Tag: Characteristics

  • Types of Production Systems; Continuous System and Intermittent System

    Types of Production Systems; Continuous System and Intermittent System

    Types of Production Systems; A production manager will have to choose the most appropriate method for his enterprise. The final decision regarding any particular method of production is very much affecting by the nature of the products and the quantity to produce. The types of Production Systems are grouped under two categories viz., Intermittent production system, and Continuous production system.

    Here are explain Types of Production Systems; Continuous System and Intermittent System with their advantage and disadvantage.

    There are two main types of production systems: 1) Continuous System and 2) Intermittent System.

    Types of Production Systems Chart - Continuous and Intermittent
    Types of Production Systems Chart – Continuous and Intermittent

    Continuous System or Flow System:

    According to Buffa,

    “Continuous flow production situations are those where the facilities are standardized as to routings and flow since inputs are standardized. Therefore a standard set of processes and sequences of the process can adopt.”

    Thus continuous or flow production refers to the manufacturing of large quantities of a single or at most a very few varieties of products with a standard set of processes and sequences. The mass production is carried on continuously for stock in anticipation of demand.

    Types of Production Systems Continuous System and Intermittent System
    Types of Production Systems; Continuous System and Intermittent System, #Pixabay.

    Characteristics of Continuous System:

    The following characteristics below are;

    • The volume of output is generally large (mass production) and goods are produced in anticipation of demand.
    • The product design and the sequence of the operations are standardized i.e. identical products are produced.
    • Special purpose automatic machines are used to perform standardized operations.
    • Machine capacities are balanced so that materials are fed at one end of the process and the finished product is received at the other end.
    • Fixed path materials handling equipment is used due to the predetermined sequence of operations.
    • Product layout designed according to a separate line for each product is considered.

    Advantages of Continuous System:

    The following advantages below are;

    • The main advantage of the continuous system is that work-in-progress inventory is minimum.
    • The quality of output is kept uniform because each stage develops skill through repetition of work.
    • Any delay at any stage is automatically detected.
    • Handling of materials is reduced due to the set pattern of the production line. Mostly the materials are handled through conveyor belts, roller conveyors, pipelines, overhead cranes, etc.
    • Control over materials, cost, and output are simplified.
    • The work can be done by semi-skilled workers because of their specialization.

    The disadvantages of Continuous System:

    The continuous system, however, is very rigid and if there is a fault in one operation the entire process is disturbed. Due to continuous flow, it becomes necessary to avoid piling up of work or any blockage on the line. Unless the fault is cleared immediately, it will force the preceding as well as the subsequent stages to be stopped. Moreover, it is essential to maintain stand by equipment to meet any breakdowns resulting in production stoppages. Thus investments in machines are fairly high.

    Types of Continuous System:

    Continuous production is of the following types;

    Mass Production:

    This production refers to the manufacturing of standardized parts or components on a large scale. Mass production system offers economies of scale as the volume of output is large. Quality of products tends to be uniform and high due to standardization and mechanization. In a properly designed and equipped process, individual expertise plays a less prominent role.

    Process Production:

    Production is carried on continuously through a uniform and standardized sequence of operations. Highly sophisticated and automatic machines are used. Process production is employed in the bulk processing of certain materials. The typical processing Industries are fertilizers plants, petrochemical plants, and milk dairies which have highly automated systems and sophisticated controls.

    They are not labor-intensive and the worker is just an operator to monitor the system and take corrective steps if called for. On the basis of the nature of the production process, flow production may classify into Analytical and Synthetic Production.

    • Analytical Process: In the Analytical Process of production, the raw material is broken into different products e.g. crude oil is analyzed into gas, Naptha, petrol, etc. Similarly, coal is processed to obtain coke, coal gas, coal tar, etc.
    • Synthetic Process: Synthetic Process of production involves the mixing of two or more materials to manufacture a product, for instance, lauric acid, myristic acid, stearic acid are synthesized to manufacture soap.
    Assembly Lines:

    Assembly line a type of flow production which is developed in the automobile industry in the USA. A manufacturing unit prefers to develop and employ an assembly line because it helps to improve the efficiency of production. In an assembly line, each machine must directly receive material from the previous machine and pass it directly to the next machine.

    Machine and equipment should be arranged in such a manner that every operator has free and safe access to each machine. Space should be provided for free movement of forklifts, trucks, etc. which deliver materials and collect finished products.

    Intermittent System:

    According to Buffa,

    “Intermittent situations are those where the facilities must be flexible enough to handle a variety of products and sizes or where the basic nature of the activity imposes a change of important characteristics of the input (e.g. change. in the product design). In instances such as these, no single sequence pattern of operations is appropriate, so the relative location of the operation must be a compromise that is best for all inputs considered together.”

    In the industries following the intermittent production system, some components may be made for inventory but they are combined differently for different customers. The finished product is heterogenous but within a range of standardized options assembled by the producers. Since production is partly for stock and partly for consumer demand, there are problems to be met in scheduling, forecasting, control, and coordination.

    Characteristics of Intermittent System:

    The following characteristics below are;

    • The flow of production is intermittent, not continuous.
    • The volume of production is generally small.
    • A wide variety of products are produced.
    • General purpose, machines, and equipment are used so as to be adaptable to a wide variety of operations.
    • No single sequence of operations is used and periodical adjustments are made to suit different jobs or batches.
    • Process layout is most suited.

    The intermittent system is much more complex than continuous production because every product has to be treated differently under the constraint of limited resources.

    The intermittent system can be-effective in situations which satisfy the following conditions:

    • The production centers should be located in such a manner so that they can handle a wide range of inputs.
    • Transportation facilities between production centers should be flexible enough to accommodate a variety of routes for different inputs.
    • It should be provided with the necessary storage facility.

    Types of Intermittent System:

    Intermittent Production May be of two types;

    Job Production:

    Job or unit production involves the manufacturing of a single complete unit with the use of a group of operators and process as per the customer’s order. This is a “special order” type of production. Each job or product is different from the other and no repetition is involved. The product is usually costly and non-standardised.

    Customers do not make a demand for exactly the same product on a continuing basis and therefore production becomes intermittent. Each product is a class by itself and constitutes a separate job for the production process. Shipbuilding, electric power plant, dam construction, etc. are common examples of job production.

    Characteristics of Job Production:
    • The product manufactured is custom-made or non-standardised.
    • The volume of output is generally small.
    • Variable path materials handling equipment are used.
    • A wide range of general-purpose machines like grinders, drilling, press, shaper, etc. is used.
    Advantages of Job Production:

    It is flexible and can adapt easily to changes in product design. A fault in one operation does not result in complete stoppage of the process. Besides, it is cost-effective and time-effective since the nature of the operations in a group is similar. There is reduced material handling since machines are close in a cell. The waiting period between operations is also reduced. This also results in a reduced work-in-progress inventory.

    The disadvantages of Job Production:

    Job shop manufacturing is the most complex system of production e.g. in building a ship thousands of individual parts must be fabricated and assembled. A complex schedule of activities is required to ensure the smooth flow of work without any bottlenecks. Raw materials and work-in-progress inventories are high due to uneven and irregular flow of work. Workloads are unbalanced, speed of work is slow and unit costs are high.

    Batch Production:

    Batch production pertains to repetitive production. It refers to the production of goods, the quantity of which is known in advance. It is that form of production where identical products are produced in batches on the basis of demand of customers’ or of expected demand for products.

    This method is generally similar to job production except for the quantity of production. Instead of making one single product as in case of job production, a batch or group of products are produced at one time. It should be remembered here that one batch of products may not resemble with the next batch.

    It is defined as,

    “The manufacture of a product in small or large batches or lots at intervals by a series of operations, each operation being carried out on the whole batch before any subsequent operation is performed.”

    The batch production is a mixture of mass production and job production. Under it machines turn out different products at intervals, each product being produced for a comparatively short time using mass-production methods. Both job production and batch production are similar in nature, except that in batch production the quantity of product manufactured is comparatively large.

    Advantages of Batch Production:

    The batch production method possesses the following advantages;

    • The work is of a repetitive nature.
    • There is a functional layout of various manufacturing processes.
    • One operation is carried out on the whole batch and then is passed on to the next operation and so on.
    • The same type of machines is arranged at one place.
    • It is generally chosen where trade is seasonal or there is a need to produce a great variety of goods.
    The disadvantages of Batch Production:

    Work-in-progress inventory is high and large storage space is required. Due to frequent changes in product design, no standard sequence of operation can be used. Machine set-ups and tooling arrangements have to be changed frequently. The main problem in batch production is the idle time between one operation and the other. The work has to wait until a particular operation is carried out on the whole batch.

  • Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition

    Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition

    Monopolistic Competition; Know the Characteristics of Monopolistic Competition, before knowing their definition – Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another and hence are not perfect substitutes. “It has been more fully realized that every case of exchange is a case of what may be called partial monopoly and partial monopoly is looked at from the other said a case of imperfect competition. There is a blending of both competition element and monopoly element in each situation.” by According to Prof. J. K. Mehta.

    Know and Understand the Characteristics of Monopolistic Competition.

    Concept of Monopolistic Competition: Monopolistic competition is a market structure which combines elements of monopoly and competitive markets. Essentially a monopolistic competitive market is one with freedom of entry and exit, but firms can differentiate their products. Therefore, they have an inelastic demand curve and so they can set prices.

    However, because there is freedom of entry, supernormal profits will encourage more firms to enter the market leading to normal profits in the long term. Monopolistic Competition refers to the market situation in which there is a keen competition, but neither perfect nor pure, among a group of a large number of small producers or suppliers having some degree of monopoly because of the differentiation of their products.

    Thus, we can say that monopolistic competition (or imperfect competition) is a mixture of competition and a certain degree of monopoly, on the basis of a correct appraisal of the market situation. Chamberlin has asserted that monopoly and competition are not mutually exclusive rather both are frequently blended together. In short, we can say that a market with a blending of Monopoly (What do you think of Monopoly?) and competition is called monopolistic competition or imperfect competition.

    Characteristics of Monopolistic Competition:

    Important characteristics of monopolistic competition are as follows:

    Minimum Number of Buyers and Sellers:

    In this market, neither buyers nor sellers are too many as under perfect competition nor there is only one seller as under monopoly. Mostly, it is a situation in between. Every producer for his produced commodity has some special buyers. Every consumer and seller can influence demand and supply in the market.

    Maximum Number of Buyers and Sellers:

    There are a large number of firms but not as large as under perfect competition. That means each firm can control its price-output policy to some extent. It is assumed that any price-output policy of a firm will not get a reaction from other firms that means each firm follows the independent price policy. If a firm reduces its price, the gains in sales will be slightly spread over many of its rivals so that the extent to which each of the rival firms suffers will be very small. Thus these rival firms will have no reason to react.

    Ignorance of the Buyers:

    There are some people who think that high priced goods will be better and of higher quality. So, they avoid buying low priced goods.

    The difference in the Quality and Shape of the Goods:

    Although the commodities produced by different producers can serve as perfect substitutes to those produced by others, yet they are different in color, form, packing, design, name, etc. So there is product differentiation in the market.

    Differentiated Products:

    Sellers sell differentiated products, but they are close— but not perfect—substitutes. Buyers may not mind if they do not get Lux soap rather than Rexona. Different varieties of soap that are available in the Indian market are slightly differentiated products and, hence, close substitutes. It is the degree of differentiation that creates both monopoly and competitive elements. Every product is unique to the buyers. So every seller enjoys some degree of monopoly of his own product over other sellers. But since these goods are close substitutes, sellers face competition.

    Because of the brand loyalty of buyers, sellers exercise some monopoly power. And sales of closely related goods create a competitive environ­ment. Thus monopolists compete among themselves. It is product differentiation that enables Monopolistically competitive firms to possess market power with competition amongst the firms. In this market, monopoly power is, therefore, small.

    Product Differentiation:

    Another feature of the monopolistic competition is product differentiation. Product differentiation refers to a situation when the buyers of the product differentiate the product with others. Basically, the products of different firms are not altogether different; they are slightly different from others. Although each firm producing differentiated product has the monopoly of its own product, yet he has to face the competition. This product differentiation may be real or imaginary. Real differences are like design, the material used, skill, etc. whereas imaginary differences are through advertising, trademark and so on.

    Lack of Knowledge on the Part of Consumers:

    Neither consumers nor sellers have full knowledge of market conditions, so there is an international difference in the price of goods from those of others.

    High Transportation Cost:

    In this high transportation cost play an important role in order to create discrimination among commodities. Similar goods because of different transport costs are bought and sold at different prices.

    Advertisement:

    Here, advertisement plays an important role because buyers are influenced to prefer by advertisement, which plays upon their mind and makes them the product of one firm to those of another. Through advertisement, they are brought to his notice through radio, television and other audio-visual aids in a more pleasing and more forceful manner. Thus, rival firms compete against each other in quantity, in facilities as well as in price.

    Differences in the Establishment of Industry:

    In the imperfectly competitive market, there is neither freedom of entry or exit as is under perfect competition nor there is perfect control as in monopoly but there are some restrictions on the entry of industry only.

    Elastic Demand Curve:

    Since the product of each seller is slightly different from his rivals he enjoys some degree of monopoly power and, hence, can raise the price of his product without losing most customers. But as other rival firms produce closely related goods, every firm faces competition and its influence over the price of the product is rather limited.

    Thus, each firm has a downward sloping demand curve implying that it behaves as a price-maker. Since a seller faces a large number of competitors to whom buyers may turn, the demand curve is more elastic.

    Non-Price Competition:

    Besides price competition, Chamberlin suggested cases of non-price competition that arise due to product variation and selling activities. Seller always tries to establish the fact that his product is superior to others by improving the quality of his product. And in doing so, he incurs selling costs or makes advertise­ment to attract more customers in his fold.

    It is the product differentiation that causes selling costs to emerge, in addition to production costs. In Chamberlin’s model, demand for any commodity is not only affected by the price of a commodity but also by non-price competition (i.e., product variation and selling activities). Selling costs or advertising outlays are peculiar to this market.

    Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition
    Know the Characteristics of Monopolistic Competition And understand how to Determine the Price and output in their Competition. #Pixabay.

    Now, Understand basically how to Determine the Price and output in their Competition?

    You’ll understand the Characteristics of Monopolistic Competition upstairs, now study Determine the Price and output in their Competition. Under monopolistic competition, organizations need to make optimum adjustments in the prices and output sold to attain equilibrium. Apart from this, under monopolistic competition, organizations also need to pay attention to the design of the product and the way the product is promoted in the market.

    Moreover, an organization under monopolistic competition is not only required to study its individual equilibrium but group equilibrium of all organizations existing in the market. Let us first understand the individual equilibrium of an organization under monopolistic competition. As we know every seller, irrespective of the market structure, is willing to maximize his/her profits. In monopolistic competition, profits are maximized at a point where marginal revenue is equal to marginal cost.

    The price determined at this point is known as equilibrium price and the output produced at this point is called equilibrium output. If the marginal revenue of a seller is greater than marginal cost, he/she may plan to expand his/her output. On the other hand, if marginal revenue is lesser than marginal cost, it would be profitable for the seller to reduce his/her output to the level where marginal revenue is equal to marginal cost.

    Equilibrium in Long-term Run:

    In the preceding sections, we have discussed that in the short run, organizations can earn supernormal profits. However, in the long run, there is a gradual decrease in the profits of organizations. This is because, in the long run, several new organizations enter the market due to freedom of entry and exit under monopolistic competition. When these new organizations start production the supply would increase and the prices would fall. This would automatically increase the level of competition in the market.

    Consequently, the AR curve shifts from right to left and supernormal profits are replaced with normal profits. In the long run, the AR curve is more elastic than that of in the short run. This is because of an increase in the number of substitute products in the long- run. The long-run equilibrium of Monopolistically competitive organizations is achieved when average revenue is equal to average cost. In such a case, organizations receive normal profits.

    Equilibrium in Short-term Run:

    The short-run equilibrium of a monopolistic competitive organization is the same as that of an organization under monopoly. In the short run, an organization under monopolistic competition attains its equilibrium where marginal revenue equals marginal cost and sets its price according to its demand curve. This implies that in the short run, profits are maximized when MR=MC.

  • Decision-Making: Nature, Characteristics, and Principles

    Decision-Making: Nature, Characteristics, and Principles

    What does Decision Making mean? Decision-making means to select a course of action from two or more alternatives. A decision may define as “A course of action which is consciously chosen from among a set of alternatives to achieve the desired result.” It represents a well-balanced judgment and a commitment to action. Discussing of Topic; Decision-Making; Explanation of Decision-Making, Meaning of Decision-Making, Definition of Decision-Making, Nature, and Characteristics of Decision-Making, and finally the Principles of Decision-Making.

    Know and Understand the Explanation of Decision-Making; Meaning, Definition, Nature, Characteristics, and Principles.

    Decision-Making is an important function in management since decision-making is related to the problem, effective decision-making helps to achieve the desired goals or objectives by solving such problems. Thus the decision-making lies all over the enterprise and covers all the areas of the enterprise. What does Welfare Economics mean? Measuring and Value decisions!

    It is rightly said that the first important function of management is to take decisions on problems and situations. Decision making pervades all managerial actions. It is a continuous process. Decision-making is an indispensable component of the management process itself. This clearly suggests that decision-making is necessary for planning, organizing, directing, controlling and staffing.

    For example, in planning alternative plans are prepared to meet different possible situations. Out of such alternative plans, the best one (an i.e., plan which most appropriate under the available business environment) is to select. Here, the planner has to take the correct decision. This suggests that decision-making is the core of the planning function. In the same way, decisions are required to take while performing other functions of management such as organizing, directing, staffing, etc. This suggests the importance of decision-making in the whole process of management. The effectiveness of management depends on the quality of decision-making.

    In this sense, management is rightly describing as a decision-making process. According to R. C. Davis, “Management is a decision making process.” Decision-making is an intellectual process which involves selection of one course of action out of many alternatives. Decision-making will follow by the second function of management called planning. The other elements which follow planning are many such as organizing, directing, coordinating, controlling and motivating.

    Meaning of Decision-Making:

    Decision-Making is an important function in management since decision-making is related to the problem, effective decision-making helps to achieve the desired goals or objectives by solving such problems. Thus the decision-making lies all over the enterprise and covers all the areas of the enterprise.

    Scientific decision-making is the well-tried process of arriving at the best possible choice for a solution with a reasonable period of time. The decision means to cut off deliberations and to come to a conclusion. Decision-making involves two or more alternatives because if there is only one alternative there is no decision to make.

    Decision-making has priority over planning function. According to Peter Drucker, it is the top management which is responsible for all strategic decisions such as the objectives of the business, capital expenditure decisions as well as such operating decisions as training of manpower and so on. Without such decisions, no action can take place and naturally the resources would remain idle and unproductive. The managerial decisions should be correct to the maximum extent possible.

    Definitions of Decision-Making:

    According to Trewatha & Newport,

    “Decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem.”

    R.S. Davar defined decision making as,

    “The election based on some criteria of one behavior alternative hum two or more possible alternatives. To decide means ‘to cut off’ or in practical content to come to a conclusion.”

    Henry Sisk and Cliffton Williams defined,

    “A decision is the election of a course of action from two or more alternatives; the decision-making process is a sequence of steps leading lo I hat selection.”

    George Terry defines,

    “As the selection of one behavior alternative from two or more possible alternatives.”

    In the words of D. E. Mcfarland,

    “A decision is an act of choice wherein an executive forms a conclusion about what must be done in a given situation. A decision represents behavior chosen from a number of alternatives.”

    Nature and Characteristics of Decision-Making:

    Nature of Decision-Making: A decision is always related to some problem, difficulty or conflict. Decisions help in solving problems or resolving conflicts. There are always differences of opinions, judgments, etc. The managerial decision helps in maintaining group effectiveness. All problems may not require decision- making but merely the supply of information may be sufficient.

    For example, when will different groups report for re-orientation? The supply of information about the training program may be enough. Decision problems necessitate a choice from different alternatives. A number of possibilities are selected before making a final selection. Decision-making requires something more than a selection. The material requiring a decision may be available but still, a decision may not reach.

    A decision needs some sort of prediction for the future on the basis of past and present available information. The effect of a decision is to be felt in the future so it requires proper analysis of available material and a prediction for the future. If decision premises do not come true, then the decision itself may be wrong. Sometimes decisions are influenced by adopting a follow-the-leader practice.

    The leader of the group or an important manager of concern sets the precedent and others silently follow that decision. Whatever has been deciding by the leader becomes a guide for others and they also follow suit. The decisions may also emerge from answers to pertinent questions about the problem. Such answers try to narrow down the choice and help in making a decision.

    Now discuss the Characteristics of Decision-Making:

    The following Characteristics below are;

    Continuous activity/process.

    Decision making is a continuous and dynamic process. It pervades all organizational activity. Managers have to make decisions on various policy and administrative matters. It is a never-ending activity in business management.

    Based on reliable information/feedback.

    Good decisions are always based on reliable information. The quality of decision-making at all levels of the organization can improve with the support of an effective and efficient management information system (MIS).

    Time-consuming activity.

    Decision making is a time-consuming activity as various aspects need careful consideration before making the final decision. For decision-makers, various steps are required to complete. This makes decision-making a time-consuming activity.

    Needs effective communication.

    Decision-taken needs to communicate to all concerned parties for suitable follow-up actions. Decisions taken will remain on paper if they are not communicating with concern persons. Following actions will not be possible in the absence of effective communication.

    Responsible job.

    Decision making is a responsible job as wrong decisions prove to be too costly to the Organization. Decision-makers should mature, experienced, knowledgeable and rational in their approach. Decision-making need not treat as routing and casual activity. It is a delicate and responsible job.

    Decision making implies choice.

    Decision making is choosing from among two or more alternative courses of action. Thus, it is the process of selection of one solution out of many available. For any business problem, alternative solutions are available. Managers have to consider these alternatives and select the best one for actual execution. Here, planners/ decision-makers have to consider the business environment available and select the promising alternative plan to deal with the business problem effectively.

    It is rightly said that “Decision making is fundamentally choosing between the alternatives”. In decision-making, various alternatives are to consider critically and the best one is to select. Here, the available business environment also needs careful consideration. The alternative selected may be correct or may not be correct. This will decide in the future, as per the results available from the decision already taken.

    In short, decision-making is fundamentally a process of choosing between the alternatives (two or more) available. Moreover, in the decision-making process, information is collecting; alternative solutions are deciding and consider critically in order to find out the best solution among the available.

    Every problem can solve by different methods. These are the alternatives and a decision-maker has to select one alternative which he considers as most appropriate. This clearly suggests that decision-making is basically/fundamentally choosing between the alternatives. The alternatives maybe two or more. Out of such alternatives, the most suitable is to select for actual use. The manager needs the capacity to select the best alternative. The benefits of correct decision-making will be available only when the best alternative is select for actual use.

    Decision-Making Nature Characteristics and Principles
    Decision-Making: Nature, Characteristics, and Principles, #Pixabay.

    Principles of Decision-Making:

    The effective decision involves two important aspects—the purpose for which it is intending, and the environmental situation in which it takes. Even the best and correct decision may become ineffective if these aspects are ignored; because in decision-making, there are so many inside and outside chains of unavoidable reactions. If certain principles are following for decision-making, such multidimensional reactions can mostly be overcome.

    These principles as follows below are:

    Subject-matter.

    Decisional matters or problems may divide into groups consisting of programmed and non-programmed problems. Programmed problems, being of routine nature, repetitive and well-founded, are easily definable and, as such, require a simple and easy solution. The decision arrived in such programmed problems has, thus, a continuing effect. But in non-programmed problems, there is no continuing effect because they are non-repetitive, non-routine, and novel. Every event in such problems requires individual attention and analysis and its decision is to arrive at according to its special features and circumstances.

    Organizational Structure.

    The organizational structure, having an important bearing on decision-making, should readily understand. If the organizational structure is rigid and highly centralized, decision-making authority will remain confined to the top management level. This may result in a delayed and confusing decision and create suspicion among the employees.

    On the contrary, if the organizational structure provides scope for adequate delegation and decentralization of authority, decision-making will be flexible and the decision-making authority will be close to the operating centers. In such a situation, decision-making will be prompt and expect to be more effective and acceptable.

    Objectives and Policies.

    Proper analysis of the objectives and policies is the need for decision-making. The clear definition of objectives and policies is the basis that guides the direction of decision-making. Without this basis, decision-making will be aimless and unproductive.

    Analytical Study of the Alternatives.

    For decision-making, analytical study of all possible alternatives of a problem with their merits and demerits is essential. This is necessary to make out a correct selection of decision from among the alternatives.

    Proper Communication System.

    Effective decision making demands a piece of machinery for proper communication of information to all responsibility centers in the organization. Unless this structure is built up, ignorance of decision or ill-inform decision will result in misunderstanding and lose coordination.

    Time of Sufficient.

    Effective decision making requires sufficient time. It is a matter of common experience that it is usually helpful to think over various ideas and possibilities of a problem for the purpose of identifying and evaluating it properly. But in no case a decision can delay for an indefinite period, rather it should complete well in advance of the scheduled dates.

    Study of the Impact of a Decision.

    The decision is intending to carry out for the realization of the objectives of the organization. A decision in any particular area may react adversely in other areas of the organization. As all business activities are inter-related and require coordination, it is necessary that a study and analysis of the impact of any decision should precede its application.

    Participation in the work of the decision-maker.

    The decision-maker should not only be an observer while others will perform as per his decision. He should also participate in completing the work for which decision was taken by him. This experience will help him in decision-making in the future. The principle of participation in the work of the decision-maker will enable him to understand whether the decision take is practical and also guide him in forthcoming decisional matters.

    The flexibility of Mind for decision.

    This is essential in decision-making because decisions cannot satisfy everybody. Rigid mental set-up of the decision-maker may upset the decisions. The flexible mental disposition of the decision-maker enables him to change the decision and win over the co-operation of all the diverse groups.

    Consideration of the Chain of Actions.

    There is a chain relationship in all the activities of any organization. Different activities are tied up in a chain sequence. Any decision to change a particular work brings change in other related works also. Similarly, decision-making also proceeds following the chain of action in different activities. Therefore, before taking a decision one should consider the chain relationship among different activities.

  • Equity Shares: Explanation, Characteristics, and Features

    Equity Shares: Explanation, Characteristics, and Features

    Equity Shares: Explanation, Characteristics, and Features

  • Business Risk: Explanation, Characteristics, and Sources

    Business Risk: Explanation, Characteristics, and Sources

    What does Business Risk mean? Business risks related to the response of the firm’s earnings before interest and taxes, or operating profits, to changes in sales. When the cost of capital is used to evaluate investment alternatives, it is assumed that acceptance of the proposed projects will not affect the firm’s business risk.

    Know and understand the Explanation of Business Risk.

    The business risk may be defined in terms of the possibility of occurrence of un-favorable events; which maximize chances of losses and minimize chances for gain, in business. The term business risk refers to the possibility of inadequate profits or even losses due to uncertainties e.g., changes in tastes, preferences of consumers, strikes, increased competition, change in government policy, obsolescence etc.

    Every business organization contains various risk elements while doing the business. Business risks imply uncertainty in profits or danger of loss and the events that could pose a risk due to some unforeseen events in the future, which causes the business to fail. The types of projects accepted by a firm can greatly affect its business risk.

    If a firm accepts a project that is considerably more risky than average, suppliers of funds to the firm are quite likely to raise the cost of funds. This is because of the decreased probability of the fund suppliers receiving the expected returns on their money. A long-term lender will charge higher interest on loans if the probability of receiving periodic interest from the firm and ultimately regaining the principal is decreased.

    Common stockholders will require the firm to increase earnings as compensation for increases in the uncertainty of receiving dividend payments or ably appreciation in the value of their stock. In analyzing the cost of capital it is assumed that the business risk of the firm remains unchanged (i.e., that the projects accepted do not affect the variability of the firm’s sales revenues).

    This assumption eliminates the need to consider changes in the cost of specific sources of financing resulting from changes in business risk. The definition of the cost of capital developed in this chapter is valid only for projects that do not change the firm’s business risk.

    Meaning of Business Risk:

    Business risk is that portion of the unsystematic risk caused by the prevailing environment of the business. In other words, business risk is a function of operating conditions being faced by a firm. These risks influence the operating income of a firm and consequently the dividends.

    Every company has its own objectives and goals and aims at a particular gross profit and operating income. It expects itself to pay to its shareholders a certain rate of dividend and plow back some profits.

    For example, an owner of a business may face different risks like in production, risks due to irregular supply of raw materials, machinery breakdown, labor unrest, etc. In marketing, risks may arise due to different market price fluctuations, changing trends and fashions, error in sales forecasting, etc. In addition, there may be the loss of assets of the firm due to fire, flood, earthquakes, riots or war and political unrest which may cause unwanted interruptions in the business operations. Thus business-risks may take place in different forms depending upon the nature and size of the business.

    Definition of Business Risk:

    Definition: By the term “Business risk” we mean the uncertainty with respect to the firm’s operations. It is a type of systematic risk wherein there is volatility associated with the future income or earnings arising from events, circumstances, conditions, action, or inactions that hinders the attainment of goals and objectives and carry out the strategies.

    Business risk refers to the anticipation that the firm may earn lower than expected profits or even suffer losses, because of the uncertainties inherent in the business such as competition, change in customer tastes and preferences, input cost, change in government policies, and so forth. It may impede the business ability to provide returns on the investment.

    Following are cited some popular definition of the term business risk:

    According to B.O.Wheeler,

    “Risk is the chance of loss. It is the possibility of some un-favorable occurrence.”

    According to C.O. Hardy,

    “Risk may be defined as uncertainty in regard to cost, loss, or damage.”

    Characteristics of Business Risk:

    Characteristics of business-risks could be highlighted with reference to its following features:

    The Time.

    In ancient times, business-risks were less and limited. In the present-day-times-characterized by intense competition, advanced technology and globalization of the economy; business-risks are quite severe. Further, in times to come, business-risks are likely to increase in intensity.

    The Size of Business Enterprise.

    Small businesses are less exposed to business-risks; because they enjoy the flexibility of operations and can easily adapt themselves to changing circumstances. On the other hand, the bigger is the size of business; the lesser is the flexibility possessed by it. Hence bigger businesses are more exposed to business risks.

    Nature of Business Risks.

    In case of business enterprises engaged in the manufacture/purchase of necessary items e.g. salt, sugar, oil, cloth etc. there is the lesser risk because demand for most of the necessary item is inelastic or less elastic. On the other hand, business enterprises engaged in the manufacture/purchase of luxury items are more exposed to business-risks; because demand for luxury items is highly elastic.

    Terms of Sales.

    In the case of business enterprises conducting sales only on a cash basis, business-risks are nil; so far as the possibility of bad debts is concerned. On the other hand, business enterprises conducting large scale credit sales are severely exposed to the risk of bad debts.

    The Degree of Competition.

    In those lines of business activities, where there is intense competition; business enterprises are exposed to severe risks caused by the actions and reactions of competitors. As such, business enterprises characterized by monopolistic situations face little risk on account of competition. Actually, in a perfectly monopolistic situation, the business enterprise has no risk caused by competition.

    The Competence of Management.

    The more competent the management of business enterprises is; the lesser is the possibility of losses to be caused as a result of business risks, and vice-versa.

    The Age of the Business Enterprise.

    From this viewpoint, old business enterprises are less exposed to business-risks, because of the experience of successfully handling business-risks, in the past. New business concerns are more exposed to business-risks, because of the lack of experience.

    Opportunities for Gains are Hidden in Business Risks.

    If the management of the business enterprise is able to successfully handle and manage business-risks; these provide many opportunities for gains to the business enterprise.

    Sources of Business Risk:

    Business risk can be divided into two broad Sources, namely;

    • Internal business risk, and.
    • External business risk.

    Now explain;

    Internal Business risks.

    Internal business risk is associated with the internal environment of the firm. The internal business-risks are such that the firm has to conduct its business within its limiting environment. The internal business-risks will vary from firm to firm depending upon the constraints in the internal environment. Thus, each firm has its own set of internal risks and the firm’s success depends upon the ability to coping with these risks.

    The important internal risks include:

    1. Fluctuations in sales.
    2. Research and development.
    3. Personnel Management.
    4. Fixed Cost, and.
    5. Production of a single product.

    The risks that emerge as a result of the events occurring within the organization is termed as an internal risk. These risks can be predicted as the possibility of their incidence, and so, they are controllable in nature. They arise due to factors like strikes & lockouts by a trade union, accidents in the factory, negligence of workers, failure of the machine, technological obsolescence, damages to the goods, fire outbreak, etc.

    External Business risks.

    External business-risks are associated with circumstances beyond a firm’s control. Each firm has to deal with specific external factors that may be unique and peculiar to its industry.

    However, important external factors influencing all businesses are:

    1. Business cycle.
    2. Demographic factors.
    3. Government policies, and.
    4. Social and regulatory factors.

    The risk arising as a result of the events external to the firm and so the firm’s management has no control over it. So, these cannot be forecasted easily. It may arise due to price fluctuations, changes in customer taste, earthquake, floods, changes in government regulations, riots, etc.

    Business Risk Explanation Characteristics and Sources
    Business Risk: Explanation, Characteristics, and Sources, #Pixabay.

    Types of Business Risks:

    Some risks are common to all human being alike everywhere e.g. risks due to fire, theft, flood, earthquakes, cyclones, drought, war, civil riots etc. As such these are not the risks peculiar only to business. Moreover, some risks are insurable with insurance companies.

    Hence, as such, in the present- day-times offering many types and varieties of insurances; these risks could not be termed as risks in the real sense of the term. Accordingly, business-risks are those which are peculiar only to business and are also not- insurable.

    Following is a brief account of the above types of business-risks:

    Natural Types.

    Risks which arise due to the actions of Nature (and hence uncontrollable) are called natural risks. For example, the risk of rainfall not occurring on time or excessive rain­fall causing flood is a serious risk for farmers. Again, there may be the risk of hail storm destroying crops in the field.

    Political Types.

    Risks due to political causes may arise, in the forms of:

    1. Price regulations, restricting profit margins for businessmen.
    2. High rates of taxes, taking away a major part of business profits.
    3. Un-favorable economic policies, discouraging some lines of business activities, and.
    4. Strict legislation imposed on business enterprises etc.

    Social Types.

    Risks due to social causes are those which may arise from consumer behavior or due to changes taking place in the social scene.

    Examples of social risks may be:

    1. Changes in fashions.
    2. Change in the tastes or preference of consumers.
    3. Changes in the income of consumers, and.
    4. Changing social values leading to a new pattern of social life etc.

    Economic Types.

    Some of the economic types leading to business-risks may be:

    1. The rising cost of raw materials due to inflation or crop failure.
    2. The economic recession in industry, leading to poor demand.
    3. Increase in the rate of interest, making borrowings costlier, and.
    4. Pessimistic capital market conditions, discouraging people to invest in companies etc.

    Managerial Types.

    Risks due to managerial types may be (a few examples only):

    1. Wrong estimation of demand by management.
    2. Poor labor-management relations, and.
    3. The inefficient operational life of the business enterprise due to incompetent or untrained managerial staff.

    Competitive Types.

    Competitive Types may cause business-risks e.g. in the form of the following:

    1. Entry of an unduly large number of persons in the same line of business activity, and.
    2. Entry of multinational companies threatening the very survival of domestic companies.

    Technological Types.

    In the present-day times, technology is changing at a very fast pace; so much so that business experts call this phase of changes as a “technological revolution”. The appearance of new technology renders the old technology as obsolete (i.e. out of use); causing severe financial losses to firms operating with old technology. They are virtually compelled to install new technology to ensure their survival amidst intensely competitive conditions.

    Miscellaneous Types.

    Some miscellaneous types of business-risks may be:

    1. Insolvency of a customer.
    2. Worker’s strike.
    3. Sudden power failure.
    4. The premature death of an expert employee or manager, and.
    5. Speculative losses.

    References;

    • https://en.wikipedia.org/wiki/Business_risks.
    • http://www.yourarticlelibrary.com/business/risk-management/business-risk-nature-and-causes-of-business-risk-risk-management/69663.
    • https://accountlearning.com/business-risk-meaning-types-categories-of-business-risks/.
    • https://businessjargons.com/business-risk.html.
  • Market: Definition, Types, and Characteristics, with PPT

    Market: Definition, Types, and Characteristics, with PPT

    What does Market mean? A regular gathering of people for the purchase and sale of provisions, livestock, and other commodities. Market: Definition, Types, and Characteristics, with PPT. A market may be a region, which may be a district, state, country or even the whole world from which buyers and sellers are drawn and not any particular place where they assemble. Explanation of Market: Definition of Market, Types of Market, and Characteristics of Market, with PPT of Market.

    The Concept of Market is explaining their points in Definition, Types, and Characteristics.

    These consumers of the economy represent the consumption wheel; on the other, production wheel consisting of producers and manufacturers of goods and services rely on marketing to push their goods and services to those who are needing and willing to pay for.

    This is the belt of marketing that connects these wheels of production and consumption for mutual benefits. That is, industrial and manufacturing activities have no meaning unless their output is exchanged for money or money’s worth mutually acceptable to both the buyers and sellers. That is, manufacturing and producing is one thing and marketing is another. Left to themselves, they serve no purpose.

    That is why marketing is considered much more important than production as it gives a kick-start to the engine of the economy. As an introduction to the topic, there is detailed discussion as the topic suggests. The module ends with Module Based Questions and Module Based Case Studies.

    The market, Marketing, and Marketing Management:

    To understand the perfect meaning and status of marketing management in the present world, there is a need to understand the meaning and implications of the terms “market” and “marketing”. Hence, these three closely related terms are explained below.

    What is the Market?

    The term “markets” originated from the Latin word “Marcatus” having a verb “Mercari” implying “merchandise” “ware traffic” or “a place where business is conducted”. For a layman, the word “markets” stands for a place where goods and persons are physically present. For him, “market” is “market” who speaks of “the fish markets”, “mutton markets”, “meat markets”, “vegetable markets”, “fruit markets”, “grain markets”. For him, it is a congregation of buyers and sellers to transact a deal.

    However, for us as the students of marketing, it means much more. In a broader sense, it is the whole of any region in which buyers and sellers are brought into contact with one another and by means of which the prices of the goods tend to be equalized easily and quickly.

    #Meaning of Market:

    In common parlance, by the markets meant a place where commodities are bought and sold at retail or wholesale prices. Thus, a market place is thought to be a place consisting of a number of big and small shops, stalls and even hawkers selling various types of goods. In Economics, however, the term “Markets” does not refer to a particular place as such but it refers to a market for a commodity or commodities.

    It refers to an arrangement whereby buyers and sellers come in close contact with each other directly or indirectly to sell and buy goods. Further, it follows that for the existence of a market, buyers and sellers need not personally meet each other at a particular place. They may contact each other by any means such as a telephone or telex.

    Thus, the term “Markets” is used in economics in a typical and specialized sense. It does not refer only to a fixed location. It refers to the whole area of operation of demand and supply. Further, it refers to the conditions and commercial relationships facilitating transactions between buyers and sellers. Therefore, a market signifies any arrangement in which the sale and purchase of goods take place.

    The Concept of Market explain by basic PPT:

    #Definitions of Market:

    Cournot’s definition, the French economist Cournot defined a market thus:

    “Economists understand by the [Market] not any particular market place in which things are bought and sold but the whole of any region in which buyers and sellers are in such free intercourse with one another that the prices of the same goods tend to equality, easily and quickly.”

    This definition of the market brings out the following essential points:

    • A market may be a region, which may be a district, state, country or even the whole world from which buyers and sellers are drawn and not any particular place where they assemble.
    • There must be business intercourse among the dealers, i.e., buyers and sellers. They must be in touch with one another so that they are aware of the prices offered or accepted by other buyers and sellers.
    • The same price must rule for the same thing at the same time.
    Some more Author’s by modern definitions of the market are as follows:

    According to Jevons,

    “Originally a market was a public place in a town where provision and other objects were exposed for sale, but the word has been generalized so as to mean anybody or persons, who are in intimate business relation and carry on the extensive transaction in any commodity.”

    As Chapmen has said,

    “The term market refers not necessarily to a place but always to commodity or commodities and the buyers and sellers of the same who are in direct competition with each other.”

    According to Prof. Behham,

    “We must, therefore, define a market as an area over which buyers and sellers are in such close touch with one another either directly or through dealers that the prices obtainable in one part of the market affect the prices in other parts.”

    From the above definitions following facts may be noted:

    • The existence of a commodity. For example, The markets for gold or silver, cotton, wheat, and rice etc. Thus, there will be as many markets as are commodities and if there be several types or variance of a commodity, then each type or variety will have a separate market of its own.
    • That there be buyers and sellers who are in touch with one another either through post, telegraph, telephone or through middlemen.
    • That there is perfect competition among buyers and sellers so that through such competition, the price of the commodity in question is influenced.

    #Types of Market:

    The seller sells goods and services to the buyer in exchange for money. There has to be more than one buyer and seller for the markets to be competitive. It refers to the whole area of operation of demand and supply. Learn and understand the four Key Indicators of Marketing Efficiency. Further, it refers to the conditions and commercial relationships facilitating transactions between buyers and sellers.

    The following types below are:

    • Physical Markets.
    • Non Physical Markets/Virtual markets.
    • Auction Markets.
    • Knowledge Markets.
    • The markets for Intermediate Goods.
    • Black Markets, and.
    • Financial Markets.

    A set up where two or more parties engage in the exchange of goods, services and the information, as well as called a market. Ideally, a market is a place where two or more parties are involved in buying and selling. The two parties involved in a transaction are called seller and buyer.

    Market Definition Types and Characteristics
    Market: Definition, Types, and Characteristics, #Pixabay.

    #Features/Characteristics of Market:

    The essential features/characteristics of a market are as follows:

    • Buyers and Sellers.
    • Area.
    • Perfect Competition.
    • One commodity.
    • One Price.
    • The relationship between Buyers and Sellers.
    • Perfect Knowledge of the Market.
    • Sound Monetary System, and.
    • Presence of Speculators.

    Understand by classification of the market:

    Consumer Market:

    • These markets specialize in selling mass consumer durable and non­durable products and services devote a good deal of time in an attempt to establish a superior brand image.
    • These items may be shoes, apparels, clothing, household items like television, sound system, washing machines, fans, on one hand and tea, coffee, tea powder, coffee powder, biscuits, bread spreads, dental cream, personal care beauty-aids, rice, wheat, oat, gourmet mixes and so on the other.
    • Much of the brand’s strength rests on developing a superior product and packaging, ensuring its availability and backing with engaging communications and reliable service.
    • This task of image building is really ticklish as the consumer market goes on changing its color over the period of time.

    Business Market:

    • This is a market of business buyers and sellers. Business buyers buy goods with a view to make or resell a product to others at a profit. Therefore, business marketers are to effectively demonstrate as to how their products will help the buyers in getting higher revenue or lower costs. Therefore, companies selling business goods and services often face well-trained and well informed professional buyers who are skills in evaluating competitive offerings.
    • These markets deal in raw-materials, fabricated-parts, appliances, pieces of equipment, supplies, and services that become the part of end products of the business consumers.
    • Advertising plays its due role. However, personal selling has the upper hand. Product price, quality, and business suppliers’ reputation have a significant role.

    Global Market:

    Global markets consist of buyers and sellers all over the world. The companies selling goods and services in the global markets place play global gain involving decisions and challenges.

    • To be successful, they must decide as to which country to enter?
    • How to enter each country?
    • That is, as an exporter, license partner of a joint venture, contract manufacturer or only manufacturer, how to adapt their product and source features to each country?
    • How to price their products in different countries?
    • And, how to adapt their communications to different cultures of various countries?

    These decisions are to be made in the face of differing requirements for buying, negotiating, owning, and disposing of property under different culture, language, and legal and political systems; and the foreign currency that is subject to fluctuations having its own implications. It is needless to say that these goods and services both consumer and industrial or business.

  • Marketing Planning: Concept, Characteristics, and Importance

    Marketing Planning: Concept, Characteristics, and Importance

    Marketing Planning – Market defines the role and responsibilities of marketing executives in such a way as to achieve the goals of the firm. Its Concept, Characteristics, and Importance, with Meaning and Definition of Marketing Planning. A marketing plan may be part of an overall business plan. A solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, without a sound strategic foundation, it is of little use to a business. Mostly, confusion of the question; What is the Difference Between Marketing and Selling? Read and share the given article in Hindi.

    Explain Market or Marketing Planning: Concept, Meaning, Definition, Characteristics, and Importance!

    Explanation of Market or Marketing Planning and its Concept, Characteristics, and Importance. Its planning involves objectives and plans with a 2-5 year time horizon and is thus further from the day-to-day activity of implementation. Because of their broader nature and longer-term impact, plans are typically developed by a combination of higher-level line managers and staff specialists. If the specialists take over the process, it loses the commitment and expertise of the line managers who are responsible for carrying out the plan.

    The planning process is probably more important than the final planning document. Also, Integrated Marketing Communications (IMC), the process ensures that a realistic, sensible, consistent document is produced and leads to important organizational learning and development in its own right.

    The concept of Market or Marketing Planning:

    A business firm has to make various marketing decisions. These decisions actually emerge from the complex interaction of a large number of persons carrying out diverse responsibilities in the marketing organization. Being part and parcel of the overall management, the marketing executives are deeply involved in the process of planning.

    It emphasizes the allocation of marketing resources in the best and most economical way. It gives an intelligent direction for marketing operations. Also, It involves the preparation of policies, programmes, budgets etc., in advance for carrying out the various activities and functions of marketing to attain the marketing goals.

    According to the American Marketing Association,

    “Marketing planning is the work of setting up objectives for marketing activity and of determining and scheduling the steps necessary to achieve such objectives.”

    Also, Planning is the first management function to be performed in the process of management. It governs the survival, growth, and prosperity of any enterprise in a competitive and ever-changing environment.

    The connecting link of markets to marketing is the process and the function of marketing management. Also, Marketing management is the blending factor of markets and marketing. Today the consumer is a complicated, emotional, and confused individual. His buying is based on subjectivity and not often backed by objectivity.

    The introduction of innumerable brands of toilet soaps, talcum powders is examples. Planning precedes activity in any purposeful endeavor. Also, Business firms naturally undertake a good deal of planning. Business firms have to master the environment and score over their competitors. Thus in the case of a business firm, planning is always strategic in character.

    A firm cannot afford to travel randomly, it has to travel with the support of a route map. Every company must look ahead and determine where it wants to go and how to get there. Its future should not be left to chance. To meet this need, companies use two systems a strategic planning system and a marketing planning system.

    Strategic Planning;

    Strategic planning provides the route map for the firm. Its planning serves as a hedge against risk and uncertainty. Strategic planning is a stream of decisions and actions which lead to effective strategies and which in turn help the firm to achieve its objectives. Also, The strategy is not something that can take out of one’s pocket and pushed into the market all of a sudden.

    “No magic formula exists to prepare for the future. The requirements are an excellent insight to understand changing consumer needs, clear planning to focus our efforts on meeting those needs, and flexibility because change is the only constant. Most important, we must always offer consumers-products of quality and value, for this is the one need that will not change.”

    Marketing has been described as the railway engine which pulls all the other departmental carriages along. Also, It is the interface between the enterprise and its market.

    We had explained that marketing places the consumer at both the beginning and the end of the business process. Any firm practicing marketing in the proper sense has to identify correctly the needs of the consumer, translate the needs into suitable products and services, deliver those products and services to the total satisfaction of the consumer and through the process generate profits for the firm.

    Meaning and Definition of Market or Marketing Planning:

    It is a comprehensive blueprint that outlines an organization’s overall marketing efforts. Also, It typically results in a marketing strategy that can use to increase sales for the business producing it.

    The definition of marketing planning as given by some prominent scholars has been given below:

    Stephen Morse:

    “Marketing planning is concerned with the identification of resources that are available and their allocation to meet specified objectives.”

    Based on the above definitions, marketing planning is the road map of an organization for selecting a target market and then satisfying the consumers. Also, It is a continuous process in which the marketing objectives of an enterprise decide and marketing programs, policies, and procedures determine the performance of different marketing activities like marketing research, sales forecasting, product planning and development, pricing, advertisement, and sales promotion, physical distribution, and after-sale services, etc.

    Characteristics of Market or Marketing Planning:

    Marketing planning has the following characteristic features:

    • The success depends to a large extent upon human behavior and response.
    • They complicate in nature.
    • Marketing decisions have long-term effects on the efficiency, profitability, and market standing of the firm.
    • It is a formal and systematic approach towards the planning of all marketing activities-product positioning, price setting, distribution channels, etc.
    • Market planning, as a rational activity, requires thinking; imagination, and foresight. Market analysis, market projection, consumer behavior analysis, and marketing-guided conclusions are based on data and measurements drawn from internal and external environments.
    • Also, It is a forward-looking and dynamic process designed to promote market-oriented or consumer-oriented business actions.
    • Planning is concerned with two things: (i) Avoiding incorrect actions, and (ii) Reducing the frequency of failure to exploit opportunities. Thus, marketing planning has both an optimistic and pessimistic component.
    • Marketing planning is done by the marketing department. Various subdivisions and sections under the department give their proposals based on which the overall company marketing plans develop and design.
    • Planning is a process of deciding in advance what to do and how to do it. If the marketing planner desires to achieve a target market at some future date and if he needs some time to decide what to do and how to do it, he must make the necessary marketing decisions before taking action.
    • Planning is basically a decision-making process. Also, Marketing planning is a program of marketing-based actions regarding the future with the object of minimizing risk and uncertainty and producing a set of interrelated decisions.

    What do they mean?

    It is the preface to any business enterprise. Also, Planning is deciding at present as to what we are going to do in the future. It involves rot only anticipating the consequences of decisions but also predict the events that are likely to affect the business.

    It is to direct the company marketing efforts and resources towards present marketing objectives like growth, survival, minimizing risks, maintain status-quo, profit maximization, service to customers, diversification, and image building and so on.

    “Marketing plan” is the instrument to implement the marketing concept; it is one that links the firm and the markets; it is the foundation for all corporate plans and planning.

    The marketing plan is the document of the future course of action that spells out how the resources at the command of the firm are to deploy to achieve the marketing goals. Simply stated, It is a written document that specifies in detail the firm’s marketing objectives and how marketing management will use controllable marketing tools such as product design, channels, promotion, and pricing to achieve these objectives.

    It is the central instrument for directing and coordinating marketing efforts. It is to do with selling objectives and designing strategies and programs for achieving these objectives of marketing. Also, They are a blueprint for marketing action. It is a written document containing strategies to achieve preset goals.

    Marketing Planning Concept Characteristics and Importance
    Marketing Planning: Concept, Characteristics, and Importance, #Pixabay.

    Importance of Market or Marketing Planning:

    It is a systematic and disciplined exercise to formulate marketing strategies. Marketing planning can be related to the organization as a whole or SBU (strategic business units).

    Market planning is a forward-looking exercise; which determines the future strategies of an organization with special reference to its product development, market development, channel design, sales promotion, and profitability.

    We may now summaries the importance of marketing planning in the following points:

    • It helps in avoiding future uncertainties.
    • Also, It helps in management by objectives.
    • They help in achieving objectives.
    • It helps in coordination and communication among the departments.
    • It helps in control.
    • Also, They help the customers in getting satisfaction.

    Minimize future uncertainties:

    To minimize future uncertainties, an expert marketing manager makes future marketing strategies and programs based on present trends and conditions of the firm.

    By effective market planning and future forecasting, he not only minimizes future uncertainty; but, also successfully fulfills the objectives of the firm.

    Clarification of Objectives:

    The clear-cut objective of the organization helps in keeping the efforts of the management in proper lines. These are very useful in formulating the managerial functions like organizing, directing and controlling.

    Proper marketing planning and decision-making help in determining the objectives of the organization.

    Better Coordination:

    The marketing planning helps in coordinating all the managerial activities of the firm. It not only helps in coordinating the work of its own department but also helps in coordinating the managerial activities of all the other departments to achieve the overall objectives and goals of the firm.

    Helpful in Controlling Function:

    The marketing planning sets the performance standards and these compare with the actual performance of various departments.

    If these variances are favorable, efforts make to maintain them; and, if these variances are unfavorable, efforts are made to remove them.

    Increases efficiency:

    Marketing planning helps in increasing the managerial efficiency of the firm. It is meant to ensure efficient allocation & utilization of resources. They also compare the results with the set standards to ensure the efficiency of the organization.

    It directs all the managerial activities of the firm and controls these activities. They develop the feeling of sincerity and a sense of responsibility among the managerial executives by defining the duties, rights, and liabilities of all employees of the firm; which in turn increases the efficiency of the firm.

    Consumer satisfaction:

    Under marketing planning, the needs and wants of the customer (or consumer) study properly; and, marketing activities are channelized to provide better customer satisfaction; which in turn maximizes the profit of the firm.

    Therefore, by concentrating on customer satisfaction, marketing management increases market share and revenue of the business enterprise.

    References: Marketing Planning: Concept, Characteristics – yourarticlelibrary.com/marketing/marketing-planning-importance-benefits-and-characteristics/50832, and Importance – gktoday.in/gk/importance-of-marketing-planning/.

  • What do you think of Monopoly? Understand the Monopoly on the Characteristics, Purpose, and Strength.

    What is a Monopoly? The word Monopoly is made of two words; MONO + POLY. Here “Mono” means one and “Poly” implies the seller, thereby the literal meaning of the word Monopoly is one seller or one producer. Thus, pure monopoly refers to that form of market organization wherein there is a single firm (or producer) producing a commodity for which there are no good or close substitutes. The monopolist is not bothered by the reaction of rival firms since it has no rival. So the demand curve faced by the monopoly firm is the same as the industry demand curve. So, what is the topic of the question we are going to discuss; What do you think of Monopoly? Understand the Monopoly on the Characteristics, Purpose, and Strength. Read in Hindi.

    Here are explained about Monopoly: Understand the Monopoly on the Characteristics, Purpose, and Strength.

    The market, form of monopoly is the opposite extreme from that perfect competition. It exists whenever an industry is in the hands of the single producer. In the case of perfect competition, there are so many individual producers that no one of them has any power over the market and an; one firm can increase or diminish its production without affecting the market price. A monopoly, on the other hand, has the power to influence the market price. By reducing its output, it can force the price up, and by increasing its output it can force the price down.

    According to Watson, “A monopolist is the only producer of a product that has no close substitutes.” Changes in prices and outputs of other goods sold in the economy must leave the monopolist unaffected. Conversely, changes in the monopolist’s price and output must leave the other producers of the economy unaffected.

    In the words of Salvatore, “Monopoly is the form of market organization in which there is a single firm selling a commodity for which there are no close substitutes.” The cross elasticity of demand with every other product is very low. This means that no other firms produce a similar product. Thus, the monopoly firm is itself an industry and the monopolist faces the industry demand curve. The demand curve for his product is, therefore, relatively stable and slopes downward to the right, given the tastes and incomes of his customers.

    The Characteristics of Monopoly:

    We may state the features or characteristics of monopoly as:

    One Seller and a Large Number of Buyers:

    The monopolist’s firm is the only firm; it is an industry. But the number of buyers is assumed to be large.

    The difficulty of Entry of New Firms and Industry:

    Firms – There are either natural or artificial restrictions on the entry of firms into the industry, even when the firm is making abnormal profits. Industry – Under monopoly, there is only one firm which constitutes the industry. Difference between firm and industry comes to an end. Since in monopoly there is a single firm producing the commodity, hence the difference between firm and industry vanishes automatically.

    Barriers to the Entry:

    The entry into the industry is completely barred or made impossible. If new firms are admitted into the industry, monopoly itself breaks down. This ban on entry may be legal, natural or institutional but it must essentially be there.

    Price Maker:

    Under monopoly, the monopolist has full control over the supply of the commodity. But due to a large number of buyers, the demand of any one buyer constitutes an infinitely small part of the total demand. Therefore, buyers have to pay the price fixed by the monopolist.

    Price-Discrimination is Possible:

    Under the conditions of monopoly, price-discrimination is possible. It implies that a monopolist can sell its product at different prices to different customers.

    In short, monopoly depends basically on two factors:

    • Absences of close substitutes, and.
    • Restriction on the competition.
    No Close Substitutes:

    For the monopoly to exist single producer is the necessary condition but not a sufficient one. It is also essential that there should be no close substitute of the commodity in the market. This second condition would be even more difficult to fulfill than the first since there are few things for which there is no substitute. For instance, Usha is produced by a single firm alone but there are close substitutes of Usha fans that are available in the market in the form of Railfans, Khaitan Ashoka, Crompton, etc. Hence, though the firm producing Usha fans is single yet it cannot be termed a monopoly firm.

    It is, therefore, essential for a monopoly to exist that there should be no close substitutes available in the market. This condition can be stated in other words as that the cross elasticity of demand for the output of the firm with respect to the price of every firm’s product is zero. There shall not be any close substitutes for the product sold by the monopolist. The cross elasticity of demand between the product of the monopolist and others must be negligible or zero.

    Positive And Negative Purpose Of Monopoly:

    Currently, in many countries around the world, the monopoly in the business still has debatement and it is applied in some fields. Therefore, there will be two exclusive aspects: positive and negative when applied in the business methods of a certain field. The main points lead to monopoly are Government concessions resources for a certain firm, the ownership of inventions, patents and intellectual property, ownership is a great resource.

    Positive Purpose:

    As a result, we can analyze the positive outlook base on Viet Nam Oil And Gas Group (Petrovietnam) – one of the most popular corporations in Viet Nam since 1985 till now. Petrovietnam has supposed as a powerful economic group in Vietnam, known in the region and the world. In this situation, the profits that Petrovietnam earns to provide funds that can be invested in equipment and development.

    Whereas perfect competition must be accepted with a normal return on invested capital, the monopolist has more funds to undertake the development further. Importantly, the ability to achieve a monopoly position or to maintain it and step ahead of potential competitors, Petrovietnam has to do innovation in products, techniques and cost savings. They also may not need to spend more money on advertising, marketing, promotions, etc.

    Negative Purpose:

    Due to maximize revenue, the monopolist would produce goods which marginal sales equal marginal revenue instead of producing output level which prices higher than marginal cost as in the market (supply equals demand). Besides, different from perfect competition which price depends on the quantity of producing of a firm. Price of Petrovietnam would increase while decreasing the quantity of produce. For this reason, profit margins will be higher than selling price.

    Besides, producing more oil products will make the enterprise gets more revenue and it also will be the higher selling price. Accordingly, sometimes Petrovietnam suddenly increases the price higher while the international market price was decreasing and the market did not change. Thus, people have to buy oil and gas at an expensive price because oil and gas are important in life. Although people complained, Petrovietnam still keeps the price high.

    In this case, we can see easily that they misused the power of monopolist sometimes. In short, the monopolist will produce lower and price of selling goods is higher than the competitive market. In addition, society has to bear loss by increased output minus the marginal total cost to produce the output which should be produced more. It is the toll by the monopolist. In addition, lack of incentive to innovate also impact the demand and supply.

    Measuring Monopoly Power (Strength):

    Different measures that have been suggested are as follows:

    By Concentration Ratio:

    Concentration ratio refers to the fraction of total market sales controlled by the largest group of sellers. The inclusion of the market shares of several firms in the concentration ratio rests upon the possibility that large firms will adopt a common price- output policy which may not be very different from the one they would adopt if they were under unified management. But here the difficulty arises that they may not do so. Therefore, a high concentration ratio may be necessary for the exercise of monopoly power but it is not sufficient.

    In an industry, usually there exist some smaller firms and some larger firms in the sense that smaller firms have relatively smaller shares in total industry sales (or profits or assets), and the larger firms have relatively larger shares. That is, sales (or profits or assets) may be more concentrated in a few firms of the industry, or such concentration may be less. Now, the size of the largest firms’ share in total industry sales, etc. is known as the concentration ratio.

    For example, if we consider sales as the criterion, then the n largest firms’ share in total industry sales is called an n-firm concentration ratio which is denoted by CRn. Usually, the four-firm and eight-firm concentration ratios denoted by CR4 and CR8, are used as a measure of monopoly power.

    The concentration ratio may act as a measure of monopoly power because, in a competi­tive industry, sales are more evenly distributed among firms—concentration of sales is more or less absent. On the other hand, in a monopolistic industry, sales tend to concentrate in a few large firms—in the limiting case, sales are concentrated in only one firm when we have the case of a pure monopoly.

    By Profit-Rate:

    J.S. Bain used profit-rate as a measure of monopoly power. By high profits, economists mean returns sufficiently in excess of all opportunity costs which potential new entrants desire for entering the industry. The size of super-normal profits which a firm is able to earn is an indication of its monopoly power. In perfect competition, a firm earns only normal profits. In a monopoly, new entrants will not normally compete away monopoly profits.

    But there will be some level of profits at which new firms will find it worth taking the risk of trying to break the monopoly. The stronger the monopolist’s position, the greater the profits he will be able to earn without attracting new rivals. In short, it is said that neither concentration ratio nor profit-rate is ideal measures of the degree of monopoly power, both are of some value nor both are widely used.

    By Lerner’s:

    It is the oldest measure and is based on the difference between the price charged by the monopolist and his marginal cost. Bober gives the formula 1/E. Thus, the degree of monopoly power varies inversely with the elasticity of demand for the commodity.

    However, the more commonly used formula is:

    Degree of monopoly power = (P-MC) / P

    Where P is the price charged by the monopolist and MC his marginal cost.

    In perfect competition,

    P = MC and the formula (P-MC)/P gives zero answers indicating no monopoly power. If the monopolized product is a free good, MC = 0 and the formula registers unity. The index of monopoly power thus varies from zero to unity. Since monopolized goods are seldom free, monopoly power is seldom as high as unity.

    This method is not free from defects as:

    • Firstly it does not measure non-price competition. Secondly, monopoly power is shown itself not only in high price but also in output restriction. The output may be restricted by under-utilization of capacity already in existence or by restricting new entry.
    • Lerner’s method throws no light on these aspects of monopoly power.

  • What is the top Objectives and Characteristics of Budget Control?

    Budget, Budgeting, and Budgetary Control: A budget is a blueprint of a plan expressed in quantitative terms. Budgeting is the technique for formulating budgets. Budgetary control, on the other hand, refers to the principles, procedures, and practices of achieving given objectives through budgets. So, what is the question we are going to discuss; What is the top Objectives and Characteristics of Budget Control?… Read in Hindi.

    Here are explained; Meaning, Definition, Nature, Objectives, and Characteristics of Budget Control.

    The word is given in Upper “Budget, Budgeting and Budgetary Control” Rowland and William have differentiated the three terms as: “Budgets are the individual objectives of a department, etc., whereas Budgeting may be said to be the act of building budgets. Budgetary control embraces all and in addition, includes the science of planning the budgets to effect an overall management tool for the business planning and control”.

    Meaning and Nature:

    Budgetary or Budget control is the process of determining various budgeted figures for the enterprises for the future period and then comparing the budgeted figures with the actual performance for calculating variances if any. First of all, budgets are prepared and then the actual results are recorded. The comparison of budgeted and actual figures will enable the management to find out discrepancies and take remedial measures at a proper time.

    The budgetary control is a continuous process which helps in planning and coordination. It provides a method of control too. A budget is a means and budgetary control is the end result.

    Definition:

    According to Brown and Howard,

    “Budgetary control is a system of controlling costs which includes the preparation of budgets. Coordinating the department and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.” Wheldon characterizes budgetary control as ‘planning in advance of the various functions of a business so that the business as a whole is controlled’.

    J. Batty defines it as,

    “A system which uses budgets as a means of planning and controlling all aspects of producing and/or selling commodities and services.” Welch relates budgetary control with-day-to-day control process. According to him, ‘Budgetary control involves the use of budget and budgetary reports, throughout the period to coordinate, evaluate and control day-to-day operations in accordance with the goals specified by the budget’.

    From the above-given definitions it is clear that budgetary control involves the following:

    • The objects are set by preparing budgets.
    • The business is divided into various responsibility centers for preparing various budgets.
    • The actual figures are recorded.
    • The budgeted and actual figures are compared for studying the performance of different cost centers.
    • If actual performance is less than the budgeted norms, remedial action is taken immediately.

    Top three Objectives of Budget Control:

    The following points highlight the top three objectives of Budgetary control or Budget control. The objectives are:

    • Planning.
    • Co-Ordination, and.
    • Control.

    Now, explain;

    Planning:

    A budget is a plan of the policy to be pursued during the defined period of time to attain a given objective. The budgetary control will force management at all levels to plan in time all the activities to be done during future periods. A budget as a plan of action achieves the following purposes:

    • The action is guided by the well thought out plan because a budget is prepared after a careful study and research.
    • The budget serves as a mechanism through which management’s objectives and policies are affected.
    • It is a bridge through which communication is established between the top management and the operatives who are to implement the policies of the top management.
    • The most profitable course of action is selected from the various available alternatives.
    • A budget is a complete formulation of the policy of the undertaking to be pursued for the purpose of attaining a given objective.
    Co-Ordination:

    The budgetary control co-ordinates the various activities of the firm and secures co-operation of all concerned so that the common objective of the firm may be successfully achieved. It forces executives to think and think as a group. It coordinates the broader economic trends and the economic position of an undertaking. It is also helpful in coordinating the policies, plans, and actions. An organization without a budgetary control is like a ship sailing in a chartered sea. A budget gives direction to the business and imparts meaning and significance to its achievement by making the comparison of actual performance and budgeted performance.

    Control:

    Control consists of the action necessary to ensure that the performance of the organization conforms to the plans and objectives. Control of performance is possible with pre­determined standards which are laid down in a budget. Thus, budgetary control makes control possible by continuous comparison of actual performance with that of the budget so as to report the variations from the budget to the management of corrective action. Thus, the budgeting system integrates key managerial functions as it links top management’s planning function with the control function performed at all levels in the managerial hierarchy.

    But the efficiency of the budget as a planning and control device depends upon the activity in which it is being used. A more accurate budget can be developed for those activities where a direct relationship exists between inputs and outputs. The relationship between inputs and outputs becomes the basis for developing budgets and exercising control.

    The main objectives are stated below:

    • To determine business policies for the attainment of desired objectives during a particular period of time. It provides definite targets of performance and gives the guidance for the execution of activities and effort.
    • To ensures planning for future by setting up various budgets. The requirements and expected performance of the enterprise are anticipated.
    • To co-ordinate the activities of different departments.
    • To operate various cost centers and departments with efficiency and economy.
    • Elimination of wastes and increase in profitability.
    • To co-ordinate the activities and efforts of different departments in the enterprise so that the policies are successfully implemented.
    • To regulate the activities and efforts of people to ensure that the actual results conform to the planned results.
    • To operate various cost centers and departments with efficiency and economy.
    • To correct the deviations from the established standards, and to provide a basis for revision of policies.

    The Characteristics of Budget Control:

    The above definitions reveal the following characteristics of budgetary control:

    • Budgetary control presumes that management has made budgets for all departments/units of the enterprise and these budgets are summarised into a master budget.
    • Budgetary control needs the recording of the actual performance, its continuous comparison with the budgeted performance, and the analysis of variations in terms of causes and responsibility.
    • Budgetary control is a system suggesting suitable corrective action to prevent deviations in the future.

    The Characteristics of Good Budgeting:

    The following characteristics below are:

    • A good budgeting system should involve persons at different levels while preparing the budgets. The subordinates should not feel any imposition on them.
    • Budgetary control assumes the existence of forecasts and plans of the business enterprise.
    • There should be a proper fixation of authority and responsibility. The delegation of authority should be done in a proper way.
    • The targets of the budgets should be realistic, if the targets are difficult to be achieved then they will not enthuse the persons concerned.
    • A good system of accounting is also essential to make the budgeting successful.
    • The budgeting system should have whole-hearted support of the top management.
    • The employees should be imparted budgeting education. There should be meetings and discussions and the targets should be explained to the employees concerned.
    • A proper reporting system should be introduced, the actual results should be promptly reported so that performance appraisal is undertaken.
  • Capitalism: Meaning, Definition, Characteristics, Features, Merits, and Demerits

    Capitalism: Meaning, Definition, Characteristics, Features, Merits, and Demerits

    What does mean Capitalism? Capitalism is an economic system based on the private ownership of the means of production and their operation for profit. Capitalism is an economic system where private entities own the factors of production. The four factors are entrepreneurship, capital goods, natural resources, and labor. So, what is the topic we are going to discuss; Capitalism: Meaning, Definition, Characteristics, Features, Merits, and Demerits…Read in Hindi.

    Here are explained What is Capitalism? First Meaning, Definition, Characteristics, Features, Merits, and finally their Demerits.

    The owners of capital goods, natural resources, and entrepreneurship exercise control through companies. Capitalism is ‘A system of economic enterprise based on market exchange’. The Concise Oxford Dictionary of Sociology (1994) defines it as ‘a system of wage-labor and commodity production for sale, exchange, and profit, rather than for the immediate need of the producers’.

    ‘Capital refers to wealth or money used to invest in a market with the hope of achieving a profit’. It is an economic system in which the means of production are largely in private hands and the main incentive for economic activity is the accumu­lation of profits. From the perspective developed by Karl Marx, capitalism organizes around the concept of CAPITOL implying the ownership and control of the means of production by those who employ workers to produce goods and services in exchange for wages.

    Max Weber, on the other hand, considered market exchange as the defining characteristic of capitalism. In practice, capitalist systems vary in the degree to which private ownership and economic activity are regulated by the government. It has assumed various forms in indus­trial societies. In common parlance, these days, capitalism knows as a market economy. The goods sold and the prices they are sold at determines by the people who buy them and the people who sell them.

    In such a system, all people are free to buy, sell and make a profit if they can. This is why capitalism often calls a free market system. It gives freedom to entrepreneurs (of the opening industry), to the worker (of selling labor), to the trader (of buying and selling goods), and to the individual (of buying and consuming).

    Meaning of Capitalism:

    Under capitalism, all farms, factories and other means of production are the property of private individuals and firms. They are free to use them to make a profit. The desire to earn a profit is the sole consideration with the property owners in the use of their property. Under capitalism, everybody is free to take up any line of production he wishes and is free to enter into any contract to earn the profit.

    Definition of Capitalism:

    In the words of Prof. LOUCKS,

    “Capitalism is a system of economic organization featured by the private ownership and the use for private profit of man-made and nature-made capital.”

    Ferguson and Kreps have written that,

    “In its own pure form, free enterprise capitalism is a system in which privately owned and economic decision are privately made”.

    Prof. R. T. Bye has defined capitalism as,

    “That system of economic organization in which free enterprise, competition and private ownership of property generally prevail.”

    Capitalism from Mc Connell view is,

    “A free market or capitalist economy may be characterized as an automatic self-regulating system motivated by the self-interest of individuals and regulated by competition.”

    A capitalist economy works through the Price System.

    Prices perform two functions:

    • A rationing function,
    • An incentive function.

    Prices ration out the available goods and services among buyers according to the amounts each buyer wants and can pay for others whose desire is less urgent or whose income is smaller will receive smaller qualities. Prices also provide an incentive for firms to produce more. Where demand is high prices will rise encouraging firms already in the industry to produce more and drawing new firms into the industry. Where demand is falling, prices will normally fall too. Firms will reduce their production, releasing resources for use in other industries where there is a demand for them. Firms are buyers as well as sellers.

    They buy materials and supplies from other firms behaving exactly as private individuals do in deciding what to buy and how much to buy. If a new machine promises to reduce production costs or if a certain material can substitute for another at saving, the firm will buy low-cost resources to compete with other firms. The economy is tied together by millions of those interactions linking producers with one another and with consumers, linking one product with other products and linking every market with other markets. The point is that all the economic units in an economy inter-relates.

    The Characteristics of Capitalism:

    Capitalism involves new attitudes and institutions—entrepreneurs engaged in the sustained, systematic pursuit of profit, the market acted as the key mechanism of productive life, and goods, services, and labor become commodities whose use was determined by rational calculation.

    The main characteristics of the capitalistic organization in its ‘pure’ form may briefly describe as under:

    • Private ownership and control of the economic instruments of production, i.e., CAPITOL.
    • The gearing of economic activity to making profits—maximization of profits.
    • Free market economy—a market framework that regulates this activity.
    • The appropriation of profits by the owners of capital. It is the income derived by the capitalist from selling in the market.
    • The provision of wage labor, which creates by converting labor-power into a commodity. It is this process that produces the working class and inherently hostile relationships in capitalist society workers (proletariat) versus capitalist, employee versus the employer.
    • Business firms privately own and compete with each other to sell their goods to consumers.
    • Commercialization of agricultural and industrial production.
    • Development of new economic groups and expanding across the globe.
    • Capital accumulation by the capitalists as an obligatory activity, for unless there is capital to invest, the system will fail. Profits produce capital when they are re-invested.
    • Investment and growth are accomplished by using accumulated capital to expand an enterprise or create a new one. Capitalism, thus, is an economic system that requires constant investment and constant economic growth.

    What has impressed students of modernity is the huge and largely unreg­ulated dominance of capitalist enterprise across political and religious control with it’s related monetary and market networks.

    The Features of Capitalism:

    What a capitalistic economy is a can knows through its main features. These derive from the way certain functions perform and the main decisions of the economy execute.

    These may be stated as under:

    Private Property and Freedom of ownership:

    A capitalist economy is always having the institution of private property. An individual can accumulate property and use it according to his will. The government protects the right to property. After the death of every person, his property goes to his successors.

    The right of Private Property:

    The most important feature of capitalism is the existence of private property and the system of inheritance. Everybody has a right to acquire private property to keep it and after his death, to pass it on to his heirs.

    Price Mechanism:

    This type of economy has a freely working price mechanism to guide consumers. Price mechanism means the free working of the supply and demand forces without any intervention. Producers are also helped by the price mechanism in deciding what to produce, how much to produce, when to produce and where to produce.

    This mechanism brings about the adjustment of supply to demand. All economic processes of consumption, production, exchange, distribution, saving and investment work according to its directions. Therefore, Adam Smith has called the price mechanism as the “Invisible Hand” which operates the capitalist.

    Profit Motive:

    In this economy, the desire to earn a profit is the most important inducement for economic activity. All entrepreneurs try to start those industries or occupations in which they hope to earn the highest profit. Such industries expect to go under a loss abandoned. Profit is such an inducement that the entrepreneur prepares to undertake high risk. Therefore, it can say that the Profit Motive is the SOUL of the capitalist economy.

    Competition and Co-operation Goes Side by Side:

    A capitalist economy characterizes by free competition because entrepreneurs compete for getting the highest profit. On the other side buyers also compete for purchasing goods and services. Workers compete among themselves as well as with machines for taking up a particular work. To produce goods of the required type and quality workers and machines are made to co-operate so that the production line runs according to schedule. In this way, competition and co-operation go side by side.

    Role of the Entrepreneur:

    The entrepreneurial class is the foundation of the capitalist economy. The whole of the economic structure of the capitalist economy base on this class. Entrepreneurs play the role of leaders in different fields of production. The presence of good entrepreneurs is a must for healthy competition. Entrepreneurs are the main sources of the dynamism of the capitalist economy.

    Main Role of Joint Stock Companies:

    In a joint-stock company, business carries on by a board of directors which democratically elects by the shareholders of the company at its general body meeting. Because of this, it has said that Joint-stock Companies “Democratic Capitalism”. However, the real functioning of the corporate sector is not democratic because there is a one-share-one vote election. Since big business houses own a majority of the shares of a company, they manage to get re-elected and the company is run as if it were their family business.

    Freedom of Enterprise, Occupation, and Control:

    Every person is free to start any enterprise of his choice. People can follow the occupations of their ability and taste. Moreover, there is the freedom of entering into the contract. Employers may contract with trade unions, suppliers with a firm and one firm with another.

    Consumer’s Sovereignty:

    In a capitalist economy, a consumer compares to a sovereign king. The whole production frameworks according to his directions. Consumer’s tastes govern the whole production line because entrepreneurs have to sell their products. If a particular type of production is to the liking of consumers, the producer gets high profits.

    It arises Class Conflict:

    From this class-conflict arises. The society is normally divided into two classes the “haves” and the “have-not’s”, which are constantly at war with each other. The conflict between labor and capital is found in almost all capitalistic countries and there seems to be no neat solution to this problem. It seems that this class-conflict is inherent in capitalism.

    Historical Development of Capitalism:

    Historically, modem capitalism has mainly developed and expanded in Great Britain and the United States. Early industrial capitalism in Great Britain and the United States in the 19th century is regarded as the classical model that approximates the pure form most closely. Modern (industrial) capitalism differs fundamentally from pre-existing production systems because it involves the constant expansion of production and ever-increasing accumu­lation of wealth.

    In traditional production systems, levels of production were fairly static since they were geared to habitual, customary needs. Capitalism promotes the constant revision of the technology of production. The impact of science and technology stretches beyond the economic sphere. Scientific and technological development, such as radio, television, computers and other electronic media, have also come to shape how we live, how we think and feel about the world. In the face of these developments, traditional debates between the advocates of free-market capitalism, and state socialism have become more or less outdated or are becoming outdated.

    As we have moved into a ‘postmodern’ world (information society) from the 18th and 19th-century modern society, some philosophers like Francis Fukuyama predicated about the ‘end of history’—meaning that there are no future alternatives to capitalism and liberal democracy. Capitalism has won in its long struggle with socialism, contrary to Marx’s prediction and liberal democracy now stands unchallenged.

    Capitalism Meaning Definition Characteristics Features Merits and Demerits
    Capitalism: Meaning, Definition, Characteristics, Features, Merits, and Demerits.

    The advantages or Merits of Capitalism:

    The main merits and advantages of capitalism are as follows:

    Production According to the Needs and Wishes of Consumers: 

    In a free-market economy, consumer needs and wishes are the uppermost in the minds of the producers. They try to produce goods according to the tastes and liking of the consumers. This leads to the maximum satisfaction of the consumers as obtained from his expenditure on the needed goods.

    Higher Rate of Capital Formation and More Economic Growth: 

    People under capitalism have the right to hold property and pass it on an inheritance to their heirs and successors. Owing to this right, people save a part of their income so that it can invest to earn more income and leave the larger property for their heirs. The rate of Capital formation increases when savings invest. This accelerates economic growth.

    Efficient Production of Goods and Services: 

    Due to the competition, every entrepreneur tries to produce goods at the lowest cost and of a durable nature. Entrepreneurs also try to find out superior techniques of producing the goods consumers get the highest quality goods at the least possible cost because the producers are always busy in making their production methods more and more efficient.

    Varieties of Consumer Goods: 

    Competition is not only in price but also in the shape design, colors, and packing of products. Consumers, therefore, get a good deal of variety of the same product. They need not give limited choices. It says that variety is the spice of life. The free market economy offers a variety of consumer goods.

    In Capitalism there is no Need for Inducement or Punishment for Good and Bad Production:

    A capitalist economy encourages efficient producers. The able an entrepreneur is, the higher is the profit he obtains. There is no need to provide any kind of inducement. The price mechanism punishes the inefficient and rewards the efficient on its own.

    It Encourages Entrepreneurs to Take Risks and Adopt Bold Policies: 

    Because taking the risk they can make higher profits. Higher the risk, the greater the profit. They also make innovations to cut their costs and maximize their profits. Hence capitalism brings about great technological progress in the country.

    The disadvantages or Demerits of Capitalism:

    The capitalist economy has been showing signs of stress and strain at different times. Some have called for a radical reform of the free-market economy. Others like Marx have considered the capitalist economy to be contradictory in itself. They have predicted the ultimate doom of the capitalist economy after a series of deepening crisis.

    The main demerits or disadvantages of the capitalist economy are as follows:

    Inequality of Distribution of Wealth and Income: 

    The system of private property acts as a means of increasing inequalities of income among different classes. Money begets money. Those who have wealth can obtain resources and start big enterprises. The propertyless classes have only their labor to offer. Profits and rents fewer classes have only their labor to offer. Profits and rents are high.

    Wages are much lower. Thus the property holders obtain a major share of national income. The common masses have their wages to depend upon. Although their number is overwhelming their share of income is relatively much lower.

    Class Struggle as Inevitable in Capitalist Economy: 

    Some critics of capitalism consider class struggle as inevitable in a capitalist economy. Marxists point out that there are two main classes into which the capitalist society divide. The ‘haves’ in which the rich property class owns the means of production. The “have not’s” which constitute the wage-earning people have no property.

    The ‘haves’ are few. The ‘have not’s are in the majority. There is a tendency on the part of the capitalist class to exploit the wage-earners. As a result, there is a conflict between the employers and the employees which leads to labor unrest. Strikes, lockouts and other points of tension. All these have a very bad effect on production and employment.

    Social Costs are Very High:

    A capitalist economy industrializes and develops but the social costs of the same are very heavy. Factory owners running after private profit do not care for the people affected by their production. The environment pollutes because factory wastes not properly dispose of. Housing for factory labor very rarely provides the result that slums grow around big cities.

    Instability of the Capital Economy: 

    A capitalist economy is inherently unstable. There is a recurring business cycle. Sometimes there is a slump in economic activity. Prices fall, factories close down, workers render un-employe. At other times the business is brisk, prices rise, fast, there is a good deal of speculative activity. These alternating periods of recession and boom lead to a good deal of wastage of resources.

    Unemployment and Under-employment: 

    A capitalist economy has always some unemployment because the market mechanism is slow to adjust to the changing conditions. Business fluctuations also result in a large part of the labor force going unemployed during depressions. Not only this, workers are not able to get full-time employment except under boom conditions.

    Working Class does not have Adequate Social Security: 

    In a capitalist economy, the working class does not have adequate social security, commodity, the factory owners do not provide for any pension, accident benefits or relief to the families of those who die in employment. As a result, widows, and children have to undergo a good deal of suffering. Governments are not in a position to provide for adequate social security in overpopulated less developed countries.