Globalization – As a boon

Many thinkers believe that globalization is a threat as it reduces the role of the state in many countries. Some counter argue that it is an opportunity as it opens up markets to compete in and capture.

Let’s see what good globalization has done for us :

Creating employment opportunities : As globalization has brought every country to a competitive world, so it has led to the generation of numerous employment opportunities. Many companies are moving towards developing countries for labour force. Also as migration of people is now easier it has also created lots of jobs opportunities for those countries who has labour force shortages (generally developed countries). Also if a country is experiencing high unemployment there are increased opportunities to look for work elsewhere. This too reduces geographical inequality.However, this issue (brain drain) is also quite controversial.

Spread of Education : The most important benefit is the spread of education. There are so many educational institution around the world, one can move out from his country to another country for more better opportunities, integrating with different cultures, meeting and learning from various people through medium of education.

Better quality product at cheaper price : due to increase in international trade, intense competition in the market is seen. Lots of products with plenty of option, having different price range to choose for consumers. To stand out in competition, product quality has been enhanced so as to retain the consumers, low or poor quality products adversely affect consumers satisfaction.

Since there are lot of choices available for consumers, the producer can sustain only when the product is competitively priced. Anytime consumer can switch to another product. Therefore, affordable pricing has benefited the consumer in great way.

Increased Capital Flow : Globalization has successfully attracted a lot of firms investing in the developing countries by setting up industrial unit outside their home country leading to huge Foreign Direct Investment (FDI), which helps in promoting economic growth in the host country. Also due to electronic transfer, transferring money through banks is just the  click of a button, making work really comfortable for investors.

Improved Infrastructure : This is only due to globalization that many infrastructure facilities relating to transportation is so easy. Connectivity to any part of the world is no more a problem, with various mode of transportation available one can easily deliver the products to customers located to any part of the world. Also circulation of information is no longer a difficult task, it just requires few seconds, due to advancement in communication technology. The internet service has significantly affected the global economy, providing directing access to information and products.

Economic Growth : As due to wide growth of market, we see an increase in demand for various products. As per the demand, producers are venturing into the markets that are on high demand, leading to rise in GDP of the country thereby economic growth. If we see the statistics the GDP of the developing countries has increased twice as much as before.

International Trade : The horizon of international trade has widened, it is not just sale and purchase of commodities. With the process of outsourcing international trade has broadened his horizon. Know the focus can be made on a particular segment of business and certain services can be outsourced. Also flexible EXIM (Export Import Policy) policies, with minimal restriction is proving beneficial to businesses.

Specialized production : Production now days is increasingly specialized. Globalization enables goods to be produced in different parts of the world. For say, my phone whose body was manufactured in Taiwan, assembled in China, its software developed in the USA and sold to me by a retail store in India. This greater specialization enables lower average costs and lower prices for consumers.

Examples Of Globalization

Globalization as a process increase the movement of people, culture, technology, ideologies and information across the world. From the song we hear to many of the popular movies and novels, fashion, technology emigrate from one country to another.

The list can go on forever.Tried listing some of these below.

• Mc Donald’s – by the method of franchising they expand their business not only in their country but also overseas.
• Kentucky Fried Chicken(KFC) founded by colonel, is one of the top most food chain in the world.
• Ebay/ Amazon(E commerce companies) – Flow of goods and services, they are not only cheap and fast, but reliable and secure. You can order anything you wish from every part of the world.
• Smart phones, TVs, cars, laptops or computers, ipads, all smart devices.
• Social networking sites like facebook, Goggle, Whatsapp etc.
• Music, fast foods, fashion trends, sports, movies, books.
• Study tutorials- you just need an internet connection and any smart device (computer, laptop or phone) and by sitting in one country you can chat, learn or study from a person sitting in another country. Take live study lessons relating to any subjects, sports or games are another great example of globalization.

Our lives are so deeply influenced by the globalised economy that often we do not even recognize it. It is happening so fast, so it’s difficult for our brain to catch up.Its sometimes sad, that local identities and cultures are slowly disappearing , and now it’s difficult to bring back old good times.

Types Of Globalization

Globalization is a social, cultural, political and economic phenomenon.

Socially and culturally it provides opportunities to greater interaction among various population worldwide. It represents the exchange of ideas, values among cultures. Advancement in internet services and social media has a great role in this.

Good example, in this could include internationally popular films, books and T.V series etc. The Harry Potter film and books have been successful all over the world, making the character famous globally. Though social globalization is often criticized for eroding cultural differences.

Political Globalization means political co operation that is present between different countries. Global organization such as (World Trade Organization), United Nations (UN) and more regional organization such as European Union (EU) have helped to increase the degree of political globalization.

Economic Globalization refers to the integration of world economies through trade and the exchange of resources. As no economy works in isolation which clearly means one country economies influence each other. In terms of economic globalization it is seen that more developed countries sell their technology to countries which lack these (generally developing countries) and natural resources from developing countries are sold to the developed countries. It turns out to be a Two – way structure for technologies and resources.

We can say that Globalization is an unavoidable phenomenon in the history of mankind due to which economies are getting smaller and smaller by increasing the exchange of goods and services, information knowledge and cultures between different countries.

This process of interaction and integration has changed a lot in our everyday lives and is still progressing.This multidimensional and contradictory process brings to life the hopes and achievement that life can bring to it.

There is a run for greater competition, one of the main objective of globalization and this is only possible with market liberalization, economic integration and technology development.

Globalization – A look

In general terms Globalization means integration of the economy of the country with world economy.

It is the process of interaction and integration among people, companies and government worldwide.

It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration.

Globalization attempts to establish links in such a way that the happening in one country can be influenced by events happening miles away, it is turning the world into one whole or simply creating a borderless world.

It has grown so much in today’s time mainly due to advancement in transport and communication technology.

With the increased global interaction comes growth of international trade, ideas and culture.

It is the spread of products, technology, information and jobs across national borders.

It can raise the standard of living in poor and less developed countries by providing job opportunities, modernization and improved access to goods and services by developed countries.

Why is there an equilibrium in the economy when AS=AD ?

Answer :

Because in such a situation, planned production in the economy is equal to planned purchases in the economy. The producers do not suffer:

(1) the burden of unwanted supplies or unsold stocks, or

(2) the loss of unfulfilled demand(due to lack of stocks)

When AS=AD, actual stocks with the producers = desired stocks with the producer.

Determinationof Equilibrium Income and output (1)

Determinationof Equilibrium Income and output (2)

State two approaches to the determination of equilibrium level of income in an economy ?

Answer :

Keyensian theory of income determination explains equilibrium level of income in terms of two approaches

1. Aggregate demand-aggregate supply approach

2. Saving- investment approach

In terms of Aggregate demand-aggregate supply approach, equilibrium level of income and output in the economy is the one where aggregate demand for goods and services is equal to the aggregate supply.

In terms of Saving- investment approach, equilibrium level of income is determined at that level of income where planned investment equals planned saving.

Also read:

Determinationof Equilibrium Income and output (1)

Determinationof Equilibrium Income and output (2)

Distinguish between autonomous and induced investment ?

Answer :

Autonomous investment is that type of investment which is not affected by change in the level of income or output .Therefore, it is income inelastic. However, autonomous investment may change in non – income factors like innovation of new techniques of production, discovery of new markets, growth of population, etc.

Induced investment, on the other hand, is that investment which is undertaken as a result of change in the level of income. It varies directly with the change in the level of income.

To know What is investment ?

Distinguish between private and public investment?

Also read : Induced and Autonomous Investment

What is Marginal Propensity to consume? How is it related to Marginal Propensity to Save?

Answer:

The marginal propensity to consume is the ratio of change in consumption expenditure to a change income.

Marginal Propensity to consume = Change in Consumption / Change in Income

MPC = ∆C / ∆Y

The marginal propensity to save is the ratio of change in saving to a change income.

Marginal Propensity to save = Change in saving / Change in Income

MPS = ∆S / ∆Y

Aggregate of marginal propensity to consume and marginal propensity to save is equal to one

MPC + MPS = 1

Also read : 

Consumption function

Saving function

Can MPS or MPC ever be negative?

Answer :

No, neither MPS or MPC can ever be negative. Because MPS is the ratio between additional saving (∆S ) and additional income(∆Y). Likewise, MPC is the ratio between additional consumption (∆C) and additional income (∆Y). The ratio ∆S / ∆Y refers to slope of Saving function which is always positive because of positive relationship between S and Y. Likewise, the ratio ∆C / ∆Y refers to slope of consumption function which is always positive because of positive relationship between C and Y.

Also read :

Consumptionfunction

Savingfunction

Explain that sum total of MPC and MPS equal to 1 ?

Answer : 

We know that:

MPS = ∆S / ∆Y

MPC = ∆C / ∆Y

We also know that:

(Additional income is either used in increasing consumption or saving)

∆Y = ∆C +∆ S

(Dividing both sides of the equation by ∆Y)

∆Y / ∆Y = ∆C / ∆Y + ∆S / ∆Y

1 = MPC + MPS

So that,

MPC + MPS = 1

Or, MPC = 1 – MPS

Or, MPS = 1 – MPC

MPC is generally less than unity and greater than zero. It means that a part of increase in income is consumed and the other part is saved.

So, the aggregate MPC and MPS must be equal to unity. Thus, if half of the increase in income is spent on consumption, the other half must be saved.

So that when MPC = 1/ 2 (half), then MPS = 1/ 2(half) also implying that

MPC + MPS = 1 always.

Explain that sum total of APC and APS equal to 1 ?

Answer :

We know that:

APC = C / Y

APS = S / Y

We also know that:

Y = C + S (income is either consumed or saved)

(Dividing both sides of the equation by Y)

Y / Y = C / Y + S / Y

1 = APC + APS

So that,

APC + APS = 1

Or, APC = 1 – APS

Or, APS = 1 – APC

Give the equation for a linear consumption function?

Answer:

The general equation for a linear consumption function is expressed as:

C = a + cY

Where,

C : is the aggregate consumption expenditure

a : represent a positive constant equal to the level of consumption at zero level of income or autonomous consumption.

c : denotes marginal propensity to consume or the slope of the consumption line

Y : Income
Explain consumption function in tabular and graphical form? To know about this read  

Tabularexplanation of Consumption function

Graphical Explaination of the Consumption function

In APC and MPC the value of which parameter can be greater than one and when?

Answer : 

Value of APC can be greater than one. It happens when the level of income is low and C >Y.

Value of MPC cannot be greater than one. MPC is the ratio between additional consumption and additional income (∆C / ∆Y). Since additional consumption is only part of additional income, and after certain level of income is reached, people start saving a part of income.

Since increase in consumption (∆C) is less than that of increase in income (∆Y) the value of MPC must be less than one or cannot be greater than one.

Explain why MPC is always positive and not greater than one?

Answer :

According to Keynesian Consumption function, there is always some minimum level of C (consumption) irrespective of level of Y (income), since at zero level of income also people will consume (past savings), so consumption is positive. Thus MPC is always positive, cannot be less than zero.

Also an increase in Consumption tends to lag behind the increase in income, because, after certain level of income is reached, people start saving a part of income. Since increase in consumption (∆C) is less than that of increase in income (∆Y) the value of MPC must be less than one.

Thus,

MPC (c) ranges from zero and 1 0 < c < 1

Define Average and Marginal Propensity to consume? Explain with a numerical example.

Answer :

The average propensity to consume (APC) refers to the proportion of income devoted to consumption.

It defines the relationship between total consumption and total income.

APC = C/Y

Marginal propensity to consume refers to the ratio of change in consumption to change in income.

MPC = ∆C / ∆Y

For example:

If income (Y), is Rs. 100 crore and consumption (C) is Rs. 80 crore, then

APC = C / Y

APC = 80 / 100 = 0.8 or 80 %

This indicates that 80 per cent of the income is spent by way of consumption expenditure in the economy.

If income (Y), increases to Rs. 1200 crore and consumption expenditure increases to Rs. 900 crore,

then MPC = ∆C / ∆Y

MPC = 900 - 800 / 1200 – 1000

         = 100 / 200 = 0.5

it means that change in income by Rs. 200 crore has caused a change in consumption by Rs. 100 crore.

What is Fundamental Psychological Law?

Answer :

This law is propounded by Keynes. It states that as income of the people increases, their consumption also rises. But the entire increase in income is not converted into consumption. A part of it is often saved. Also the rate at which consumption increases is often less than the rate at which income increases.

What is consumption Function?

Answer :

Consumption function shows the functional relationship between the desired consumption expenditure and income. The relationship can algebraically expressed as C=f(y), where C stands for consumption expenditure, f is the function and Y is the income. There is a direct relationship between income and desired or planned consumption expenditure, the level of consumption increases with increase in income.

To know more about this topic also read - Consumption Function

What is consumption expenditure?

Answer :

The amount of money spent by consumer on the purchase of goods and services in order to satisfy their wants directly is called consumption expenditure. Consumption expenditure mainly depends on income, and are directly related, it increases as income increases.

What is Aggregate Demand and its components? 

To know read - Aggregate Demand and its components

Mention any four factors other than price of the commodity which affect the demand for that commodity

Answer :

Four factors other than price of the commodity that influence the demand for the commodity are as follows:

1. The price of substitute goods.

2. Income of the consumer.

3. Tastes and preferences of the consumers.

4. Consumer’s expectations with regard to future prices.

To read in detail - Factors affecting demand

State the Law of Demand

Answer:

The law of demand states that other thing remaining equal, the quantity demanded of a commodity increases when its price falls and decreases when its price rises.The law indicates an inverse relationship between the price and quantity demanded of a commodity.

The law of demand is based on the following main assumptions:

1) There should be no change in income of the consumer.

2) There should be no change in tastes and preferences of the consumers.

3) Prices of the related commodities should remain unchanged.

4) Size of the population should not change.

5) The distribution of income should not change.

6) The commodity should be a normal commodity.

Why demand curve slope downwards to the right? - to know read: Law of demand

What is substitution effect

Why demand of CNG increases as price of petrol increases?

Answer :

The change in quantity demanded of a commodity resulting from a change in its relative price is known as Substitution effect. It reflects the tendency of people to substitute in favour of cheaper commodities and away from more expensive commodities.

As the price of petrol increases with the price of CNG remaining the same, CNG will become relatively cheaper.CNG becomes more attractive to people in comparison with petrol (both satisfy the same type of demand and hence can be used in place of one another).Consumers will normally like to shift from the consumption of petrol to CNG.

What is income effect? When is income effect positive or negative

Answer :

A change in demand on account of change in real income resulting from the change in the price of a commodity is known as income effect.

For example, A consumer buys 1 kg apples at Rs.20, now if the price of apples falls to Rs.15 and still he buys 1 kg apples, he is saving Rs. 5.It means his real income (in terms of apples) has increased. The consumer may use this increased real income (i.e. Rs. 5 saved in purchasing the original quantity of apples at a lower price) in purchasing more apples.

Price - falls , real income - rises , Quantity demanded - rises

Income effect is positive when increase in income cause increase in demand.It occurs in case of normal goods.

Income effect is negative when increase in income cause decrease in demand. It occurs in case of inferior goods.

Also read : Law of demand

Why are goods demanded

Answer :

We demand goods and services because these have the capacity to satisfy our wants.The capacity to satisfy human wants is called “Utility”.Thus, we can state that goods are demanded because these possess utility.

What is Giffen Paradox

Answer :

Named after economist Sir Robert Giffen, he said giffen goods are those inferior goods on which the consumer spends a large part of his income and the demand for which falls with a fall in their price for example-maize and jowar are considered to be inferior food grains for average consumers.

As the price of maize falls, real income(income effect) rises, know the consumer may afford to purchase superior foods like wheat or rice. Since there is a limit to intake of food, quantity demanded for maize would be lower.

Similarly, if the price of maize rises, poor consumers will be forced to spend more on the purchase of maize because it is essential for their survival. They cannot afford to purchase the same quantity of superior food items that they purchased earlier because they would be left with lesser money to spend on other commodities.

Thus, they will increase the demand for maize at the cost of wheat or rice.

Giffen’s Paradox refers to this situation of exception to the law of demand.

when demand curve slopes upward curve – 

To Know read Exception to the law of Demand/when demand curve slopes upward /a positive slope demand curve.

How do we distinguish between Normal goods and Inferior goods

Answer :

Normal goods are those in case of which there is a positive relationship between income and quantity demanded.Quantity demanded increases in response to increase in consumer’s income and quantity demanded fall with fall in consumer’s income.

Inferior goods are those in case of which there is a negative or inverse relationship between income and quantity demanded. Quantity demanded decreases in response to increase in consumer’s income and quantity demanded rise with fall in consumer’s income.

For example, the demand for an inferior food like maize may decrease when income of the consumer increases beyond a particular level as he may substitute maize by a superior food like wheat or rice.

Briefly, in case of normal goods income effect is positive, while in case of inferior goods income effect is negative.

Also read factors affecting demand

How do we distinguish between Related goods and Unrelated goods

Answer :

Goods are said to be related when demand for one changes in response to change in price of the other. For example, increase in the price of coffee is expected to cause increase in demand for tea. So tea and coffee are related goods.

Goods are unrelated when demand for is independent of any change in the price of the other. Demand for bags for example, is not affected by change in price of oils. Oils and bags are unrelated goods.

What do understand by complementary goods

Answer :

Complementary goods are those goods which are used jointly or consumed together like car and petrol, gas and gas stoves, pen and ink.

In case of such goods increase in the price of one causes decrease in demand for the other and decrease in the price of one cause the increase in the demand for the other.

Complementary goods show indirect relation between each other i.e. quantity demanded of one good is inversely related to the change in the price of the other good. For example if the price of petrol rises, its demand will fall (as price of a commodity rises its demand started falling), as a result demand for car will also fall(as both are jointly used).

Conversely, if the price of petrol falls, its demand will rise, also will rise the demand for car.

Price of petrol- rises , demand for cars- falls

Price of petrol- falls , demand for cars- rises

( Read: factors affecting demand- substitute goods )

What do understand by substitute goods

Answer :

Substitute goods are those goods which satisfy the same type of demand and hence can be used in place of one another like tea and coffee or ball pen and ink pen.In case of such goods increase in the price of one causes increase in demand for the other and decrease in the price of one cause the decrease in the demand for the other.

Substitute goods show direct relation between each other i.e quantity demanded of one good is positively related to the change in the price of the other good. For example if the price of coffee rises, consumer will shift from consumption of coffee to the consumption of tea (to avoid extra expense)as both provide same level of satisfaction.

Price of coffee- rises , demand for tea- rises

Price of coffee- falls , demand for tea- falls

( Read: factors affecting demand- substitute goods )

Differentiate between price demand and income demand

Answer :

The functional relationship between the demand for a commodity and its price is known as price demand. There is an inverse relationship between the price of the commodity and the quantity demanded of it, this means that lower the price of the commodity, larger is the quantity demanded and higher the price, lesser is the quantity demanded.

Price- rises demand- falls

Price-falls demand- rises

The functional relationship between the demand for a commodity and the level of income is known as income demand. The income demand shows how much quantity of a commodity a consumer will buy at different levels of his income. Income determines the purchasing of the consumer. Generally there is a direct relationship between the income of the consumer and his demand for a product.

Income- rises demand- rises

(Read : factors affecting demand)

What is meant by derived demand

Answer :

Demand for a commodity that arises due to the demand for some other commodity is derived demand for example demand for house or building leads to the derived demand of bricks, sand, cement, labour, wood etc. Derived demand generally relates to the demand for factors of production.

What is composite demand

Answer :

demand for goods that have multiple uses is called composite demand. A commodity is said to have composite demand when it can be used to several alternative uses for example the demand for steel arises from various uses of steel, such as in making utensils, bus bodies, cars and so on.

A change in the price of such products would lead to a large change in its demand because its demand for all the uses would change. Moreover, an increase in the demand for the product in one use decreases its availability for another use. For example, an increased demand for electricity for domestic use would reduce the availability of electricity for commercial use.

What is joint demand

Answer :

It refers to the demand for two or more goods which are used jointly or demanded together for example car and petrol, bread and butter, pen and refill, milk and sugar etc.change in any one commodity affects the other like increase in demand for cars leads to increase in demand for petrol, since both are used together, a car without petrol is of no use.Also a rise in the price of cars will lead to not only a fall in the demand for cars, but also a fall in the demand of petrol and vice versa.When the price of car rises it become more costly so people will demand less cars and thereby leading to fall in the demand of petrol.When the price of car falls it become relatively cheaper so people will demand more cars and thereby leading to increase in the demand of petrol.

Distinguish between ex ante and ex post demand

Answer :

Ex ante Demand Refers to the amount of goods that consumer want to or willing to buy during a particular time period.It is the planned or desired amount of demand. Ex post Demand Refers to the amount of goods that consumer actually purchase during a specific period.

For Example, you want to buy a 4bhk house by the end of this year, that is your ex ante demand but due to non availability you end up buying a 3bhk house during this period, this is your actual purchase or ex post demand.

How does demand differs from desire

Answer :

Though both terms desire and demand can be used interchangeably but in economics, they both are different. If we say you desire to have a car, but you do not have enough money to buy it. Then this desire will be just a wishful thinking, it will not be called demand. And also if you have enough money but you are not willing to spend it on car, demand does not emerge. The desire becomes demand only when you are ready to spend money to buy car.

Thus demand for a commodity refers to the desire to buy a commodity backed with sufficient purchasing power and willingness to spend. In other words, demand is an effective desire, a desire accompanied by the will to purchase and the power to purchase.

What do you mean by demand for a commodity

Answer :

The demand for a commodity refers to the amount of the commodity which will be purchased at a particular price during a particular period of time.

For example:

Demand for a commodity –X refers to (say) 10 units of X if price of X is Rs. 5 per unit, 8units of X if price is Rs.6 per unit, 6 unit of X if price is Rs. 7 per unit.

Quantity demanded of a commodity-X refers to 8 units of X if price happens to be Rs. 6 per unit.

Demand refers to all quantities of a commodity that the consumer is ready to buy at different possible price of that commodity.Quantity demanded refers to specific quantity to be purchased against a specific price of the commodity.

What is microeconomics? State its vital components?

Answer :

When economic problems or economic issues are studied considering small economic units like an individual consumer or an individual producer, we are referring to microeconomics.

Vital components of Microeconomics are:

1. Theory of Consumer Behaviour : It analysis how a consumer allocates his income to different uses so that he maximizes his satisfaction.

2. Theory of Producer Behaviour : It analysis how producer make a choice on the uses of different input and decides what to produce and how much. The producer focuses on maximization of profit.

3. Theory of Price : It explains how prices of goods and services are determined in the product market and how prices of factor services are determined in the factor market.

(Read: branches of economics)