Money and Banking (part – II)

If the supply of money is constant and its demand is increasing there will be an increase in interest rates. It does not have much to do with the level of prices and the increase in the level of income and employment.

Due to price-hike all businessmen make profit and consumers feel disadvantage. Again, due to price-hike, the purchasing power of money is decreased and consumers have to pay more amount of money to purchase same amount of goods and services, that he used to purchase earlier. Hence, both Assertion and Reason are true but Reason is not the correct explanation of Assertion.

When the contribution from sale is expressed as sales value percentage, then it is known as profit volume ratio (P/V ratio ). An improvement in this ratio can be achieved by the selling price increase, by altering sales mixture (concentrating on those products by which highest contribution can be achieved) and by reduction in the variable cost per unit.

For pricing of public goods, the concept of 'Shadow Prices' was given by J. Tinbergen. According to J. Tinbergen, "Shadow prices are prices indicating the intrinsic or true value of a factor or product in the sense of equilibrium prices." A shadow price is an estimated price for something that is not normally priced in the market or sold in the market. These prices reflect true values for factors and products for the calculation or estimation of prices in social cost-benefit analysis.

Among the given options, cars are not included in public goods, while government administration, national defence and roads are public goods.

Opportunity cost represents the benefits and individual, investor or business missed out on when choosing one alternative over another. If a commodity is provided free to the public by the Government (for example-street light, free education), this would always come at a cost of someone (i.e. tax-payers) paying for it. Therefore, in the case of free public utilities, the opportunity cost is transferred from the consumers of the commodity to the tax-paying public.

Trade means buying and selling or the exchange of goods and services between two or more parties in consideration of money on money's worth. It involves the transfer of goods and service from one person or entity to another. Trade represents both the side of demand and supply where both the parties know what is demanded and what is to be supplied.

Commerce is the exchange of goods and services between businesses. Commerce is the trade of goods, services, or other things of value between companies or organizations. It is the subset of business that assists in the removal of all impediments to the facilitation of exchange. Commerce does not relate to the sourcing, manufacturing, or production processes but only to the distribution of goods and ser- vices. It deals with the factors of delivering the products to the consumers.