Four Phases of the Business Cycle

quaternary Phases of the Business CycleECONOMICSQ 1 furbish up the terminal Business Cycle and samely explain the phases of vocation or parcel out cycle in brief?autonomic nervous system The business cycle is the semimonthly but irregular up-and- implement movements in economic activity, measured by fluctuations in real GDP and some other macroeconomic multivariates.Diagram of Business Cycle (or heap Cycle) -The business cycle starts from a trough ( blueer point) and passes through and through a recovery phase followed by a period of expansion (upper good turn point) and prosperity. subsequently the peak point is r all(prenominal)ed in that location is a declining phase of turning point followed by a economic crisis. Again the business cycle continues similarly with ups and downs.Explanation of Four Phases of Business Cycle1. Prosperity Phase Expansion or sweep through or Upswing of economy.When at that place is an expansion of siding, income, employment, bells and profits, thither is also a come out in the standard of living. This period is termed as Prosperity phase.The features of prosperity argon - proud level of output and trade, High level of effective demand, High level of income and employment, Rising interest rates, Inflation, Large expansion of desire credit, general business optimism.2. Recession Phase from prosperity to niche (upper turning point).The turning point from prosperity to de shrinkion is termed as Recession Phase.During a recession period, the economic activities slow down. When demand starts pivoting, the over harvest-homeion and future investment plans argon also given up. at that place is a steady lour in the output, income, employment, sets and profits. The business comm developing blocky lose confidence and become pessimistic (Negative). It reduces investment. The banks and the people study out to get greater liquidity, so credit also contracts. Expansion of business stops, stock securities indust ry falls. Orders ar put upcelled and people start losing their jobs. The addition in unemployment ca routines a sharp decline in income and aggregate demand. Generally, recession lasts for a short period.3. Depression Phase Contraction or downturn of economy.When there is a continuous settle of output, income, employment, monetary values and profits, there is a fall in the standard of living and depression sets in.The features of depression are - hang in volume of output and trade, Fall in income and rise in unemployment,Decline in consumption and demand, Fall in interest rate, Deflation, Contraction of bank credit, Overall business pessimism.In depression, there is under-utilization of resources and fall in GNP (Gross interior(a) Product). The aggregate economic activity is at the lowest, causing a decline in prices and profits until the economy reaches its Trough (low point).4. Recovery Phase from depression to prosperity (lower turning Point).The turning point from depre ssion to expansion is termed as Recovery or Revival Phase.During the period of revival or recovery, there are expansions and rise in economic activities. When demand starts rising, mathematical harvest-tideion maturations and this causes an amplification in investment. There is a steady rise in output, income, employment, prices and profits. The businessmen gain confidence and become optimistic (Positive). This increases investments. The stimulation of investment brings virtually the revival or recovery of the economy.Thus we see that, during the expansionary or prosperity phase, there is inflation and during the contraction or depression phase, there is a deflation.Q2. Monopoly is the blot there exists a undivided control over the market producing a commodity having no substitutes with no possibilities for any unmatchable to enter the pains to compete. In that situation, they vary aloneing not fear a uni physical body price for all the customers in the market and also t he price insurance followed in that situation?Ans A market social organisation characterized by a single trafficker, marketing a unique harvest-home in the market. In a monopoly market, the swaper faces no emulation, as he is the sole seller of goods with no limiting substitute.In a monopoly market, occurrenceors like government license, proprietorship of resources, copyright and patent and luxuriously starting cost make an entity a single seller of goods. every(prenominal) these factors restrict the entry of other sellers in the market. Monopolies also possess to a greater extent or less(prenominal) nurture that is not known to other sellers.Characteristics of monopoly Only one single seller in the market, There is no competition, There are legion(predicate) buyers in the market, The loyal enjoys abnormal profits, The seller controls the prices in that particular product or service and is the price maker, Consumers dont have staring(a) information, There are barriers to entry. These barriers many be natural or artificial, The product does not have close substitutes.Advantages of monopolyMonopoly avoids duplication and hence wastage of resources.Due to the fact that monopolies make lot of profits, it brush off be used for research and reading and to maintain their status as a monopoly.Monopolies may use price disagreement which benefits the economically weaker sections of the society. Monopolies tramp afford to invest in in vogue(p) technology and machinery in order to be efficient and to avoid competition.Disadvantages of monopoly misfortunate level of service, No consumer sovereignty, Consumers may be charged high prices for low gauge of goods and services, Lack of competition may lead to low quality and out dated goods and services.Price Discrimination It is the ability to charge opposite prices to distinguishable individual.Need for price discrimination increase output and profit. purchase pattern of individuals will be different. Increase the economic welfare.Eg Air tickets, moving-picture show tickets , discount coupons etc.multiple types of price discriminationFirst-degree price discrimination is an attempt by the seller to leave the price unannounced in advance and charge each customer the highest price they would be volition to pay for the purchase.A business may benefit by religious offering different prices to those who purchase in larger volumes because either they canister increase their profit with the increased volume sales or their costs per unit decrease when items are purchased in volume. Businesses can create alternative pricing methods that distinguish high-volume buyers from low-volume buyers. This is second-degree price discrimination.Third-degree price discrimination is differential pricing to different assemblys of customers. One justification for this practice is that producing goods and services for sale to one acknowledgeable group of customers is less than the cost of sales to an other group of customers. For example, a publisher of music or books may be able to sell a music album or a book in electronic form for less cost than a physical form like a compact disc or printed text.Q3 Fiscal policy is a package of economic measures of the government regarding habitual using up, public gross, public debt or borrowings. It is very important since it refers to the budgetary policy of the government. excuse the financial policy and its instruments in detail?Ans Fiscal policy is the bureau by which a government adjusts its spending levels and receipts revenue rates to manage and influence a nations economy. It is the sister strategy to monetary policy through which a central bank influences a nations money supply.instruments of Fiscal insurance are mechanical Stabilizer and Discretionary Fiscal PolicyAutomatic Stabilizer The value structure and expenditure are programmed in such a way that there is increase in expenditure and decrease in tax income in rec ession and decrease in expenditure and increase in tax receipts in the period of inflation. It refers to inbuilt response to the economic condition without any deliberate action on the part of government. It is called built- in- stabilizer to correct and thus restore economic stability. It whole kit and caboodle in the following manner, Tax revenue Tax revenue increases when the income increases as those who were not paying tax go into the higher income tax bracket. When there is depression, the income decreases and many people fall in the no-income-tax bracket and the tax revenue decreases.ii) Discretionary Fiscal Policy Under this, to stabilize the economy, deliberateattempts are made by the government in taxation and expenditure. It entails definite and intended actions.Instruments of Fiscal Policy Some important instruments of fiscal policy are 1.TAXATION Taxation is always a very important source of revenue for both developed and developing countries. Tax comes under two hea dingu2013Tax on individual(direct tax) and tax on commodity (indirect tax or commodity tax).a) commit tax includes income tax, corporate tax, taxes on property and wealth. Indirect tax is tax on the consumptions. It includes sales tax, excise duty and custom duties. Direct tax structure can be divided into three bases-Progressive tax Progressive tax says that higher the level of income, greater the volume of tax burden you have to bear. This means as income increases, the tax contribution should also increase. Low income group people pay low tax, whereas the high income group people pay higher tax.2 Regressive tax It is theoretically viable, though no government implements such tax structure, because that leads to unequal statistical distribution of income. As your income increases the contribution through tax decreases. Low income people will pay more and high income people will pay less. comparative tax When the tax imposed is irrespective of the income you earn, every income gr oup, high or low pay the same amount of tax.b) Indirect Tax Or consumpyion tax tax which is iimposed on every unit of product .Q4 Explain the various methods of forecasting demand?Ans economic forecasting is the edge of making predictions about the economy. Forecasts can be carried out at a high level of aggregationfor example for GDP, inflation, unemployment or the fiscal famineor at a more disaggregated level, for specific sectors of the economy or even specific firms.Methods of forecasting demandAssumptionsFor many goods, the length of the product cycle is shrinking. Not only does this make it more difficult to build a historical entropybase, it accentuates the need to forecast correctly. Computer technology makes it possible to adjust pricing instantly and to modify sales promotions on the run. Without spotless historical information to measure the impact of price changes, the business owner may be forced to experiment. Sales performance of other goods with similar product attributes may serve as proxies for a current product with no track record.Trend AnalysisIf you have historical information or if you can create it from related products trend analysis is the runner step in demand forecasting. Plotting sales over time will reveal the presence of a sales trend if one exists. If there are aberrations hiccups in the trend you can look for explanations, which could include price, suffer or demographic changes. If you are proficient with spreadsheet programs, you can chart data points and insert a trend line over the data. A more sophisticated approach is using least squares regression analysis which can also be done with standard spreadsheet software.Qualitative ForecastingA more subjective approach uses expert convictions to predict demand. Especially expedient when there is a lack of historical data, relying on the collective opinion of experts makes sense. Begin with an analysis of the marketplace, freshening the economic conditions. Obtai n as much information about competitors performance as you can. Then gather opinions from a conformation of sources within your business. Include the owner, sales manager, accountant, attorney and any others whose opinion you value. If you wish, you can get outside opinions as well. Qualitative forecasting is based on the consensus view of your panel as you digest and aggregate their opinions.Forecasting with Economic IndicatorsDepending on the products you sell and the customers who buy them, basing your demand forecast on one or more economic indicators may be an effective method. This genius of demand forecasting works better with industrial buyers rather than retail. First, materialise the indicators that relate to your business. For example, small businesses in construction-related work can look to housing starts, building permits, loan applications and interest rates for solid indicators of the future. Businesses in culture can find clues to the future from farm income, i nterest rates and suffer forecasts. The Departments of Commerce and Agriculture release statistics on an ongoing basis. Agricultural concomitant Services and other state agencies provide complementary dataQ5 Define monopolistic competition and explain its characteristics?Ans Monopolistic Competition A market structure in which several or many sellers each bring about similar, but slightly differentiated products. Each producer can set its price and quantity without affecting the market place as a whole.Monopolistically belligerent markets exhibit the following characteristicsEach firm makes sovereign terminations about price and output, based on its product, its market, and its costs of production.Knowledge is astray spread between participants, but it is unlikely to be perfect. For example, diners can review all the menus available from restaurants in a town, before they make their choice. in one case inside the restaurant, they can view the menu again, before ordering. Howe ver, they cannot fully instruct the restaurant or the meal until after they have dined.The entrepreneur has a more significant role than in firms that are dead competitive because of the increased risks associated with decision making.There is freedom to enter or leave the market, as there are no major barriers to entry or exit.A central feature of monopolistic competition is that products are differentiated. There are four main types of differentiationPhysical product differentiation, where firms use size, design, colour, shape, performance, and features to make their products different. For example, consumer electronics can easily be physically differentiated.Marketing differentiation, where firms try to differentiate their product by classifiable packaging and other promotional techniques. For example, breakfast cereals can easily be differentiated through packaging. clement capital differentiation, where the firm creates differences through the skill of its employees, the leve l of training received, distinctive uniforms, and so on.Differentiation through distribution, including distribution via mail order or through internet shopping, such as Amazon.com, which differentiates itself from traditional bookstores by exchange online.Firms are price makers and are faced with a downward slanting demand lift. Because each firm makes a unique product, it can charge a higher or lower price than its rivals. The firm can set its own price and does not have to take it from the industry as a whole, though the industry price may be a guideline, or becomes a constraint. This also means that the demand curve will slope downwards.Firms operating under monopolistic competition unremarkably have to engage in advertising. Firms are often in barbaric competition with other (local) firms offering a similar product or service, and may need to advertise on a local basis, to permit customers know their differences. Common methods of advertising for these firms are through l ocal press and radio, local cinema, posters, leaflets and special promotions.Monopolistically competitive firms are assumed to beprofit maximisers because firms tend to be small with entrepreneurs actively involved in managing the business.There are normally a large numbers of independent firms competing in the market.Q6 When should a firm in utterly competitive market shut down its doing?Ans Definition of Perfect CompetitionA market structure in which the following five criteria are met1) All firms sell an selfsame(a) product2) All firms are price takers they cannot control the market price of their product3) All firms have a relatively small market share4) Buyers have complete information about the product macrocosm sold and the prices charged by each firm and5) The industry is characterized by freedom of entry and exit.Perfect competition is sometimes referred to as elegant competition.The reason for firm shut down in perfect competitionA perfectly competitive firm is presu med to shutdown production and produce no output in the short run, if price is less than medium variable cost. This is one of three short-run production alternatives facing a firm. The other two are profit maximization (if price exceeds jibe total cost) and divergence minimization (if price is greater than average variable cost but less than average total cost).A perfectly competitive firm guided by the pursuit of profit is attached to produce no output if the quantity that equates marginal revenue and marginal cost in the short run incurs an economic loss greater than total fixed cost. The key to this loss minimization production decision is a comparison of the loss incurred from producing with the loss incurred from not producing. If price is less than average variable cost, then the firm incurs a smaller loss by not producing that by producing.One of Three Alternatives Shutting down is one of three short-run production alternatives facing a perfectly competitive firm. All th ree are displayed in the table to the right. The other two are profit maximization and loss minimization.With profit maximization, price exceeds average total cost at the quantity that equates marginal revenue and marginal cost. In this case, the firm generates an economic profit.With loss minimization, price is greater than average variable cost but is less than average total cost at the quantity that equates marginal revenue and marginal cost. In this case, the firm incurs a smaller loss by producing some output than by not producing any output.