Cross elasticity

The concept of cross elasticity is also equally important in business decision making.It is important for the firm to be aware of how the demand for its product is likely to respond to change in price of other goods.This information is necessary for formulating firm's own pricing strategy and for analysing the risk associated with various products.This is particularly important for the firms with extensive product lines,where significant substitution or complementary inter-relationships exist between the various products.
The use of cross elasticity are as follows :

1. Pricing strategy related to own product :A firm may produce several related products.For example,Everest Toothpaste produces both brush and tooth paste.These goods are also complements.Hence more tooth paste can be sold if the price of toothpaste is reduced.Likewise,Everest brewery ltd.produces San Miguel and Tiger beer.
2. Pricing strategy related to others product:Several firms in the country produce complementary goods and substitute goods.The price of one firm affects the demand for other firms product.If a having many rivals producing substitute goods raise price,it many have to lose the customers substantially.Hence,an analysis of cross elasticity between own products and rivals products is essential to design appropriate pricing policy.
3. Measure interrelationship between industries:The cross elasticity is used in industrial organization to measure interrelationship among industrial.For example,one firm be the sole supplier of a particular product in the market.But if cross elasticity between the firm's product and products of related industries is large and positive,the firm through a monopolist in a narrow sense,will no be able to raise its prices without losing sales to other firms in related industry.
4. Classification of industries :The cross elasticity is useful in determining the boundaries between industries.Sometime problem occurs as to which firm should be included in which industries.For example,whether the production of car and truck should be classified as one industry or two industries.The cross elasticity become a basis situation.The firms having high positive cross elasticity should be included in one industry in other industry.
5. Classification of goods and markets :The goods markets are classified on the basis of elasticity of demand.For example,the goods are classified into substitute goods and complementary goods on the basis of cross elasticity of demand.If the cross elasticity between two goods is positive,these goods are substitute.On the other hand,if the cross elasticity is negative,these goods are complementary.

Prof.Bain has classified market structure on the basis of cross elasticity.In how view,if the cross elasticity is infinite,the market structure is perfectly competitive.Likewise,if the cross elasticity is high or these are existences of substitute,the market structure is imperfect.

Income elasticity

The knowledge of income elasticity is a visit source of information in business decision making.The income elasticity is useful in following ways:

1. Determine the effect of changes in economic activity :The knowledge of income elasticity is useful in determining the effect of change in business activity on various industries.The firms whose demand functions have high income elasticity will have good growth opportunities in an expanding economy.So,in their plans,the forecast of aggregate economic activity will be important.
2. Marketing activity :The income elasticity can play an important role in marketing activities of a firm.If capital or household income is found to be an important determinant of the demand for a particular product,this can affect the location and nature of sales outlets.It can also have impact on advertising and promotional activities.In case of goods having high income elasticity.It is better to make significant promotional effort due to the potential for substantially increased future business as the income increase.
3. Design marketing strategy :The income elasticity is useful in designing marketing strategy or targeting marketing efforts.For example, if a firm is specialised in expensive ladies cloths,rich ladies are its prime customers as the rich people are the prime customers or luxury goods.Hence,the firm should concentrate its marketing efforts in the media such as television that reached to the wealthy segment of the population.For good such as washing soaps which are widely used by average people,the firm can select ratio promotional activities.
   

Public policy decision

The concept of elasticity of demand is equally importance in public police formulation as mentioned below:

• Declaration of public utilities :The concept of elasticity helps the government to decide which industries should be declared as public utilities and run by itself.If the demand for the product of a firm is inelastic,the government can declare that industry as public utility and run by itself,because the private monopolist can exploit the people due to inelastic demand.
• Determination of terms of trade :The concept of elasticity of demand helps to increase the gains of international trade.It enable the government to determine the terms of trade between two countries.The terms of trade refers to rate of exchange of goods of one country with other country.If the demand for foreign good is inelastic in local market,high price can be fixed by foreign countries.Likewise,if the demand for domestic product is inelastic in foreign market,we can fix high price.
• Determination of rate of foreign exchange :The concept of elasticity of demand is useful in determination of the rate of foreign exchange of domestic currency.The government should study the elasticity of export and import demand before devaluation or revaluation.The effects of devaluation or revaluation on balance of payment can be known only if the elasticity of demand is known.
• Importance in fiscal policy :The concept of elasticity of demand important is fiscal policy,particularly in formulation of tax policy.The government or the finance minister will have to known the elasticity of demand before imposing taxes.The imposition of taxes increase the price of commodities.Hence,if the demand for a commodity is elastic,the demand decision.But if the demand is inelastic,the public revenue increase.Hence,the government can impose high taxes in the commodities having inelastic demand except the necessary goods.
  

Use of different types of elasticity of demand in price elasticity

The concept of elasticity of demand has theoretical and practical importance.The importance and use of three main types of elasticity of demand has been explained below:

pricing decisions
The concept of elasticity of demand is of considerable importance is pricing decisions or price determination.The use of this concept in pricing decision can be further subdivided into following:

• Price of products:The knowledge of price elasticity makes it easier to decide whether price increase or decrease is desirable or net.For example,if demand is elastic,it is desirable to reduce price.On the other hand,if demand is inelastic to increase price.In case of commodities of utmost importance which have no substitutes.Price can be increase without reducing sales.But in case of luxuries or commodities having substitutes,price increase leads to low sales and profit is reduce.The firms in imperfect competition including will have to know the price elasticity of demand in determination of price.If the elasticity of demand for the product is inelastic,form can charge high price.If the demand is elastic the forms will have to loss the customers if the price is increased.The monopoly firm,thought have the power to fix the price of if product,has to consider elasticity while determining price.Because,the distant substitutes of his product may exist even if the close substitutes do not exist.
• Pricing of factors of production :The concept of elasticity of demand is useful in the determination of price of factors of production."If the demand for factors of production are more inelastic,the producers are prepare to pay more price for these factors.Likewise,if the demand for the factors of production is more elastic,the producers are prepared to pay less price for the factors.For example,if the demand for labour in an industry is inelastic,the labour unions can easily increase wages.But if demand is elastic,the wages cannot be raised too much.
• Pricing of joint products:Some goods are products jointly due to some reasons such as meat and wool production in sheep farming or sugar and wine production in a sugar industry.It is difficult separate the cost of production of these two goods.This make it difficult to determine the price on the basis of cost.In such a situation,the price is determined on the basis of the elasticity of demand of these two products. In other words,high price is set up for the good having inelastic demand and low price for the good having elastic demand.
  

Measuring income elasticity at a point on an income demand curve

The effect of income on demand fro a commodity,other things remaining constant is called income demand.The curve that shows the quantity demanded of a commodity at different levels of income is called income demand curve of Engel.This curve shows that demanded is the function of income.
The consumers buy some commodities like food on equal quantity.In this situation the income demand curve is almost vertical.If the people increase the purchase of the commodity more rapidly than the increase in income,the income demand curve is almost horizontal such as ornaments.
In general,people demand more of a commodity when income increase.Hence,the income demand curve slopes upward to the right or has positive slope.This happens in case of normal goods.If the quantity demanded falls with increase in income,the income demand curve has negative slop.This happens in case of inferior goods.The income effect is negative.
The measurement of the income demanded curve having positive slope has been presented in the figure below.

Kinds of elasticity of demand

Broadly speaking,there are three main types of elasticity of demand.They are price elasticity,income elasticity and cross elasticity.

1. Price elasticity of demand
   

In general,elasticity of demand means price elasticity of demand.This concept is most popular and most frequently used.Price elasticity means the responsiveness of quantity demanded to the change in price.the price elasticity of demand is defined to be the percentage change in quantity demanded resulting from 1 percent with change in price.The price elasticity sows as what at rate the demand changes with change in price.In the words of C.E.Ferguson -"Price elasticity is the proportionate change in quantity demanded divided by the proportionate change in price."
Ep=Q/P*P/Q=500/-1*10/2000=-2.5
It shows that the quantity demanded increase by 2.5 percent with 1 percent fall in price.The minus sing shows the inverse relationship between price and quantity demanded.In general this sing is not used,since efficient of elasticity of demand.The coefficient and shows elastic,unitary elastic,inelastic,perfectly inelastic and perfectly elastic demand respectively.

Elasticity of demand

The tern elasticity denotes the quantity of a good that can expand and contract.Hence,the change in quality demanded due to change in price is called elasticity of demand.The concept of elasticity of demand was introduced in economics by economists like Cournot,J.S.Mill.The credit is given to Dr.Alfred Marshall for the development of the concept.
The law of demand tells that the quantity demanded of a commodity varies investment with price.But it does not tell how much quantity demanded change with change in price.This task is accomplished by quantity demand change with in change price.
In the words of Alfred Marshall -"The elasticity of demand is a market is great or small as the amount demanded increase much or little for a given fall price and diminished much or little for a given rise in price."
According to Stonier and Hague -"Elasticity of demand is,therefor,a technical term used by the economists of describe the degree of responsiveness of the demand for the commodity to a fall in its price."
In brief,elasticity of demand measures the rate of change in quality demanded as a result of the change in price.

Determinats of demand

The demand for a commodity is influence by several factors.The main determinants of demand are price of the commodity,price of related commodities,size of income,test and performance of consumers and so on.The analysis of demand when all these factors change simultaneously is difficult.Hence,when demand is analysed on the basis of only one factors are assumed to be constant.For example,the effect of change in price on demand is analysed assuming all other factors constant.The major determinants of demand are explained below.

1. Price of the commodity :Traditionally,the own price of the commodity is the most important determinant of demand.For most of the commodities when the price fall,the income of consumers,preference and taste,price of all other commodities remaining constant,the demand for that commodity increase.
2. Price of related commodities:Some of the goods are related to each other.The goods may be either substitute or complementary goods.For example,tea and coffee are substitute goods and tea and sugar are complementary goods.The substitute goods that have essentially the same use.On the other hand,the goods often used together are called complements.
3. Consumers income :The demand for a commodity is also affected by consumer's money income.The change in money income leads to the change in quality demanded of a commodity.This applies in case of almost all commodities and almost all individuals.
4. Taste and preference :Taste and preference change from time.If the taste for a commodity is strong,the quantity demanded will be high and if there is a loose test for a commodity,the quantity demanded will be low.For example,once the demand for 'Rangeela cap' was high among girls,but not so at present.
5. Population and composition:The size and composition of population also influence the market demand.The demand varies directly with the size of the population.If the size of the population is large,The demand for normal goods will be high.The consumption of population such as proportion of male-female,rich-poor,child-adult,also affect the demand for a commodity.
6. Consumers expectation :The demand may demand on expectations of people's relating to price and availability of goods.It there is expectation of price fail,present demand will be less and vice versa.Likewise,if there is expectation of the shortage of a commodity in future,present demand will be high.Because,people feel that the commodity may not be available in future or price may be higher in future than at present.The reserve will happen if these is expectation of glut of commodity.
7. Advertisement expenditure :The advertisement helps to increase the demand for a commodity.The advertisement definitely increase the demand for a commodity by informing people as to the availability of goods,by showing the goods superior than the goods of rival firms and by changing people's taste and preference.The relation between advertisement expenditure and the quantity of sales has been illustrated in figure.
8. Distribution of national income :The demand is also affected by the distribution of national income.If the distribution of national income is very unequal,some people are very rich and majority of people are poor.In this situation,demand for luxury goods will be high.
   

Demand function

In economics,the term demand has a specific meaning.Demand is a functional relationship revealing the will be purchase of a particular relationship revealing the quality that will be purchased of a particular commodity at various prices,at given time and place.Hence,according to J.L.Pappas and E.F.Brigham "The demand the quantity demanded and the factors that this quantity."
Similarly,according to Weston and Getz-"In a given market,in a given period of time.the demand function for a commodity is the relation between the various amounts of the commodity that might be bought and the determinants of those amounts."In economics,the relationship is portrayed both asthmatically in the forms of a demand schedule and graphically in the firms of chart.Demand schedule means a table showing prices and corresponding quantities and the chart is a pictorial representation of a demand schedule which is called demand curve.However,since demand is a functional concept,it may also be expressed algebraically in the form of an equation such as.
The equation means that demand is a function of price.This is a demand function showing simple relation.
But in reality,demand for most products is affected by many factors other than price.These factors may include the price of the commodity in question,consumer incomes,tastes and preference,prices and availability of of competitive goods,expectation of price changes,advertising expenditures and so on.

Importance of demand analysis in business decision

The demand analysis and the demand theory are of crucial importance to the business enterprises.They are the source of many useful insights for business decision making.The success of failure of business firms depend primarily on its ability to generate resources by satisfying the demand of consumers.The firms unable to attract consumers are soon forced out from the market.
The importance of demand analysis in business decisions can be explained under following headings:

1. Sales forecasting :The demand is a basis the sales of the production of a firm.Hence,sales forecasting can be made on the basis of demand.For example,if demand is high,sales will be high and if demand is low,sales will be low.The firms can make different arrangements to increase or reduce production or push up sales on the basis of sales forecast.
2. Pricing decisions :The analysis of demand is the basis of pricing decisions of a firm.If the demand for the product is high,the firm can charge high price,other things remaining the same.On the contrary .If the demand is low,the firm cannot high price.The demand analysis also helps the firm in profit budgeting.
3. Marketing decisions:The analysis of demand helps a firm to formulate marketing decisions.The demand analysis analyses and measure the forces that determine demand.The demand can be influenced by manipulating the factors on which consumers base their demand on attractive packaging.
4. Production decisions:How much a firm can produce depends on its capacity.But how much it should produce depends on demand.Production is not necessary if their no demand.But continuous production schedule is necessary if the the demand for the production is relatively stable.If the demand is less than the quantity of production,new demand should be created by means of promotional activities such a advertising.
5. Financial decisions :The demand condition in the marker for firm's product's affects the financial decisions as well.If the demand for firm's product is strong and growing,the needs for additional finance will be greater.Hence,the financial manager should make necessary financial arrangement to finance the growing need of the capital.
   

Meaning of demand

Demand is not something same as desire or need.Demand for a commodity means desire.Willingness and ability to pay.For example,a poor man's desire and willingness to pay for a car is not demand since he does not have ability to pay.Similarly,a person's ability to pay for a is not demand since he does not since willingness and desire to buy a car.Thus,the demand for any commodity is the desire for that commodity baked by willingness and ability to pay only this affects the volume of sales.According to Fredric Benham "The demand for anything at a given price,is the amount of it which will be through per unit of time at that price."
In the words of Pappas and Brigham "The term demand is defined as the number of units of particular goods or service that consumers are willing to purchase during a specific period and under a given set of conditions."
According to Milton H.Spencer "Demand is the quality that will be purchased of particular commodity at various prices,at a given time and price."
Thus,demand is always defined with reference to a particular time and given values of variables on which it depends.Two things should be noted in the definition:
First,demand always means demand per units of time.The time period might be a month year.We must specific the period for which the commodity bring demanded.The statement that demand for ghee in Kathmandu is 1000 kg at rs.50 per kg.has no significance unless we state clearly the period for which this quantity is being demands.
Second,The condition on which the thing is demanded should be specified.The conditions would include the good in question,price and availability of competitive goods,expectations of price changes,income,tastes and performance,advertising expenditures and so on.

Distinction between micro¯o-economics

Micro-economics is the study of.Individual units on the country,macro-economics is the study of all the units combined together or the economy as a whole.But the distinction between them is not clear-cut.Micro is one situation may be micro in another situation.For example,national income is a macro concept in the context of a country but is a micro concept in the international context.The main points of difference between them are as follows.

1. Literal meaning :The team micro-economics was derived from the Greek word 'mikros'meaning small.Likewise,the team ,macro-economics was also derived from the Greek word 'makros' meaning large.
2. Study of aggregate variables :Since micro-economics is the study of individual units it includes the study of the price of a commodity.Income of an individual,output of a firm,demand and supply of a commodity.
3. Study of aggregates is relation to economy as a whole:Micro-economics also studies the small aggregates such as market demand,market supply,industry and so on.But these aggregates are no related to the economy as a whole.
4. Partial and general equilibrium analysis:Micro-economics studies the individual equilibrium process by using partial equilibrium analysis.It focuses on the study of particular consumer,firm,demand,output,price and expenditure.On the other hand,macro-economics uses general equilibrium analysis for the study of the economic behavior of the economy as a whole.
5. Scope of micro and macro-economics :Micro-economics covers the areas such as the pricing of the products.Pricing of factors of production,theories of economic welfare and so on.Macro-economics,on the other hand covers the areas as such as theories of income and employment,theories of money and price level.
6. Assumption of full employment :Micro-economics assumes full employment of all factors including labour.Hence,it takes total employment,total output,total expenditure as given.Micro-economics does not assume full employment.Hence,it regards the variables like total employment,total output etc.
7. Solution of present day problem :The study of micro-economics is not of much help to solve the important present day problems such as decline in national income,hyper inflation,widespread unemployment and so on.
8. Development of micro and macro-economics :Micro-economics was developed mainly by classical and neo-classical economists.They had confined economics analysis to the study of individual aspect of economic behavior.They used to generalise the results of individual analysis to explain the aggregate behavior of the whole economic system.
9. Objective:Micro-economics has the utility maximisation objective on the demand side not profit maximisation objective of the supply side.On the other hand,macro-economics has the objective of full employment,price stability,economics growth,favourable balance of payment.
   
10. Statics and dynamic analysis:Micro-economics studies the equilibrium at a particular point of time.It does not explain the time factor.Hence,micro-economics is regarded as the static analysis.On the other hand,macro-economics is based on time-lag,rate of change,past and expected value of variable.
11. Basis :Price mechanism is the basis of micro-economics.The price mechanism is operated by the forces of demand and supply.These forces help to determine the equilibrium price.On the other hand,national income,output and employment are the basis of macro-economics.
    

Dependence of micro-economic on macro-economis and dependence of micro-economics on micro-economics

Micro-economics needs the help of macro-economics.For example,the sale of a firm does not depend only on the price of its product,but also on the total income of the community.If the community does not have purchasing power,the reduction in the price of a community will not increase sales.
Simplarly.the price of a good does not depend only on its demand and supply,but also on the prices of other goods.Likewise the amount of profit depends on aggregated demand,national income and price level.The rate of interest depends on the total stock of money in the economy.
Macro -economics also needs the helps of microeconomics.For example,national income and national output is the sum the income and output of millions of persons and firms.Hence,we should know the income is individual firms to know the national output.
Some theories of micro-economics have been derived from micro-economics.For example,total consumption function and total investment function are based on the behavior of individual consumers and firms respectively.
It is,thus,obvious that the study of both micro-economics and macro-economics is essential.P.A.Samuelson rightly remarks"There is really no opposition between micro and macro-economics.Both are absolutely vital.You less than half educated.If you understand the one while ignorant of the other."

Importance of micro-economics

The popularity of micro-economics has been growing.According to R.G.D Allen "Macro-economics is growing so fast in last three decades that it has brought great changes in the structure of economic theories."
The importance of macro-economics can be analysis on the basis of following headings:

1. Public policy formulation :Macro-economics is useful for formulation and execution of government policies.The main concern of government is with the people.Hence,the attention of government is focused on general price level.Level of production,volume of trade and so on.
2. Simple study of all sectors:The study of all sectors need the macro-economic approach.In modern days there are many things to be studies by men.It is almost impossible to study them individually.
3. Understand general unemployment :The use of micro-economics is useful to solve complex economic problems of present day.The causes,effects and remedies of general unemployment can be understood from micro-economics.The general unemployment occurs due to the deficiency of effective demand.
4. Evaluate the performance of the economy :Micro-economy is useful to evaluate the performance of the economy based on national income.One the basis of the analysis of national income we can say whether the economy is performing well or not.
5. Formulate the strategy of economic growth :The study of economic growth the scope of macro-economics.The capacity and source of growth of the economy can be found out from macro-economics.The strategy to increase production income,investment and employment to augment economic growth can like fiscal and monetary policies.
6. Solution of monetary problems :The monetary policy can be understand and analysis from macro-economics.The inflation and deflation have serious effects on the economy.
7. Understand trade cycle :There was great depression during 1990s.This drew the attention of economists towards trade cycle.The trade cycle covers whole part of the economy.Hence,it falls within the scope of macro-economics.
8. Solution of complex economic problem of modern times:Macro-economics deals with some of the challenging issues of modern times such as unemployment,inflation,taxes,government budget,balance of payment etc.
9. Study of social community welfare :.The study of economic helps to welfare well being of whole nation. The study social welfare is the study of macro-economic problems.The material well being of a nation depends on national income and employment.
10. Understand the working of the economy:The study of micro-economic is indispensable for understanding the working of the economy.Because the economy as a whole is concerning with behavior of total income,output,employment and general price level.
11. Understand the behavior of individual units:Macro-economics is important to understand the behavior of individual units.Because the demand for individual products depends on aggregate demand in the economy.
12. Useful is business decision making :Macro-economics is also useful in business decision making.The knowledge of aggregate demand and supply helps in production and pricing decisions.The macro-economic policies like fiscal policies,monetary policy have profound effects on business activities.
    

Limitations of macro-economics

The significances of the study of micro-economics remarkably increased after it was developed and popularised by J.M Keynes.But macro-economics has following limitations.

1. Danger of excessive thinking in terms of aggregates :There is danger of executive thinking in terms of aggregates which are not homogeneous.For example,2apples +3apples=5 apples is the meaning full aggregate,similarly 2 apples +3 oranges is meaningful to some extent.
2. Aggregate tendency may not affect all sectors equally :For example,the general increase in price affects different sections of the community or the different sectors of the economy differently.The increase in general level of price benefits the producers,but hurts the consumers.
3. Indicates no change has occured:The study of aggregates make us believe that no change has occured even if there is a change.It indicates that there is no need of new policy.For example,a 5 percent fall in agricultural price an d5 percent rise in industrial prices does not affect the price level.
4. Difficulty in the measurement of aggregates:There are at times,difficulty in the measurement of aggregates.It is difficult to measure the big aggregates.This problem has now been more or less erased by the use of calculators and the things which are not homogeneous.
5. The fallacy of composition:The aggregate economic behavior is the sum of individual behavior.This is called fallacies of composition.What is true in case of an individual may not be true in the case of economy as whole.For example,individual saving is a virtue,wheres the public saving is vice.According to K.E.Boulding "These difficulties are aggregative paradoxes which is true when used to one person,but false when used to the economy as a whole.
   

Micro economics in business decision

The use of micro economic in business decision can be further elaborated as follows :

1. Optimal resources allocation :Micro economics is useful in optimal allocation of resource.The resources of factors of production are always scare and limited with the business firm.Hence,they will have to make the optimal allocation of resource.Micro economics tells how the productive resources are allocated in the production of numerous goods and services.
2. Optimal production decision :The business firm can produce goods with different alternative techniques.They have to continuously face the problem of the technique to be chosen.Because,the resources like labour,capital are limited.On the contrary,their objective is to earn maximum profit.
3. Pricing policy:The firms well have to face the problem of pricing their productions.The firm should be able to fix appropriate price to achieve its objectives.Micro economics provides the basis for analyzing and solving the pricing problems.
4. Study of human behavior:Micro economics studies many firms of human behavior.The law of diminishing utility.Equi-marginal utility,indifferent curve theory all study human behavior.Economics theory can be used simple to describe the economic phenomenon.Such descriptive theory is called positive economic.As for example,when orange becomes scare,price rises,Positive theory says one causes another.
5. Examine conditions of economic welfare :The normative price theory is called welfare economics.Welfare economics studies welfare of the people as producers and consumers.It suggests possible ways of improving welfare of people.
6. Formulation of public policies:Micro economics helps government to formulation different economics policies for the welfare of the people.It gives tools and foundations for analysis of economic policy.The economic policy influence the economy.It causes changes in allocation of resources.
7. Solution of contemporary micro-economic problems:Price theory is also used in practical of economics such as public finance,international trade.It helps to analysis the effects of trade and payments.
   

Use or importance of micro economics

Micro economics has many theoretical and practical importance.Due to this even the neo-classical economists had concentrated on micro economics.Although Keynes popularised macro-economics,the importance of micro-economics has not declined.The importance of micro-economics can be analysed on the basis of following headings:

1. Understand the working the economy:The knowledge of micro economics is indispensable to know the working of the economy.The economy consists of public and private sector.The analysis of individual industries,wages and salary determination,individuals taxes, international trade all rests on micro-economic foundations.Similarly,most of the government activities can be analysed with same concepts applied to private sector.As for example,price determination by post office,cost of national defence.etc
2. Efficient allocation of resources:Micro economics assumes that consumers and products act rationally.The producer surveys possible course of action,measures the expected benefits and costs of each course action.He then selects those courses of action which promise greatest benefits over costs.The rational behaviour leads to best use of resources.Micro -economics teachers to make best use of resources.It suggests how to achieve a given objective with fewest resources or at least cost.Micro-economics says how resources are allocated in the production of goods and service.It says which commodity is to produce.How much to produce and why to produce.
3. Useful in business decision making :Micro-economics is applied to analyse faced by business executive.The price theory in the service of business executive is known as managerial economics.It contributes improved decision making in the areas of demand analysis,optimal production decision,pricing decision to maximise profit.It guides business men to determine the price of different goods and factors of production.
   

Limitations of micro-economics

Micro economics has following limitations:

1. May no be true in aggregates:Micro economics studies small economic units explaining the relation and the equilibrium between them.But the use of the conclusions of the equilibrium of small units or the partial equilibrium in case of the economy as a whole provides wrong conclusion.Because what is true in cost of one unit may be true case of aggregates.For example,individual saving is good since it promotes individual economic property.But if all people save,the effective demand is reduced.This,in,turn reduces the employment opportunities.
2. Assumption of full employees unrealistic:Micro-economic assumes 'ceteris paribus and full employment'.But this is an unrealistic assumption.According to J.M.Keynes,the society has unemployment rather than full employment.He observed "to assume full employment is to our difficulties opportunities.
3. Concentration on small parts :Micro-economics concentrates on small parts of the total economy.For example,it studies about individuals demand,individual price and so on.Micro-economics,does not give knowledge about the working of the whole economy.The knowledge of the economy.The knowledge of the economy as a whole is also equally important to the men.
   

Micro dynamics

The world is dynamic.The change in time leads to the change in price which brings changes in demand and supply of the commodity.This leads to the changes in equilibrium.Micro dynamics,thus,refers to a position by which the system passes from one position of equilibrium to other.It throws full light on the happening in the transition from one equilibrium to another.It is the fullest study between disturbances in one equilibrium and equilibrium of another.This method involves a full length movie of entire sequence.
According to J.N.Schumpeter"We call relation dynamic if it connects economic quantities that differ to different points of time."The dynamics relationship can be made clear by the help of an example.If the demand for the commodity at a the time period.Is the function of the price expected in latter period of time.The relationship between demand and price is a dynamic relation.The dynamic functional relationship can be shown in an equation.
When the demand curve and is the supply curve is the original point of equilibrium.Here is the equilibrium price and is the equilibrium quantity.
Suppose that demand increase to since supply does not increase supply with demand.The firms increase supply by working more.As a result of the supply condition becomes after some time.Due to the increase in supply,the price falls by. Still the price is lighter than.So the firms increase supply.The supply curve is now.This process is continued until the falls to is the price that gives normal price.

Comarative microstatics

There is change in time.The change in time brings changing in the condition of demand and supply.This,in turn,leads to the change in equilibrium.Hence,comparative micro statics refers to a comparative study of different equilibrium at different points of time.It compares one equilibrium with other equilibrium.But it does not study the disequilibrium that occurs in passing from one equilibrium to other.According to prof.Schneder"The comparative analysis of two equilibrium positions may be described as comparative static analysis.Since it studies the alternative in the equilibrium position corresponding to an alteration in a single datum."
The comparative micro statics has been illustrated.The original equilibrium when equilibrium price and equilibrium quantity.When demand increases from the equilibrium is at.Here,equilibrium price is and equilibrium quality.The comparative study of two equilibrium points and is called comparative micro statics.But it does not explain the process through which new equilibrium is attained.It is silent as to how equilibrium is reached from quantify and price.
It is how evident that micro economics does not study the economy as a whole.It studies the small parts of the national economy.This study is related to the particular unit.For example,in micro economics,we study how a firm determines its quantity of production and price or how it determines the wages of labour.Since micro economics studies how prices of goods and factors of production are determined and how resources are allocated in different uses.

Micro statics

Micro statics is the study of the static relationship between different variables.In fact,static situation refers to the situation of equilibrium.When the value of economic variable is related to the same point of time,the functional relationship between variable is said to be statics.Micro statics shows such static functional relationship.
Micro statics shows the relationship between different variables at a given time.In other words,Micro statics shows the equilibrium between different variable.It is assumed that there is no change in variable.For example,the price of a commodity is determines by the demand and supply.According to J.A.Schumpeter "Static analysis tries to established relations between elements of the economic system which refer to the same point of time."
The concept of micro statics has been illustrated is figure below.In the figure.DD and SS are demand and supply curves respectively.These curves interests each at pint.E so E the point of equilibrium.OP is the equilibrium price and OM is the equilibrium,quantity supplied and price refer to the same point or period of time.

The components of human development

The components of human development mentioned in above table may be explained as follows.

1. Life expectancy at birth:It means the number of years a new born infant live it prevailing patterns of mortality as the time of birth were to stay the same throughout the child's life.
2. Adult literacy rate:It is the percentage of people aged 15 and above can,with understanding,both real and write a short,simple statement on there everyday life.
   
3. Gross enrolled ratio :It is the number of students enrolled in a level of education,whether or not they belong in a relevant age group for that level,as percentage of the population in the relevant age group for that level.
4. Real GDP per capital:It is the GDP per capital of a country converted into US dollars on the basis of purchasing power party of the country's currency.The system of PPP has been developed by United Nations International Comparisons Programme to make more accurate international comparisons of GDP and its components.Because,the official exchange rates are subjects to considerable fluctuation.UNDP classified economies as high human development,medium human development and low human development.Nepal falls on the category of low human development countries.
   

Need for natural resources management

Environmental quality is often seen as luxury goods something only the wealthy can afford.But environment is largely a necessity for people in developing countries.These people are much dependent on natural resources then people in industrial countries.Many ecosystem functions and services are indispensable.Ecosystems provide water,animal and plant food,and other renewable resources.They also recycle nutrients,control floods,filter pollutants,assimilate waste,pollinate crops,maintain a generic library,preserve and regenerate soil,operate the hydrological cycle,and maintain the gaseous composition of the atmosphere.The world's ecosystem represent a large part of natural capital base,which may also be called environmental resources base.These services are essential for our survival.Hence,the environment resources based should be monitored in much the same way that we monitor the manufactured capital stocks,such as road,building,and machinery.
Degradation of the environmental resources base is caused by excessive resource extraction,intensive land use,and so on.This degradation not only affects the quantity and quality of the service produced by Eco-system,it also challenges their resilience."An ecosystem resilience is its capacity to absorb disturbance without undergoing fundamental changes".It into a wholly new state. Thus,the economist,assumption that are limitless substitution possibilities among resources is country to ecological truths.

Concept of natural resource management

Natural resources consist of all that is given by nature on,above and under the surface of the earth.These resources exist in natural world.Man uses them through their knowledge and labour.
According to a united Nations study"A natural resources is anything found by man in his benefit."In this broad sense,the resources provided by natural included:

• The rocks in which are contained mineral-ores,energy sources such as oil,coal,gas.
• The soils,which nourish the plant and animals life.
• The elements of the landscape,which provides sit for building,roads,railways and other structure.
• Surface and underground waters which are indispensable to human,animal and plant life.Water also provides sources of energy through hydro electricity power.
• The air and everything that constitutes the atmosphere,which is essential life.

The environment is the sum total of the natural resources.These are like the capital that man uses for the production of goods,which the consumers.The environment also supplies amenities of various types,which give pleasure.The environment is,thus,many things provided by nature.All these are the basis of man's life.Webster's new world dictionary defines environment as "The conditions,circumstance,and influences surrounding,and affecting the development of an organism or group of organisms."Here organism is primarily human being,and group of organisms is called ecological systems or ecosystem.These systems profoundly affect human well being.