.org/webworld/idams/advguide/images5/Image159.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image160.gif;pv283aabbd5465c7b0 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image161.gif;pvf0bd6abfd761297c http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image162.gif;pvb25f4768ac7aa8a3 http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image163.gif;pv7ec99eee7d5d355a http://www.unesco.org/webworld/idams/advguide/images5/Image164.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image165.gif;pv840bd7ff8758b7be http://wa2.www.unesco.org/webworld/idams/advguide/images5/Image166.gif;pv0de96f9f523bd4af http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image167.gif;pv60f825b603f52de3 http://www.unesco.org/webworld/idams/advguide/images5/Image168.gif http://wa1.www.unesco.org/webworld/idams/advguide/images5/Image168.gif;pvb3af780d0fb84835 |x| \equiv \begin{cases} x, & x \ge 0 \\