Unit - 1
Introduction to Management and Economics
Q1) Briefly explain the concept of Management.
A1) Business management refers to functions that aim at the effective use of individuals and resources in a corporation to realize business objectives. So, it's a way to an end. Basically, there are five functions in business management, and that they are:
Planning is that the start line. During this phase, you create your business plan and the way you're getting to achieve it. But it's not as easy because it seems. You would like to form a sensible assessment of your business objectives and map the detailed strategies (with full back up plans just in case those strategies fail) through which your company are able to do its business objectives.
The organization follows the design. Here you organize all of your resources like employees, machines and finances in one well-oiled unit. You would like to urge of these combinations and timing correctly. Organizing helps you define "who goes to try to what". Established well-defined job roles, organizational hierarchies, and streamlined coordination between them.
Staffing cares with acquiring, deploying, and retaining the proper skilled workforce to deliver business results. The goal of staffing is to make the proper positive impacts on the effectiveness of the organization. Through staffing, you get the proper people within the right jobs who do the proper things. In short, this is often a correct delegation.
Leading is that the most vital function of the management process. Without a motivated workforce, you'll never be ready to achieve your business goals. Leading is about how you'll align employee tasks with the general goals of the organization. Leading is how you'll motivate, influence, and encourage your employees to perform at their best at work. Leading is how you'll involve your employees voluntarily within the growth and development of the corporate.
Control is a lively and constant monitoring of the people, processes and other resources of your company. Here you track the performance of all the resources in your company and confirm they're on the proper track. Through monitoring, you'll accurately assess whether all company resources are optimally used for desired business tasks. And make corrections whenever and wherever there are deviations, errors and gaps.
For a nation's economy, business growth is extremely important. However, the processes involved in a company are complex. It is the way in which the administration of a business is managed, which governs the parameters of a business's success. There are numerous factors that must be considered when running a business. It is important that there is a person who has experience.
Today's modern economic units cannot afford to make random decisions like they did in the past. Each economic decision needs to be well-studied and balanced. One wrong decision can have a huge impact on a business unit. As a result, more scientific and logical ways to handle business have evolved over time. This is nothing but "business science".
Q2) Define Management. Explain its characteristics features.
A2) In other words, setting up and running a company using scientifically proven methods and logical and systematic processes is called "management" (or business management).
Management is the philosophy that economic units continue to operate to achieve their goals in a cost-effective manner.
Management is "the power to run a business and take responsibility for its success or failure."
Meaning: -
According to George Terry, "management is a separate process of planning, organization, operation and control that is carried out using humans and other resources to determine and achieve a defined purpose. Increase".
According to Mary Parker Foret, "management is the art of accomplishing things through others."
According to Henry Fayol, "Managing is predicting, planning, organizing, directing, coordinating, and managing."
Nature of Management
As we have already established, different people have different views on management. Therefore, it is very difficult to define the nature and scope of management. Let's look at each of these terms individually to see how they work in the context of management.
The nature of management
Managing as a systematic process helps identify a group of people who perform a particular activity, thereby improving the efficiency and effectiveness of the organization. Here is a striking feature that emphasizes the nature of management in the business.
- Universal
Management is a universal process and is essential for all organizations. If there's act , there's management. Management principles apply regardless of the size or location of the business. The universal principle also means that management skills are developed and transferable over time.
2. Social process
The nature of management involves organizing and managing people in groups. It requires different levels of empathy, understanding and dynamism. This process involves developing, motivating, and retaining employees, in addition to caring for social and emotional well-being.
3. Purpose
Management always has the ultimate goal of achieving the goals, missions and visions of the organization. Management success can be measured by how well an organization achieves its goals. It has the fundamental purpose of improving efficiency and productivity. Goals need to be realistic, achievable, and time-limited.
4. Intangible
There is no physical evidence of the management process. Its success can be measured by the result of that effort. For example, low turnover indicates high employee engagement and job satisfaction. This further indicates that managers or individuals in management are taking proactive steps to improve employee retention.
5. Adjustment
Administrators coordinate all functions of an organization by bringing together different teams and departments. Without adjustment, there will be ambiguity and confusion. Therefore, by gathering people on the same page, communication is possible and duplication of work is minimized.
6. Creativity
Management consists of individual components and is a complex process. All independent components contribute in their own way. For example, the group's efforts encourage creative ideas and imagination. The sum of the individual efforts creates a synergistic effect and something new is born.
7. Dynamic function
Business must be dynamic in nature, as businesses are often influenced by economic, social, political and technical factors. The flexibility and adaptability allow individuals to function well in stressful situations. Appropriate training and promotion are required within the process.
Q3) What is the scope of Management?
A3) Well-defined responsibilities, concepts, theories, and principles associated with management functions define the scope of management.
1. Financial management
All companies prioritize financial management because it can be very unwieldy if it is not properly managed. Effective financial management ensures fair interests to stakeholders, good estimates of capital requirements, and optimal capital setting. This includes preparing and reviewing financial statements, developing appropriate dividend policies, and negotiating with external stakeholders.
2. Marketing management
Marketing control extends to planning, organizing, directing, and managing activities in the marketing department. Identifying customer requirements is important to providing a business solution. Managers achieve better results when they are fully aware of the benefits of the products and services that their organization offers. Marketing management ensures that the available resources are used properly and the best possible results are achieved.
3. Personnel management
HR management, as the name implies, deals with people or individuals in a business environment. This includes hiring, transferring, dismissing, benefits and social security for employees. This aspect of management is very important because employees form a team and the team drives the goals of the organization. Personal productivity also contributes to overall efficiency. Organizations can struggle if they don't meet the needs and desires of their employees.
4. Production control
This type of management refers to the process of creating a utility. Engage in production control when converting raw materials into finished products and overseeing planning and regulation. Without production, there are no finished products or services. Without it, an organization cannot generate profits or profits. The final product must meet the customer's requirements. This process includes quality control, R & D, planning layout, and simplification.
5. Office management
This includes managing and coordinating the goals of the organization and all office activities to achieve those goals. For example, management efficiency has a significant impact on the business. The more organized departments and responsibilities, the more effective the organization.
Q4) Write the characteristics of management.
A4) It is almost impossible to understand the concept of management in a nutshell. The best way to understand the management concept, nature and scope by describing its features
1. Management may be a process: continuous, social and unique:
Management is a continuous process because an organization continues perpetually and needs solutions to problems continuously. A process features a beginning and an end, and management begins with planning and ends with control and restarts with planning. It is a social process because it is managed by people (employees and managers) for people (clients) and by people (investors and society in general).
It is a unique process because it involves group activities; It is integrative in nature since it interlaces different resources in a coordinated way; and intangible in appearance (since the presence of management is felt solely through performance).
2. Management is a science, an art and also a profession:
A science is a systematized body of knowledge, accumulated through the use of the scientific method (through observation and research), has a cause-and-effect relationship, can be formally imparted, and has universal application.
Management has all the makings of being a science, but it is a soft science rather than a hard science (where 2 + 2 may not always be 4) because it is about human beings, whose behaviour is more difficult to predict.
Art refers to practical application, through creative use of the body of knowledge to obtain desired results through personal possession of skill where there is room for personal judgment. In this way, management is definitely an art, since it is a social process.
Two doctors who prescribe the same drugs to two different patients with the same disease may have different results with different doses. Management is rightly called the art of the arts. Since management is both a science and an art, it is correct to call it artistic science (art-based science) or scientific art (science-based art).
A profession is an occupation that requires a significant body of knowledge, which is formally acquired and applied with the ethical standards declared by the main body whose certification is essential for service to society.
Management is not a profession like accounting, law or medicine, which are thousands of years older than management, because no qualification is essential to be a manager, there is a main body, All India Management Association, but its membership it is not mandatory.
However, management is becoming a profession as management education expands and businesses demand managers who are fully professional. With liberalization, globalization and privatization, the demand for professional managers will increase even more.
3. Management influences and is influenced by the environment:
Management does not work in a vacuum. It has to deal with the internal (controllable) and external (non-controllable) environment. The internal environment consists of employees, processes, and systems. The external environment comprises STEEPLE (social, technological, economic, ecological, political, legal and ethical environments).
The internal environment indicates strengths and weaknesses and the external environment indicates opportunities and threats. Management tries to turn threats into opportunities and weaknesses into strengths; but sometimes it changes depending on the environment.
4. The core of management is making decisions:
When Peter F. Drucker said that "everything a manager does, he does through decision making," he was very clear that the core of management was decision making.
Since management is interdisciplinary (management has borrowed concepts from economics, psychology, sociology, anthropology, law, mathematics, statistics, etc.), it makes use of multiple and interdisciplinary knowledge to make decisions and makes use of authority to obtain them. Enforceable decisions.
5. Management is goal-oriented:
The management process is a purposeful activity and begins and ends with goals. All organizations, both for-profit and non-profit, are goal oriented. It is the responsibility of management to achieve these objectives.
Without goals, an organization would be like a ship without rudders. Management always starts with goals and remains aware of their achievement. If there are any gaps in performance and goals, management tries to harmonize them with each other. Management cares as much about efficiency as it is about its effectiveness.
6. Managers bring the organization to life:
"Good managers can propel an organization into unprecedented realms of success, while bad managers can devastate even the strongest companies." It is the management that can give life through its dynamism to the management process in this turbulent business environment. When things go well, the credit goes to management and when it is the other way around, the first victim is management.
7. Management is a multidisciplinary and multifaceted activity:
It is multidisciplinary because it is a young discipline and has borrowed most of the concepts from other disciplines such as economics, sociology, psychology, anthropology, mathematics, law, politics, etc.
However, it has begun empirical research to develop itself. It is multi-faceted because managers have to play different types of roles, many of them at the same time.
Q5) Do you think proper Management is an important part of an organization?
Or
Explain the importance of management.
A5) (1) Management is versatile: Management is used not only by businesses but also by non-profit / non-profit organizations. Non-profits use business science to achieve our social goals. Organizations, as well as individuals like us, use management to achieve professional and personal goals. To some extent, management is used by most people in everyday life. The positive force behind successful business, non-business, social or personal activities is effective management. In this way, management can be found in all areas of work and life.
(2) There is no substitute for management. Management is so basic and basic in nature that it cannot be replaced by anything else. The management philosophy when applied to any activity / task gives great results. No other philosophy can replace (alternative) management in its ability to produce the desired results in the most cost-effective way.
(3) Management brings order in the turmoil: many activities need to be performed to achieve a given goal / goal. If they are not properly planned and coordinated, they will only cause confusion and no results. Management is necessary for smooth activity without collisions, dropouts and repetitions. Management streamlines or harmonizes individual efforts. Therefore, when things move in a systematic (orderly) way, we can say that management exists. And when there is unordered and confusing turmoil, we can say that there is a lack of control.
(4) Management is focused on goals, which enhances the effectiveness of our efforts. Management remains focused on the ultimate goal. All activities, large and small, need to bring us closer to our goals. In other words, management has an effect on our efforts. If you don't keep your goals in mind, you can go off the right track and waste your efforts. Management believes in achieving goals by constantly (continuously) setting goals and networking. These goal-oriented efforts are almost always successful. Therefore, management has an impact on our efforts.
(5) Economic and social development requires management: Today's world is plagued by resource shortages, fierce competition and explosive population growth. During these critical times, economic and social development and progress can only occur if the available resources are used in the best possible way. The only way to do this is to use resources wisely. Intelligent management of resource usage can save the world from crisis situations in the near future. This means that business science can be used at the "macro" level to handle economic or country-wide problems.
In other words, developing countries are not necessarily in short supply of resources. They are just "controlled" countries. By wisely managing national resources, we can achieve appropriate and sustainable economic development.
(6) Reduction of waste: Management guarantees reduction of waste within the organization. Today, waste reduction is essential for any organization. By reducing waste, your organization is more productive.
(7) Reduction of absenteeism: Proper management makes it easier to reduce absenteeism in an organization. Absence occurs when an employee remains absent without prior permission. Absenteeism causes some problems for the organization.
(8) Higher efficiency: To produce higher efficiency in an organization, management is required. Efficiency is the relationship between revenue and cost. The more revenue you make at the same or lower cost, the more efficient your organization is said to be.
(9) Better Relationships: Management enables better relationships within an organization. You need to build good relationships across your organization, that is, between the different people and departments within your organization. Good relationships create teamwork and bring success to the organization.
(10) Promote growth and expansion: Successful managers are responsible for the growth and expansion of the company. No organization can grow and expand without the active involvement and commitment of his boss and his subordinates. In many cases, slowing the growth and expansion of an organization is inefficient management.
Q6) Management is a series of continuous inter-related functions. Comment.
A6) Regardless of the size, nature and type of organization, all managers must perform some basic functions which are as follows:
(a) Planning:
Planning is always the first function that every manager performs. Planning refers to “deciding beforehand what to try to, the way to roll in the hay, when to try to it, and who goes to try to it. Planning bridges, the gap between where we are today and where we want to go”. Every manager begins by deciding in advance the objectives of a company and how to achieve them. Planning is that the foundation of all other management functions.
(b) Organize:
After establishing the plans, the next role of each manager is to organize the activities and establish an organizational structure to execute the plan. Establishing the organizational structure means deciding the framework how many units and subunits or departments are needed, how many positions or designations are needed in each department, how to distribute authority and responsibility among different people. Once these decisions are made, an organizational structure is established.
(c) Staffing:
Third step or function of a manager is Staffing. It refers to recruiting, selecting, appointing employees, assigning functions to them, maintaining cordial relationships, and handling employee complaints. It also includes training and developing employees, deciding their compensation, promotion, raises, etc., evaluating performance, keeping personal records of employees.
(d) Lead:
Once employees are appointed, they need to be trained and the job done. Leading refers to giving directions or instructions to employees motivating them, supervising the activities of employees, communicating with them. Managers act as leaders and guide them in the right direction, so the management function includes, supervising, motivating, communicating and leading.
(e) Control:
This is the last function of the managers. In this role, managers try to match actual performance with planned performance, and if there is no match between the two, managers try to find out the reasons for the deviation and suggest corrective measures to get on track. Control functions refer to all performance measures and follow-up actions that keep actual performance on track.
Q7) “A successful enterprise has to achieve its goals effectively and efficiently” Explain.
A7) “A successful enterprise has to achieve its goals effectively and efficiently”. Thus, management has to see that task are completed and goals are achieved with the minimum resources.
Management is thus getting things done with the aim of achieving goals effectively and efficiently. Being effective or doing work effectively basically means finishing the given task. It is concerned with end result; it is achieved or not. Efficiency means doing the work correctly and with minimum cost. If by using less resources more benefits are derived then efficiency has increased. It is thus essential for any organisation to focus on efficiency as well as effectiveness. It is not only important to complete the work correctly but equally important to complete it with minimum cost. In the same manner, it is not only important to reduce cost but equally important to complete the work correctly.
Q8) What is the difference between Administration and Management?
A8) Management definition:
Management is defined as the act of managing people and their work in order to use the resources of an organization to achieve common goals. It creates an environment in which managers and their subordinates can work together to achieve the group's goals. It is a group of people who use their skills and talents in running the complete system of an organization. It's activity, function, process, discipline, etc.
Planning, organizing, guiding, motivating, managing, coordinating, and making decisions are key activities performed by management. Management brings together the organization's five million people: men, materials, machines, methods, and money. This is a results-oriented activity that focuses on achieving the desired outcomes.
Administration definition:
Administration is a systematic process that manages the management of a corporate organization, an educational institution such as a school or university, a government agency, or a non-profit organization.
Administration defines the basic framework of an organization in which it works.
The nature of the administration is bureaucratic. This is a broader term because it includes the highest level of forecasting, planning, organization, and decision-making capabilities for a company. Management represents the top level of your organization's management hierarchy. The profit is in the form of profits or as dividends.
The main difference between Management and Administration
The main differences between Management and Administration are listed below.
1. Management may be a systematic way of managing people and things within a corporation. Management is defined as the act of managing an entire organization by a group of people.
2. Management is a business and functional level activity, while management is a high-level activity.
3. Management focuses on policy implementation, but policy development is done by the government.
4. Management functions include legislation and decisions. Conversely, the functions of management are enforcement and governance.
5. The administrator makes all the important decisions of the organization, and therefore the administrator makes decisions under the boundaries set by the administrator.
6. A group of people who are employees of an organization is collectively called management. Management, on the other hand, represents the owner of the organization.
7. Management can be seen in a for-profit organization like a company.
8. Management is all about planning and action, but management is about policy building and goal setting.
9. Management plays an executive role within the organization. Unlike the administration, its role is inherently decisive.
10. The manager is responsible for managing the organization, while the administrator is responsible for managing the organization.
Parameter of Comparison | Management | Administration |
Difference by Definition | The management lays out the guidance for different executive officers, heads of the departments, and managing directors to achieve the company’s highest targets by innovative planning, designing, resources, and collaborations. | The Administration defines the managemental outlines of a company to administer the organizational needs and to achieve the organizational objectives. |
Working Area | The Management team works under the guidance of Administration. | The Administration fully controls the overall management and organizational activities of the company with different planning and innovative resources. |
Working Difference | The management team proposes different proposals, ideas, valuable resources, and additional features to the administrative team to get approved. | The administration departments approve the different proposals of the management team. Similarly, they have the authority to reject the newly proposed application in case of necessity. |
Focusing Area | It only focuses on management related activities. | It focuses on formulating ideal resources for the betterment of the company. |
Where to apply? | It applies to different business organizations and marketing places. | It applies to government offices, well-developed organizations, hospitals, educational institutions, and of course, in police and military clubs. |
Q9) Define economics. What are its features?
A9) Economics is defined because the science that deals with the assembly, distribution and consumption of products and services. Economics, which evolved in the 19th century, has become one of the most important studies of our time. From small shops to countries, economics plays an important role in the efficient operation of both. Businesses cannot thrive without applying the principles of economics. Economics research is extensive and diverse. The nature and scope of economics depends on the interaction of economic agents and therefore the mechanics of the economy. Let's analyze the nature and scope of economics in depth.
Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources. Economics focuses on the actions of human beings, based on assumptions that humans act with rational behaviour, seeking the most optimal level of benefit or utility. The building blocks of economics are the studies of labour and trade. Since there are many possible applications of human labour and many different ways to acquire resources, it is the task of economics to determine which methods yield the best results.
Features of economics are:
The nature of economics deals with the question of whether economics falls into the category of science or art. While various economists are arguing in favor of science, other economists reserve art.
Economics as science
To consider something as science, do we first need to know what science is? Science deals with systematic studies of causality. In science, facts and numbers are collected and systematically analyzed to reach specific conclusions. For these attributes, economics can be considered science. However, economics is treated as a science due to the subsequent characteristics:
It involves a systematic collection of facts and numbers.
Like science, it is based on the formulation of theory and law.
We are dealing with causality.
These points prove that the nature of economics correlates with science. Like science, various economic theories are based on logical reasoning.
Economics as an art
It is said that "knowledge is science and action is art." Economic theory is used to solve various economic problems in society. Therefore, it can be inferred that not only social science but also economics is an art.
Q10) Explain the scope of economics.
A10) Economists use different economic theories to solve different economic problems in society. Its applicability is very vast. From small organizations to multinational corporations, economic law is involved. The scope of economics can be understood in two subheadings: microeconomics and macroeconomics. Let's explain these in detail.
Microeconomics
Microeconomics examines individual economic activities, industries, and their interactions. It has the following features.
- Elasticity: Determines the rate of change in the ratio of one variable to another. For example, the income elasticity of demand, the price elasticity of demand, the price elasticity of supply.
- Production theory: Includes efficient conversion from input to output. For example, packaging, shipping, storage, manufacturing.
- Production cost: With the help of this theory, the price of an object is evaluated by the price of a resource.
- Monopoly: Under this theory, the superiority of a single entity is studied in a particular field.
- Oligopoly: It corresponds to the domination of small entities in the market.
Macroeconomics
It's a study of the economy as a whole. We describe a wide range of aggregates and their interactions "top-down". Macroeconomics has the following characteristics.
- Growth: Study the factors that explain economic growth, such as the country's increase in per capita production over the long term.
- Business Cycle: This theory emerged after the good Depression of the 1930s. It advocates that central banks and governments develop monetary and fiscal policies and monitor output throughout the business cycle.
- Unemployment rate: Measured by the unemployment rate. This is caused by a variety of factors, including rising wages and lack of vacancies.
- Inflation and Deflation: Inflation responds to rising commodity prices, and deflation responds to falling commodity prices. These indicators are useful for assessing the economic situation of a country.
Q11) What is the meaning of Demand?
A11) Demand can be defined as an economic principle related to a consumer's desire to purchase a product or service and their willingness to pay for the purchase of a particular product or service.
The definition of demand is the consumer's desire to buy goods and services and the willingness to pay the price required to buy them. Demand is one of the major components of the economy. When we talk about the demand for goods and services, we talk about not only the single quantity requested, but also the complete demand curve.
Demand for products and services is affected by fluctuations in product prices. According to the law of demand, as the price of a product rises, the demand for the product decreases. All other factors remain constant and vice versa.
As a result, companies spend enormous amounts of money determining the demand for products and services in the market. How many items can be sold at a particular price?
Companies need to accurately estimate market demand. A false estimate can leave money on the table if demand is undervalued and can lead to a loss of invested capital if demand is overvalued. Demand is the fuel to keep your business and economy running. If there is no demand in the market, no company wants to produce anything.
There is a close relationship between supply and demand. Consumers try to pay as little as possible for the goods and services they want to buy, while suppliers want to make as much profit as possible. Therefore, the demand for goods and services is directly proportional to the prices of goods and services, and companies need to correctly price goods and services so that they are available to both suppliers and consumers.
If the cost of a product is too high, the demand will decrease as a result of the supplier not selling well, and customers will move to competitors who offer similar products at affordable prices. In contrast, suppliers can attract a large number of customers by keeping the prices of their products and services low. Still, low prices cannot cover the costs of the supplier, so despite the large number of customers, the supplier suffers losses or small profits.
Q12) Explain Law of Demand.
A12) The law of demand states that other factors being constant (cetris peribus), price and quantity demand of any good and service are inversely related to each other. When the price of a product increases, the demand for the same product will fall.
The law of demand states that all other factors remain constant or equal, an increase in the price causes a decrease in the quantity demanded and a decrease in goods or services price leads to increase in the quantity demanded. Thus it expresses an inverse relationship between price and demand.
For example, at Rs 70 per kg consumer may demand 2 kg of apple. On the other hand, the price rises to 100/- per kg then he may demand 1 kg of apple
Assumption of law of demand
- No change in the income
- No change in size population
- No change in price of related goods
- No change in consumers taste, preferences, etc
- No expectation of a price change in future
- No change in climate conditions
Given this assumption, the law of demand is explained in the below table –
Price(Rs) | Quantity demanded |
10 | 10 |
8 | 20 |
6 | 30 |
4 | 40 |
2 | 50 |
The above table shows that when the price of apple, is Rs. 10 per kg, 10 kg are demanded. If the price falls to Rs.8, the demand increases to 20 kg. Similarly, when the price declines to Rs 2, the demand increases to 50 kg.This indicates the inverse relation between price and demand.
Also, in the above figure the demand curve slopes downwards as the price decreases, the quantity demanded increases.
Q13) What are the exceptions of law of demand?
A13) Keep in mind that in most cases the law of demand applies. Prices will continue to fluctuate until equilibrium is formed. However, there are some exceptions to the law of demand. These include Giffen goods, Veblen goods, possible price changes, and essentials. Let's elaborate on these exceptions.
- Giffen goods
Giffen Goods is a concept introduced by Sir Robert Giffen. These products are inferior to luxury products. However, a unique feature of Giffen goods is that as prices rise, so does demand. And this feature is an exception to the law of demand.
The Irish potato famine is a classic example of the concept of Giffen goods. Potatoes are the staple food of Ireland. During the potato famine, when potato prices rose, people spent less on premium foods such as meat and bought more potatoes to stick to their diet. As the price of potatoes went up, so did the demand. This is a complete reversal of the law of demand.
b. Veblen goods
The second exception to the law of demand is the concept of Veblen goods. The Veblen goods are a concept named after the economist Thorstein Veblen, who introduced the theory of "exaggerated consumption". According to Veblen, there are certain products that increase in value as prices go up. When a product is expensive, its value and usefulness are perceived to be higher, and therefore the demand for that product increases.
And this mainly occurs in precious metals such as gold and diamonds, stones, and luxury cars such as Rolls-Royce. As the price of these items rises, so does the demand as they become status symbols.
c. Expectations for price fluctuations
In addition to Giffen and Veblen goods, another exception to the law of demand is the forecast of price fluctuations. The price of the product will rise and the product may become more expensive depending on the market conditions. In such cases, consumers may purchase more of these products before the price rises further. As a result, if prices go down or are expected to go down further, consumers may postpone their purchases to take advantage of the low prices.
For example, the price of onions has risen considerably these days. Consumers began to buy and store more onions for fear of further price increases, resulting in increased demand.
In addition, consumers may purchase and store products for fear of shortages. Therefore, even if the price of a product rises, the demand associated with it may increase as the product is taken off the shelf or no longer on the market.
d. Necessary products and services
Another exception to the law of demand is the required or basic merchandise. As prices go up, you'll continue to buy essentials such as medicine and basic staples such as sugar and salt. The prices of these products do not affect the associated demand.
e. Changes in income
Changes in income may change the demand for goods. Increasing household income can lead to more products being purchased, regardless of rising prices, which increases demand for products. Similarly, if your income goes down, you may postpone your purchase of the product, even if the price goes down. Therefore, changes in consumer income patterns can also be an exception to the law of demand.
Q14) What are the determinants of demand?
A14) Top 10 Determinants of Demand for an Economy
1-Price of goods or services
When the price of goods and services goes up, the demand for quantity goes down, and when the price of goods and services goes down, the demand for quantity goes up. Also known as the law of demand.
When the demand does not change even with the price change called inelastic demand, and when the quantitative demand changes more than the price change called elastic demand.
2 – Prices for alternative / complementary goods and services
Alternatives are products that meet the same needs. For example, peanut oil and sunflower oil, and tea and coffee are alternatives to each other, so higher prices for peanut oil can increase demand for sunflower oil. The reverse is also true.
Complementary goods are commodities that are consumed together, such as Car & Diesel and Tea & sugar, which increase the price of Car and decrease the demand for both Diesel & Car.
3-Buyer preferences and preferences
Product demand can change based on buyer preferences and preferences, and brand advertising plays an important role in changing buyer preferences and preferences. For example, we used to think that chocolate was primarily for children, but the advertising industry changed this notion by showing that chocolate is for everyone from children to the very elderly. ..
Similarly, they constantly come up with new trends in the market that affect their customers and ultimately affect the demand for their products.
4 – Buyer expectations for future prices of goods
When people expect the price of something to go up in the future, they tend to buy more of those products, which leads to an increase in demand for those products. For example, when people expect the price of gold to go up, they will buy more and more gold, and vice versa.
“The same thing happened in the 2015 housing bubble, when house prices were rising, but people were willing to buy homes when the process began to decline during the recession.
People weren't buying a home, even though home prices went down.
5 – Changes in buyers' real income or wealth
The purchasing power of a buyer depends on income and wealth. Demand for goods and services is much lower than in developed countries in undeveloped areas where jobs are not readily available and people earn less. Cities like New York, where many jobs are available, have good income and purchasing power, and demand for goods and services is high.
It is very easy to distinguish that luxury goods in cities with more jobs are always in high demand compared to cities with less employment opportunities. Consumption is based not only on income, but also on higher consumption of wealth and vice versa.
6-Buyer Expectations for Future Income and Wealth
Higher expectations for future income and wealth increase consumption, and lower expectations for future income decrease consumption.
For example, students who have completed higher education and are looking to get a job will start spending more than those with salaries who will retire in the next few years.
7 – Number of buyers
Increasing the number of buyers who are willing to buy goods and services will affect overall demand. Population has a big impact on demand. Population growth can be an ad hoc demand curve.
New buyers help increase quantity demand. In this case, the demand will change even if the price does not change.
8 – Government Policy
For many products, demand depends on government policy. For example, lower borrowing rates lead to increased demand for mortgages as people start buying homes as mortgage rates fall.
As another example, the US government has banned some models of Volkswagen due to pollution issues, so there is no demand for those models in the United States. Taxation also affects the demand for products. A tax increase will lead to higher product prices and lower demand for that product.
9 – Climate change
There are many products whose demand is seasonal or whose demand depends on the climate.
For example, the demand for winter clothes is high in the winter season and the demand for ice cream is high in the summer season. If winter is over and there is no demand for winter clothing companies to sell winter clothing at a discounted price, discount sales will be available at shops and malls after the end of the season. This discount offer helps sellers increase demand.
10 – Income distribution
Demand for luxury goods is high in areas where very wealthy people are staying, while demand for luxury goods is low in undeveloped areas where middle-income people are staying.
Q15) What is elasticity of demand? Give example.
A15) The elasticity of demand formula is calculated by dividing the percentage that quantity changes by the percentage price changes in a given period. It looks like this:
Elasticity = % change in quantity / % change in price
Therefore, the elasticity of demand is the percentage change in the quantity demanded as a result of a percentage change in the price of a product. Because the demand for certain products is more responsive to price changes, demand can be elastic or inelastic. When the demand for a product is elastic, the quality demanded is highly responsive to price changes. When the demand for a product is inelastic, the quality demanded responds poorly to price changes. Thus, a change in price will affect an elastic product’s demand, but it will have little effect on an inelastic product’s demand.
The variables that demand may depend on are:
- Product price
- Prices of related products
- Consumer income, etc.
- Elasticity of demand
Let's look at some examples.
The price of the radio goes down from the rupee. 400 rupees 400 per unit. As a result, demand will increase from 100 to 150.
Government subsidies will bring wheat prices down from the rupee. From 10 / kg to Rs. 9 / kg. This will increase demand from 500 kilograms to 520 kilograms.
In both of the above cases, we can see that as the price goes down, the demand goes up. Therefore, the demand for radio and wheat responds to price fluctuations
Example
The price of a commodity decreases from Rs.6 to Rs. 4. This results in an increase in the quantity demanded from 10 units to 15 units. Find the coefficient of price elasticity.
Ans: The Coefficient of price elasticity $$= E_p = \frac{\Delta q}{\Delta p} \times \frac{p}{q}$$
Where, q is quantity, p is price and Δ is the change.
Therefore, we have
Δq=15–10=5
Δp=6–4=2
Hence,
=Ep=52×610=1.5
Q16) Suppose income is constant at Rs. 3,000 per year, present price of a good is Rs. 10 and present quantity demanded is 125 units per month. Now the price falls to Rs. 9 and a large quantity of 150 units per month is likely to be demanded. What is the arc price elasticity over this range of the demand curve?
A16)
Substituting values into the arc elasticity formula, we get:
What is the significance of the calculated elasticity coefficient? It simply indicates that quantity expands by 1.73% for each 1% fall in price over the relevant range of the demand curve. The negative value of the coefficient of demand elasticity simply implies that quantity Q goes up when P falls and vice-versa.
The virtue of this method of calculation is that it is a more accurate measure than if we had used the initial or final P and Q bases. This is because, when we deal with a range over which the price varies, it is always better to obtain a measure that reflects the average degree of consumer responsiveness.
For discrete (big) or once-for-all P change, we make use of the above formula. However, as a special case of arc elasticity we may use the concept of point elasticity. For small (or continuous) P and Q changes, Ep can be calculated for a point on the demand function, so as to be called point price elasticity.
Q17) Explain inelastic demand. Give example.
A17) Inelastic demand in economics is defined as the absence of a change in the demanded quantity of goods whenever there is a slight change in demand for quantity or a change in consumer behavior, or a change in the price of the product. Yes, and this can be determined as follows: Divide the rate of change in demand by the rate of change in price. This article provides a practical example of the demand for inelasticity.
Example
Gasoline is one of the types of products observed in the market where consumers buy the same amount when the same price goes up, and conversely, when the price of gasoline goes down, consumers don't buy any more. .. Buy only the same quantity in quantity. We need to discuss this scenario from an economic point of view.
Solution
Consumers act differently on different types of products, depending on their needs, requirements and preferences. Therefore, in economics, it is classified into regular goods, luxury goods, and essential goods. Gasoline is a necessity or defective product that consumers prefer to buy the same amount, regardless of whether the price of gasoline rises or falls. This kind of situation in economics is called the demand for inelastic elasticity, where prices fluctuate but the demand for quantity remains the same.
Q18) What is demand forecasting?
A18) Forecasting is the use of historical sales data to forecast future demand for a product or service. It provides an estimate of the number of goods or services that a customer expects to request within a specific time period in the future.
- It identifies what current and future customers want to buy and uses this information to optimize purchase orders or manufacturing.
- Demand forecasting also allows companies to make informed decisions about their supply chain.
- Estimates of future total sales and revenue are the main results of demand forecasting. These make inventory planning, future warehouse management needs, and sales decisions easier and more accurate.
- Important estimates in business operations also depend on demand forecasts. These include inventory turnover, cash flow, profit margin, risk management, and capacity planning, among others.
- Forecasting is an area of predictive analytics in the business that deals with supply chain optimization and overall inventory management. Compare past demand records for products with current market trends to make accurate quotes.
- Every company wants to be able to predict the amount of cost it will incur to meet its customers' demands. Forecasting is one way to do this.
This is a method for estimating the expected demand for future products or services. It is based on an analysis of past demand for that product or service in current market conditions. Demand forecasts should be evidence-based and take into account the facts and events associated with the forecasts.
So, simply put, after gathering information about different aspects of the market and demand based on the past, attempts may be made to estimate future demand. This concept is called demand forecasting.
For example, suppose you sell 200, 250, and 300 units of Product X in January, February, and March, respectively. With this, it can be said that there is a demand for about 250 units. If market conditions do not change, for product X in April.
Q19) Define Organising.
A19) Meaning of organizing:
Organizing can also be a "method of defining the important relationships among humans, responsibilities and sports in such how that all the employer's sources are incorporated and coordinated to apprehend its targets correctly and effectively". - Pearce and Robinson
Organizing is thus:
(i) A shape, and
(ii) A method.
As shape:
The employer is a hard and fast of relationships that defines the vertical and horizontal relationships among folks that carry out diverse responsibilities and duties. The organizational venture is split into gadgets, the humans in every unit (departments) are assigned unique responsibilities and their dating is described in a manner that maximizes organizational wellbeing and character dreams. The dating among humans is each vertical and horizontal.
As vertical relationships, the authority-obligation shape of humans at distinctive degrees withinside the identical branch is described and as horizontal relationships, the authority-obligation shape of folks that paintings in distinctive departments on the identical degrees is described.
The organizational shape specifies the department of exertions and suggests how the diverse capabilities or sports are linked; to a selected quantity it additionally suggests the quantity of specialization of exertions sports. It additionally suggests the hierarchy and authority shape of the employer, and suggests its subordinate relationships. - Robert H. Miles
The employer as a shape is a community of relationships (authority-obligation shape) amongst all folks who are a part of the employer, running at any stage in any branch. It defines the relationships among jobs at diverse degrees and the folks that paintings in the ones positions. Emphasize positions extra than humans.
As a method:
While the shape designs the gadget and its subsystems, the method defines the manner this shape is designed. The shape is the static idea that establishes relationships among diverse additives of the employer. You first layout the issue after which set up relationships among those additives.
These relationships are typically permanent. They do now no longer extrade regularly except hampered via way of means of outer environmental forces. Process is the dynamic idea that redefines the shape every time necessary. Defines the extrade withinside the gadget over time.
While the shape defines how the paintings of the employer might be divided into diverse positions, agencies and departments, the method defines the collection from which the shape is designed. Define relationships among humans in the sort of manner that organizational dreams are carried out correctly.
As a method, the employer includes processes:
1) Differentiation
2) Integration.
Differentiation method the department of exertions into smaller gadgets and its task to people in keeping with their competencies and capacities. Integration refers back to the coordination of various sports in the direction of a not unusual place goal. Provides harmony of movement in the direction of organizational sports.
- It implies:
- Job identification,
- Grouping of labor into smaller agencies,
- Assign paintings to every character in any respect degrees in every branch,
- Define the authority and obligation thereof, and
- Establish relationships among humans so they make a contribution to the targets of the employer in an incorporated manner.
The shape and method of the employer isn’t impartial concepts. They are complementary to every other. Once the organizational method is described, the organizational shape is the give up end result or the end result of that method. The employer shape is that the effects of the employer method. The employer is, in fact, a based and non-stop method that defines the way to acquire the described dreams.
Q20) Write the advantages and disadvantages of Decentralisation.
A20) Advantage of decentralization
i. Reduces the weight of the senior government:
Decentralization frees the satisfactory government from the border to perform several functions. This moreover reduces the time available to senior executives to pay attention on one of a kind important managerial function. So, the simplest manner to pay attention his burden is to decentralize his decision-making electricity to subordinates.
Ii. Facilitates diversification:
Under decentralization, products, sports activities and markets, etc., are facilitated, a centralized corporation with the neutralization of authority on the satisfactory diploma may want to have troubles in diversification after a particular diploma because of the reality decision-making is taken once more with the useful resource of the use of one man. The business enterprise will become increasingly more complete with the addition of new products and therefore the installed order of greater units. Therefore, the decentralized tool are going to be greater suitable for growing companies.
Iii. Quick selections:
In the decentralized tool, decision-making powers are delegated to the unique execution diploma. Therefore, it's far now not important to ask the satisfactory diploma for a number of the paintings. Quickens the decision-making process.
Iv. Risk division:
The agency is split into several departments’ underneath decentralization manipulate in an attempt to check with new mind in a unmarried department without mistrusting the others. This could reduce your hazard if topics turn bad.
v. Effective control and supervision:
With the delegation of authority, the scope of control are going to be effective. Under decentralization, decrease-diploma executives absolutely have entire authority to form important selections. So, they may be going to advocate rewards or punishments everyday with their performances. This could decorate supervision and control.
Disadvantages of decentralization: -
Decentralization suffers from a number of drawbacks and some of them are discussed below: -
i. Lack of coordination: -
Under decentralization, each department, section, or unit enjoys substantial powers. They have the power to formulate their own policies and programs. This is why it is sometimes difficult to coordinate the activities of various departments.
Ii. Difficult to control: -
Under decentralized conditions, different units operate independently, making it difficult to control their activities. Senior management will not be able to exercise effective control because; does not stay in touch with the daily activities of various departments.
Iii. Expensive: -
The decentralization system involves large overhead costs. Each department in decentralization has to be self-sufficient for its activities such as production, marketing, accounting, personnel, etc. For this reason, the decentralized system is suitable for large-scale organizations.
Iv. Qualified Manager Lake: -
Decentralization will only be successful if qualified or competent people are employed to manage various jobs in different departments. Sometimes competent people are not available as required. The system will fail if competent people are not available.
Q21) What are the three core Elements of delegation of authority?
A21) There are three core elements involved in the delegation of authority process.
1. Authority
In the context of business organizations, authority is the right and power of an individual to efficiently allocate resources, make decisions, and give instructions to achieve organizational goals. This authority must be well defined and must not be misused. There is a co-dependent relationship between authority and responsibility, so authority must always be accompanied by an equal amount of responsibility to complete tasks successfully. However, the ultimate responsibility always rests with the person with the highest authority.
2. Responsibility
Responsibility refers to the scope or duty of an individual to complete the task assigned to him. Someone entrusted with responsibility must take responsibility for her tasks. It is better not to make excuses or give explanations if tasks are not completed. Responsibility without the proper authority can lead to dissatisfaction and discontent. It is best not to give someone too much authority and too little responsibility. Ultimately, managers and leaders may be held accountable for overall performance, but the most important responsibilities are in the hands of the employees.
3. Accountability
What is a delegation of authority without accountability? It is a component that differentiates between the performance of an individual and the expectations that were established in advance. Unlike authority and responsibility, accountability cannot be delegated to others. Anyone who sets out to complete a task is responsible for the efforts and results of it. For example, if Madan is assigned a task with the appropriate authority and delegates the task to Mohan, the responsibility rests with Mohan, but Madan remains responsible for the task.
Q22) Do sole proprietorships need to be registered like LLCs or corporations? Explain it with its features
A22) If you own a sole proprietorship, generally you shouldn’t have to go through the same registration hoops as an LLC, limited partnership or corporation. Instead, you can usually just declare your intention to operate as a sole proprietorship. Usually, you will need to register your sole proprietorship locally and pay a minimal tax. In return for this registration, you will get a tax registration certificate and a business license. Get an EIN or employee identification number and if you intend to do business under a name different from your legal name, you may have to register this name with your local government. Before you jump right in, make sure you’ve taken all the steps for legal and smooth operations.
Characteristics:
(I) Individual Initiatives:
This business starts with the initiative of 1 person. He prepares a blueprint for the venture and coordinates various factors of production. He may hire others to assist, but he has ultimate authority and responsibility. All profits and losses are taken by one individual.
(II) Unlimited Liability:
In a single trade, business liability is unlimited. The owner is liable for all losses arising from the business. Responsibility isn't only the investment in his business, but also his personal property is liable for his business obligations.
(III) Management and Control:
The owner manages the whole business on his own. He makes various plans and executes them under his own supervision. Someone may help him, but the last word control lies with the owner.
(IV) Motivation:
One is the only owner of the business. He receives all profits and suffers losses, if any. There is a direct relationship between effort and reward. The more he works, the more he will earn. He is eager to expand his business activities. He doesn't want to enter the speculative business because of the high risk.
(V) Secret:
All important decisions are made by the owner himself. He keeps all business secrets only to him. Business secrets are very important for small businesses. By keeping the business secret, he prevents competitors from entering the same business.
(VI) There is one sole proprietor and one sole proprietor.
Legally, sole proprietorships and their businesses are not separate entities. The loss of his business is his loss and the debt of his business is his debt.
(VII) Owners and businesses coexist:
In a single trade business, there is no independent business with the owner. Business and owner exist together. If the owner dies, goes bankrupt, or is removed from the scene, the business will be dissolved.
(VIII) Limited Business Area:
The sole proprietorship generally has a limited business area, because of the limited resources and management capabilities of the sole proprietor. He can only arrange limited funds and can oversee small businesses. All decisions are to be made by the owner, so the area of business is limited by his management ability.
(IX) No legal Proceedings:
You can start a stand-alone trading business without any legal proceedings. No formation or registration is required.
(X) Any start and end:
The sole proprietor may start the business at his will and may dissolve it at his discretion as well.
(XI) Freedom in trade choices:
Sole proprietors are free to decide what type of business they want to start. He is not supposed to consult anyone to make such a decision.
(XII) Profit Sharing:
The sole proprietor is the single owner of the business and he receives all the benefits himself. He puts all his efforts into the business and enjoys all the fruits of his work.
Q23) Are you personally liable for your sole proprietorship?
A23) Yes, you are personally liable for your sole proprietorship. While corporations, LLCs and limited liability partnerships gain the benefit of limited liability, sole proprietors generally do not qualify for such protections. Instead, you will be held personally accountable for your business’s debts and legal judgments. If you cannot pay your debts, your personal assets like automobiles, properties, etc. can come into play. For this reason, you should be careful in how you set up your proprietorship. Additionally, consider securing adequate insurance coverage for your risks and liabilities.
This form of organization is set up for the following purposes:
(I) Channel Individual funds:
Individuals have a small surplus with them. These funds are not enough to set up a large company. People may not like to risk their money in businesses that have no say or control. Instead of keeping your money idle, it's better to set up a small business. Therefore, a single trade business provides a channel for the productive use of individual funds.
(II) Strengthening Distribution Channels:
The only trading business is generally small-scale. People have set up small retail stores under the sole proprietorship. Retailers are an important link in the distribution chain. He is in direct contact with consumers. Without the active involvement of only one trader, the distribution channel from producer to consumer cannot be successful.
(III) Serving Consumers:
Small traders come into direct contact with consumers. Consumers want to buy their daily requirements from the nearest location. The only trader has a store wherever it is available to consumers. Consumers save time by purchasing daily necessities from the nearest retail store.
(IV) Create self-employed Opportunities:
By launching the only trading business, the owner created jobs for himself. Instead of looking for a job outside, this is a form of organization that helps people create their own jobs.
(V) Avoid Concentration of Wealth:
To avoid the concentration of wealth in a small number of funds, a single trading business helps its distribution among many people. When a large number of people enter different businesses, it may be small, but it helps to distribute economic wealth.
(VI) Supporting Large Companies:
The success of large businesses is also related to the support provided by small business units. Smaller units provide ancillary services to larger units. Larger units require many smaller components, from smaller units. As such, a single trade business serves large units by providing everything they do not want to manufacture in-house. In Japan, all large units rely on supply from small units.
Q24) Do sole proprietorships need to be registered like LLCs or corporations?
A24) If you own a sole proprietorship, generally you shouldn’t have to go through the same registration hoops as an LLC, limited partnership or corporation. Instead, you can usually just declare your intention to operate as a sole proprietorship. Usually, you will need to register your sole proprietorship locally and pay a minimal tax. In return for this registration, you will get a tax registration certificate and a business license. Get an EIN or employee identification number and if you intend to do business under a name different from your legal name, you may have to register this name with your local government. Before you jump right in, make sure you’ve taken all the steps for legal and smooth operations.
The following points explain the legal position of a single trade business.
(I) There is no specific law that requires registration, etc. for this business. The joint-stock company must be established under the Companies Act of 1956, the Partnership company is subject to the Partnership Act of 1932, and the only trading business is not subject to anything. Such a decree. Therefore, this business may be started and dissolved at the discretion of the owner, regardless of statutory provisions.
(II) Single trade business is subject to general land law. If there is a provision to obtain a license to start a specific business, the sole proprietor also obtains a license before starting such a business. Those who want to start a wine shop are expected to get a license from the state government. Sole proprietors who want to enter this business are certainly expected to comply with this law.
(III) The sole proprietor and her business are the same. Business exists only with sole proprietors. If he dies or otherwise disappears from the scene, the business will be dissolved. The owner and his business have one personality.
(IV) The sole proprietorship's liability is unlimited. When a business is dissolved, there is no distinction between business assets and private assets of a sole proprietor, and business loans and personal loans.
Self-Employed Suitability:
The amount of capital and management skills required for a particular business influences decisions about the shape of the organization. Smaller businesses have fewer capital requirements and sole proprietorships are the most appropriate form of organization.
The need for capital is increasing due to the improvement of industrial technology and the devising of new production methods. Other forms of organizations such as Partnerships and corporations have also become popular. There are certain types of companies where the sole proprietorship is still the most appropriate form of organization. This type of organization is also suitable for certain situations.
These situations are as follows:
(I) If the market is local:
If the market for products is confined to a particular location, the scale of business operations will be small. The amount of capital required is low and normal management skills are sufficient. In this situation, the sole proprietorship is best. Most retailers are managed by only one trader.
(II) If you need personal contact with the customer:
Personal contact with the customer may be required. Customers may have preferences or preferences for certain things. In this situation, a self-employed organization is suitable. Doctors and lawyers need to be in direct contact with patients and clients. Customers may like to sew their clothes together. Therefore, in all of these cases, the sole proprietor will be more useful.
(III) Speculative Business:
In a speculative business, product demand and prices change rapidly. Businessmen need to make quick decisions. Sole proprietors can make immediate decisions depending on the situation. He doesn't have to talk to anyone else. So, he can decide things for himself. No other organization is as speculative as the sole proprietorship.
Social Desirability of Private Business:
Sole proprietorship restrictions have necessitated the development of other forms of organization. The widespread use of other forms of organization does not mean that sole proprietorships have been excluded. Rather, it continues to be the most popular form of organization in all countries. This form of organization also has social desirability.
Its social need is due to the following reasons.
(I) Employment of a large number of people:
This form of organization can be started alone, but he takes others to help. The number of only traders is very large in all countries and they employ many as their helpers. Therefore, sole proprietors can provide employment to a large number of people.
(II) Need for less capital:
This form of organization can be undertaken by anyone by any means. Even people with few resources can start a business on a small scale. Vegetable sellers can start a business for hundreds of rupees and regain capital at the end of the day. Therefore, this type of form encourages people to do independent business.
(III) Low risk:
In general, the sole proprietorship is started on a small scale and less investment is made. Because of the low risk, you can change your business if it is not appropriate.
(IV) Offering low-priced products:
In this way, we provide consumers with products at low prices. The only number of traders is large, they are in fierce competition with each other, and consumers are offered products at competitive rates. In general, business expenses are low. This allows the only trader to sell their products at a lower price.
(V) Equal Distribution of Income:
This form of organization acts as a constraint on the monopoly tendencies of other forms of organization. Many people enter the business. Therefore, this results in an equal distribution of income. Everyone can invest their savings and get a fair return on it. When a business is in the hands of a few, it brings a concentration of wealth in the hands of only some.
(VI) Useful for small producers:
The only trader buys goods from small producers and sells them to consumers. Many intermediaries are excluded from distribution channels. Some of the profits that the intermediary earns in the form of commissions are left to the producers and some are passed on to consumers in the form of low prices.
(VII) Helping Consumers:
Consumers are helped by some traders in making their purchases. The only trader opens a store on the street so that consumers can buy from nearby stores. Merchants supply products even at the front door.
(VIII) Functions as a training center.
The only trading business offers the opportunity to learn business techniques. With less investment, you can afford to learn by trial and error. You can expand it later by bearing the various strengths and weaknesses of your business. Therefore, this is a good organizational form for receiving business training.
Q25) Mention the merits and demerits of Sole Proprietorship.
A25) Advantages
1. Easy to form: Forming and organizing a sole proprietor's business is very easy and easy. There is no legal procedure.
2. Easy to manage: A small organization. The owner can easily manage it.
3. Profit incentives: Sole proprietors enjoy all the benefits for themselves. The motivation for this profit is an incentive to work hard.
4. Quick decision: He is the only organizer, so he can make quick decisions. He can act swiftly in response to changes in the market.
5. Customer contact: He is the owner and manager of concern. By building good relationships with our customers, we will be in a position to personally study their tastes and needs.
6. Business secrets: He can keep business secrets for himself. Keeping confidential is an important issue for all types of corporate organizations.
7. Smooth operation: Since he is a sole proprietor, there is no disagreement or controversy. It helps the smooth execution of concerns.
8. Efficiency and economy: Organizations are small. He can be a close director. He can reduce the cost of management and all sorts of waste. He can run his business efficiently.
9. Flexibility: Business changes can be adopted at any time. Flexibility is promoted with a small investment. It can be moved from place to place very easily.
10. Family Training: He gets the help of his family members in maintaining business. His children are trained in business activities.
11. Self-Employed: Easy to get started with small units. Nationalized banks are also supporting this direction.
12. Social Benefits: It offers many individuals an opportunity. Many can become entrepreneurs with limited resources.
13. Tax Benefits: Income tax is levied on the sole proprietor's personal income, not on the interests of concern. Therefore, it is advantageous.
Q26) What is a Partnership?
A26) A Partnership is a type of business in which a formal agreement is reached between two or more people who agree to be co-owners, share the responsibility of running the organization, and share the income or loss generated by the business.
In India, all aspects and functions of the Partnership are managed under the 1932 India Partnership Act. This particular law is a Partnership between two or more individuals or parties that accepts to share the benefits generated by the business under the supervision of all members or on behalf of other members. It explains.
Partnership Features:
Some of the features of the Partnership are:
1. Agreement between partners: It is a group of two or more individuals, and a Partnership arises from an agreement or contract. Agreements form the basis of associations between partners. Such an agreement is in writing. Oral agreements are fair and legal. To avoid controversy, it's always good if the partner has a copy of the written agreement.
2. Two or more: At least two people must have a common goal in order to articulate the Partnership. In other words, the minimum number of partners in a company is two. However, there is a limit to the maximum number of people.
3. Profit Sharing: Another important element of Partnership is that agreements between partners must share the benefits and losses of trading concerns. However, the definition held by the Partnership law is clear. Partnerships are associations between people who have agreed to share business interests, and loss sharing is implicit. Therefore, it is important to share profits and losses.
4. Business Motivation: It is important for a company to run any business and should have a motivation to make a profit.
5. Mutual Business: Partners are both owners and agents of the company. Actions taken by one partner can affect other partners and companies. We can conclude that this serves as a test of Partnership for all partners.
6. Unlimited Liability: All partners in the Partnership have unlimited liability.
Q27) State the Differences between One Person Company and sole proprietors.
A27) OPC and personal business forms may look similar because both business forms involve one person who owns the business, but in reality, they are quite different from each other. Increase. The nature of the debt carried by both of them is the main difference between the two forms.
OPC, a unique and independent legal entity that is different from the promoter, has its own liabilities and assets. Promoters cannot be personally responsible for paying off the company's debt.
On the other hand, sole proprietors and their owners are the same. Therefore, if the business's liabilities are not fulfilled, the promoter's assets will be attached and sold by law.