Finance is a vast subject which has several branches. The modern business world is changing rapidly and moving forward towards a direction of advancement in terms of its functioning. One has to be familiar with the terminology associated with the finance world.
This website, ‘Simplified Fiscal Affairs’ presents to you the various topics/concepts in the form of series and imparts the knowledge in a simplified way.
What Is Demand In Economics?
- Demand means a desire. Demand is a want which needs to be fulfilled. It is an urge to have something.
- In Economics, demand means a desire which is backed by willingness and ability to pay.
- DEMAND = WILLINGNESS + ABILITY TO PAY
The Determinants of Demand:
1. Price: The price of any given commodity determines its demand to a great extent. Consumers prefer to purchase a product in relatively large quantities when price of a product is less and purchase a product in small quantities when price of a product is high. There is an inverse relationship between demand of a commodity and the price.
2. Income: income is the purchasing power of the consumer which decides the demand for a commodity. Rise in income will lead to a rise in demand and a fall in income will lead to a fall in demand for the commodity. Hence, there is an inverse or a negative relationship between income and price of a commodity.
3. Anticipation: If a consumer expects the price to decrease in future he or she will buy less in the present at the prevailing prices. On the other hand, if he or she expects the price to rise in future there will be more purchase at the current price.
4. Advertisement: Effective advertisements, sales promotion tend to change the preferences of the consumers and lead to demand for many products.
5. Tastes, preferences: Tastes and habits of a consumer influence the demand for a commodity. If a consumer likes to consume chocolates or tea he or she will demand more of it. For example; when a new fashion hits the market the consumer demands that particular type of commodity, similarly if it goes out of fashion then suddenly the demand for the commodity falls.
6. Level of taxation: High levels of taxation on goods or services lead to the increase in the price of these goods or services. This, in turn would result in a decrease in demand.
7. Demographic variables: Larger the size of the population, greater will be the demand for a commodity and smaller the size of population smaller will be the demand for a commodity.
8. Nature of a product: If a commodity is a necessity and its use cannot be avoided, its demand will continue to be the same irrespective of the prevailing market prices.For example; medicines
9. Prices of substitute goods: If a substitute good is available at a lower price then consumers will demand cheaper substitute good than the costly good.For example; if the price of tea rises, the demand for coffee rises.
10. Price of complementary goods: Change in the price of one commodity will also affect the demand for other commodity.For example; Car and fuel. If the price of fuel rises than demand for the cars will fall considerably.
What Is SWOT Analysis?
- The abbreviation SWOT stands for strengths, weaknesses, opportunities and threats.
- SWOT analysis is a tool used widely by business organizations to forecast or estimate their strengths, weaknesses, opportunities and threats.
- This analysis helps businesses to gain greater clarity of the prevailing business environment.
- SWOT analysis provides a framework for the organisations to take and execute necessary steps. It provides guidelines to the organisation to probe further into the affairs of the economic environment.
Strengths:
Strengths are equivalent to assets of the organisation. It is an inherent capacity by which the organisation gets a competitive advantage. They represent the strongest aspects of the organisation. Strengths are the elements wherein the organisation is expert at. These are the factors responsible for the steady success of the organisation. For example: loyal customer base, high profit margin, low turnover ratio, goodwill.
Weaknesses:
Weaknesses are the factors which prevent the organisation from achieving its goals. It is an inherent limitation which creates a strategic disadvantage. They form obstacles which prevent the organisation to reach its full potential. These are the areas which require improvement. For example: Huge costs, low profit margin, high employees turnover ratio, frequently changing customer base.
Opportunities:
Opportunities refer to the external environmental factors. Opportunities represent the organisation’s vision to opt for better deals. It is a favourable condition in the organisation’s surrounding that has the potential to strengthen its position. If taken timely action, opportunities may result in the advancement of the organisation.For example: Growth in demand for a particular product or service that a company provides.
Threats:
Threats refer to the things that are threatening for the survival and growth of the business. One cannot always predict threats.A threat is an unfavorable condition in the organisation’s surrounding which leads to a risk, or causes damage to the organisation.These are the factors present in the external environment which put at risk the profitability and certainty of the business organisation.For example: business rivals.
What Are TRADE CYCLES?
- A business cycle or a trade cycle is a wave like movement in macro economic activities like income, output and employment which shows upward and downward trend in the economy.
- A business cycle is an important parameter of the macro economic study. It helps us to estimate the future and take decisions accordingly.
- A business cycle is associated with four phases such as prosperity, recession, depression and recovery.
- A business cycle may very from minimum 2 years to maximum of 10 years.
- Business cycles are interlinked. They affect all the sectors of the economy.
- There are different types of business cycles some are minor in nature and other may be major.
- It has been noted that the fluctuations occur not only in the level of production but also simultaneously in other macro economic variables.
- Business cycles are global in nature, which means, once started in one country they spread to other countries through trade relations prevalent between them.
Phases of Trade Cycles:
Prosperity (Expansion, upswing):
Prosperity is a stage in which the money income, consumption, production and level of employment are high or rising and there are no unemployed workers. There is full employment in the economy.
Recession (Upper turing point):
When the phase of prosperity ends, recession starts. Recession is an upper turning point. In this process there is contraction of economic activities. After boom, there’s significant decrese in the level of demand, production becomes excess and investments result in over investments. Therefore, it leads to recession.
Depression (Contraction, downswing):
Depression is a stage in which the money income, consumption, production and employment falls, idle resources and unemployment increase. There is no as such clarity as to when the recovery would start.
Recovery (lower turning point):
In the recovery phase, economic activity once again gathers strength and momentum in terms of macro economic variables like income, output, employment, investment and demand. The recovery phase is also known as the lower turning point. It is represented by the positive upsurge of the macro economic variables like rise in demand, rise in profits, increase in the level of investments, rise in credit and betterment of the economy gradually emerges. Therefore, pessimism is replaced by an optimistic environment. .