Ansoff Matrix

Ansoff Matrix

The Ansoff Growth Matrix is a marketing planning tool to determine the product and market growth strategy of a business.

The matrix consists four growth strategies:-

1. Market Penetration:

It is a growth strategy where a business focuses on selling existing products into existing markets.

2. Market Development:

It is a growth strategy where a business seeks to sell it's existing products into new markets.

3. Product Development:

It is a growth strategy where a business introduces new products into existing market.

4. Diversification:

It is a growth strategy where a business sells new products in new markets.

The first three strategies follows the same technical, financial and merchandising resources used for the original product line but the diversification normally requires a company to acquire new skills, new techniques and new facilities. Hence the diversification strategy  is more risky because the business moves into a new markets and product but the company has lack of knowledge about new market and product.

Monetary and Fiscal Policies (2066Q5): Explain precisely the concepts of money supply, high powered money and money multiplier and also identify the determinants of money supply.

Money Supply

Money Supply or Money Stock is the total amount of monetary assets available in an economy at a specific time. Money supply data are recorded and published, usually by the government or the central bank of the country. Public and private sector analysts have long monitored changes in money supply because of its effects on the price level, inflation, the exchange rate and the business cycle.

High Powered Money

In the context of supply of money, the concept of high powered money is more prevalent in modern time. In the context of purchasing power of money, there are two types of money.

1.     High Powered Money

2.     Low Powered Money

High Powered Money indicates the purchasing power of supply of money. The total purchasing power of people depends on the growth rate and quantity of total supply of money.

The increase in volume of money creates purchasing power in more or less degree. The increase in supply of money that generates more purchasing power is called high powered money. Financial institutions should take high powered money into consideration to schedule stability in the country along with development.

Money supply = (Monetary base) x (Money multiplier)

Money Multiplier

The money multiplier (also called the credit multiplier or the deposit multiplier) is a measure of the extent to which the creation of money in the banking system causes the growth in the Money Supply to exceed growth in the Monetary Base.

The multiplier is the multiple by the expansion in the money supply is greater than the increase in the monetary base: if the multiplier is 10, then a Rs. 1 increase in the monetary base will cause a Rs. 10 increase in the money supply.

Determinants of Money Supply

Main determinants of the supply of money are

1.   Monetary base
2.  Monetary multiplier

These two broad determinants of money supply are influenced by a number of other factors. Various factors influencing the money supply are:-

1. Monetary Base
2.  Money Multiplier
3.  Reserve Ratio
4.  Currency Ratio
5.  Confidence in Bank Money
6. Time-Deposit Ratio
7. Value of Money
8.  Real Income
9. Interest Rate
10. Monetary Policy
11.   Seasonal Factors

Macroeconomics (2066Q2): What is national income? How it is measured? Explain the reasons for its underestimation in developing countries like Nepal.

National Income

National income is defined as the total value of all the goods and services produced within a country plus income coming from abroad in a particular time period usually 1 year.

Measurement of National Income

National income is measured through 3 methods:-

1.     Income Approach
2.    Expenditure Approach
3.    Production Approach

The reasons for its underestimation in developing countries like Nepal

1.     Political instability

2.     Govt. is enjoying Remittance, so hasn't serious about the National Income

3.     Export/Import businessmen are just interested in import goods than export the national products.

4.     National products needs a lot of efforts by the Govt., businessman and producers in order to make it competitive in international market. So, it needs high investment which is difficult to have in Nepal

Macroeconomics (2066Q1): What is inflation? What are the costs of inflation? How the inflation in Nepal can be controlled with monetary and fiscal policy instruments?

Monetary policy instruments

The monetary policy is the manipulation of monetary aggregates or interest rates for the purpose of achieving the macroeconomic objectives of full employment and stable prices.

The monetary policy is also the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.

• ·        Decrease aggregate demand in the economy
• ·        Decrease  in cost of production
• ·        Decrease in money supply

Fiscal policy instruments

The fiscal policy is government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact variables in the economy including aggregate demand and real GDP.

·        Increase govt. expenditure

·        Decrease taxation

Economics

Public Sector Net Cash Requirement (PSNCR) 

PSNCR is formerly known as Public Sector Borrowing Requirement (PSBR). The PSNCR is the difference between the expenditure of the public sector and its income.

Real business cycle theory (RBC theory)

Real business cycle theory (RBC theory) are a class of macroeconomic models in which business cycle fluctuations to a large extent can be accounted for by real shocks. RBC theory sees recessions and periods of economic growth as the efficient response to exogenous changes in the real economic environment. So, the level of national output necessarily maximizes expected utility, and government should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.

Monopsony 

In economics, a monopsony is a market form in which only one buyer faces many sellers.

Microeconomics (2067Q1): Describe about various degree of price discrimination. Why is the price of a commodity in the competitive world market lower than in the domestic market?

Price Discrimination

• Price discrimination is selling the same good for different prices to different consumers in order to increase profit.
• Price discrimination is the practice of charging a different price for the same good or service. There are three of types of price discrimination – first-degree, second-degree, and third-degree price discrimination.

Degree of Price Discrimination

There are 3 types of degree of price discrimination.

1. First degree price discrimination

• Charges maximum price that each individual buyer is willing to pay. 
• First-degree discrimination, alternatively known as perfect price discrimination, occurs when a firm charges a different price for every unit consumed.
• The firm is able to charge the maximum possible price for each unit which enables the firm to capture all available consumer surplus for itself. In practice, first-degree discrimination is rare.

2. Second degree price discrimination

• Second-degree price discrimination means charging a different price for different quantities, such as quantity discounts for bulk purchases
• Buyer who buys a large quantity of goods are charged low price rate and buyers who buys a little quantity of goods are charged high price rate for the same product.

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3. Third degree price discrimination

• Third-degree price discrimination means charging a different price to different consumer groups. For example, rail and tube travelers can be subdivided into commuter and casual travelers, and cinema goers can be subdivide into adults and children. Splitting the market into peak and off peak use is very common and occurs with gas, electricity, and telephone supply, as well as gym membership and parking charges. 
• Third-degree discrimination is the commonest type.
• Different classes of buyers are charged different prices for the same product. Eg: price discriminates according to the location, profession of the buyers, discount offered members etc.

Necessary conditions for successful discrimination

Price discrimination can only occur if certain conditions are met.

1. The firm must be able to identify different market segments, such as domestic users and industrial users.
2. Different segments must have different price elasticities.
3. Markets must be kept separate, either by time, physical distance and nature of use, such as Microsoft Office ‘Schools’ edition which is only available to educational institutions, at a lower price.
4. There must be no seepage between the two markets, which means that a consumer cannot purchase at the low price in the elastic sub-market, and then re-sell to other consumers in the inelastic sub-market, at a higher price.
5. The firm must have some degree of monopoly power.

Diagram for price discrimination

If we assume marginal cost (MC) is constant across all markets, whether or not the market is divided, it will equal average total cost (ATC). Profit maximization will occur at the price and output where MC = MR. If the market can be separated, the price and output in the inelastic sub-market will be P and Q and P1 and Q1 in the elastic sub-market.

When the markets are separated, profits will be the area MC, P,X,Y + MC1,P1,X1,Y1. If the market cannot be separated, and the two submarkets are combined, profits will be the area MC2,P2,X2,Y2.

If the profit from separating the sub-markets is greater than for combining the sub-markets, then the rational profit maximizing monopolist will price discriminate.

Market separation and elasticity

Discrimination is only worth undertaking if the profit from separating the markets is greater than from keeping the markets combined, and this will depend upon the elasticities of demand in the sub-markets. Consumers in the inelastic sub-market will be charged the higher price, and those in the elastic sub-market will be charged the lower price.

Price of a commodity in the competitive world market lower than in the domestic market

Reasons:-

1. Perfect competition in world market lowers  the price of a commodity.
2. High research and technology is used for mass production curtails the price of a commodity.
3. Huge production and large market of the commodity makes down the price of a commodity.

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Microeconomics (2068Q3): How do prices of (i) goods and services, (ii) labour, (iii) capital, (iv) entrepreneurship, and (v) foreign exchange interact with each other? Inter-relate it.

The factors of production such as labour, capital and entrepreneurship resources are inputs to produce output goods and services. The changes on foreign exchange impacts to goods and services, labour, capital and entrepreneurship resources too.

i. Goods and services:

Goods and services are the output of production of any firm. The ideal combination of inputs like as land (fixed input) and variable inputs (labour, capital, entrepreneurship) can product optimum output. So, the efficient production of goods and services are highly dependent of factors of production.

If market prices rise, incentives are created for producers to supply more to the consumers. If prices fall, there are incentives to produce less. Similarly, with consumers, high prices create incentives to buy less, while low prices create incentives to buy more.

ii. Labour:

It is one of an important production factor. Skillful labour are needed to maximize the production. The skills, knowledge and talents of people can be improved or made more productive through education and training. Labour is directed proportional to output as well as cost of production. So, optimum number of labours should used for production.

iii. Capital:

Capital consists of tools, equipment, machines and buildings that producers use to produce something else. High capital leads high production and less need of labours.

iv. Entrepreneurship:

Well combination of entrepreneurship in business improve in high production in low cost.

v. Foreign exchange:

Besides among factor, foreign exchange also impacts on cost of output and production cost of any goods and services. If native currency is cheaper then cost of production will low and vice versa. Hence if cost of production is lower, then market price of goods and services will also low that means the goods can compete in the global market.

Microeconomics (2068Q2): On the basis of your understanding why private transporters syndication / controlling is thriving in Nepal?

Background

Over the last decade, the syndication has emerged as the one of the most problem in domestic transport system affecting the private sectors and consumers. This syndicate lobby is such a powerful that it has knocked down each and every attempts of government to abolish the anti-competitive practices. The private transporters syndicate association has control prices, keep big price margins, have greater authority and claim big piece of the pie in the market. In a free competitive market, syndicates are illegal and lethal (घातक). Moreover, in Nepal, Competition and Market Protection Act 2063 recognizes that syndication as an anti-competitive practice, defining it as illegal and punishable.

Reasons that private transporters syndication / controlling is thriving in Nepal

1. The government can't forcefully implement our laws and practices upon the private transporters syndication.
2.  The government hasn't any measures to counterpart the syndication of private transporters by transporting petroleum and LP gas by govt. and other party's tanks.
3. The government can't pierce the powerful nexus of private transporters syndicate and private transporters syndicate is also back supported by some politicians.

Possible efforts to solve syndication:

1. Government first should make alternative of private transportation of petroleum and LP gas. Then government must present strongly with private transporter to draw them into law and order.
2. Politician shouldn't look after their personal/organization benefits. They must be aware upon the citizens problem and the national problems.
3. Consumers and the associations of consumers should alert, aware and consolidate upon these issues and should fight against the syndication by boycotting their petroleum products.