Money and Banking (part – II)

The correctly matched lists are as follows :

Dynamic pricing, also referred to as real-time pricing, is a highly flexible way of setting the cost for a product or ser- vice. Dynamic pricing is a common practice in several industries such as hospitality, tourism, entertainment, retail, electricity, and public transport. In recent years, expansion of electronic markets (abbreviated as e-markets) triggered an increase in the role and importance of efficient pricing mechanism. Current e-markets which are based on auctions or dynamic pricing strategy can be classified as B2C (Business to Customer), C2C (Customer to Customer), B2G (Business to Government), and B2B (Business to Business) markets.

Consumers fix price on their own, which business accept or decline, comes under C2B model. In contrast to the more traditional business-to-consumer (B2C) model, the consumer-to-business (C2B) model allows businesses to ex- tract value from consumers, and vice-versa. In the C2B model, businesses profit from consumers' willingness to name their own price or contribute data or marketing to the company, while consumers profit from flexibility, direct payment, or free or reduced-price products and services.

Classification of markets on the basis of time:

Very Short Period Market: This is when the supply of goods is fixed, and so it cannot be changed instantaneously. Say for example the market for flowers, vegetables, fruits, etc. The prices of goods will depend on demand.

Short Period Market: The market is slightly longer than the previous one. Here the supply can be slightly adjusted.

Long Period Market: Here the supply can be changed easily by scaling production. So it can change according to the demand of the market. So the market will determine its equilibrium price in time.

Very Long Period Market: It is a permanent type of market because goods are produced and supplied according to the changing environment.

The supply-side economics lays greater emphasis on the point of view of producer. The core point of supply-side economics is that production (i.e. the 'supply' of goods and services) is the most important in determining economic growth. It postulates tax cuts for the wealthy result in increased savings and investment capacity for them that trickle down to the overall economy.

When the total product remains constant, the marginal product will be zero. In this situation total product will reach at optimum level.

A consumer is said to be in equilibrium if he is able to fulfil his need with a given level of income. In other words, when a consumer feels that he cannot change his condition either by earning more or by spending more or by changing the quantities of things he buys, then he is said to be in equilibrium. Equilibrium in the marginal utility, from an economic point of view, is derived from money paid and well consumed. As per the law of equi-marginal utility a consumer will be in equilibrium when the ratio of marginal utility of a commodity to its prices equals the ratio of marginal utility of other commodity to its price.

Substitute goods are those goods which can be used with equal ease in place of one another. Demand for a commodity will bear a direct relationship to the price of its substitute commodity. So, demand for a good might increase if the price of its substitute increases. Hence, statement 1 is correct. Complementary goods are those goods whose utility de- pends upon the availability of both the goods together. The demand for a commodity bears an inverse relationship with the price of its complementary goods. The demand for a commodity will decrease if the price of its complementary commodity increases. Hence, statement 2 is incorrect. In the case of inferior goods, an increase in the size of the income leads to a fall in the quantity demanded of these commodities. Hence, statement 3 is incorrect.

Market demand for goods might increase if their price falls because as per 'Law of Demand' there is an inverse relation- ship between the price of a commodity and its quantity demanded. Hence, statement 4 is correct.

Price of the commodity is proportional to demand of the commodity, while supply of the commodity and price of the commodity have inverse relation. Hence, in the context of general market and general goods, if supply of the commodity increases at fixed demand, then price will have decreasing potential.

Rise or fall in prices is caused due to changes in supply and demand. An increase in the money supply increases the demand and thus increases prices. A decrease in the aggregate level of output will reduce supply and thus prices increase again. An increase in effective demand would again raise up the prices. Thus, all three events will raise the prices.