Principles of Economics and Management

(PEM)
GTU # 3140709

Unit-3
Markets and
National Income

Prof. Vijay M. Shekhat

Computer Engineering Department
Darshan Institute of Engineering & Technology, Rajkot
Vijay.shekhat@Darshan.ac.in
9558045778
 Looping
Outline
• Markets
• Meaning
• Types of Market and their Characteristics
• Perfect Competition
• Monopoly
• Monopolistic Completion
• Oligopoly
• National Income
• Meaning
• Stock and Flow Concept
• NI at Current Price and Constant Price
• GNP, GDP, NNP, NDP
• Personal and Disposal Income
Markets
Introduction to Market
 Market is a means by which the exchange of goods and services takes place as a result of
buyers and sellers being in contact with one another.
 Contact can be directly or through intermediating agents.
 Now a day market has become online also.

Source: http://www.10best.com

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 4
Definition (Meaning) of Market
Prof. R. Chapman (1922-2004) defined
“The term market refers not necessarily to a place but always to a commodity and
the buyer, and seller who are in direct competition with one another.”

Prof. Benham (1831-1910) defined

“A market means any area over which buyers and sellers are in close touch with
one another, either directly or through dealers that the price obtainable in one part
of the market on the prices paid on the other parts.”

Philip Kotler (Born in 1931) defined

“Market means a combination of actual and potential (probable) users.”

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 5
Types of Market

Perfect
Monopoly
Competition

Market
Types

Monopolistic
Oligopoly
Competition

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 6
1. Perfect Competition Market
 Market with large number of buyers and sellers.
 The individual buyer or seller cannot influence the price.
 The quantity picked up by individual buyers is negligible hence he is not in a position to
dictate his terms.
 The quantity supplied by individual seller is negligible hence he is not in a position to dictate
his terms.
 This market is considered to be unrealistic but it is still of special interest for imaginary and
theoretical reasons.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 7
Characteristics of Perfect Competition Market
 Large number of buyers and sellers.
 No barriers for entry.
 Perfect mobility for factors of production allows free long term adjustment to changing
market condition.
 Perfect knowledge of price, utility, quality and production methods to buyers and sellers.
 Zero transaction cost in making an exchange of goods.
 Homogeneous products.
 Non-increasing returns to scale.
 Property rights determine what may be sold and what are the rights of a buyer.
 Rational buyers who are capable to make reasonable purchases.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 8
2. Monopoly Market
 The term monopoly is a combination of two Greek terms, mono means single and poly
means seller.
 Monopoly refers to a market with a single seller.
 Seller has full power to set prices So he is price maker and not price taker.
 Buyers are in a weaker bargaining position in a monopoly market.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 9
Characteristics of Monopoly Market
 Single seller in a market.
 No substitutes so buyers have to buy from the seller only.
 High entry barriers for other sellers.
 Seller is Price Maker.
 Price Discrimination happens when a firm charges a different price to different groups of
buyers for an identical good or service.
 E.g. 10% discount for students.
 Generation of super normal profit.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 10
3. Monopolistic Market
 The perfect competition and the monopoly are the extreme state of market structure which is
unrealistic in real world.
 Monopolistic market is formed by a high number of firms.
 Each seller will be considered as a monopoly due to differentiation in product.
 But the whole market is considered as competitive because the degree of differentiation is not
high.
 E.g.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 11
Characteristics of Monopolistic Competition Market
 Large number of buyers.
 Large number of sellers, but less than the perfect competition.
 Product differentiation, where the concept of the homogeneous products of perfect
competition is changed to close substitutes.
 Less entry barrier.
 Need of Huge advertisement budget otherwise close substitute will replace market.
 Price sensitive as it is highly elastic, where minor change in price will divert the buyer to
other substitute.
 Concept of group or chain in which a minor union may formed through group companies, or
chain shops, or franchises etc.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 12
4. Oligopoly (ઓલીગોપોલી) Market
 Total market demand is shared among few giant sellers.
 E.g.
 Hero, Honda, Bajaj, yamaha in two wheeler market.
 Each seller enjoys a defined market share in the total demand.
 Seller has power to set prices so he is price maker and not price taker.
 One seller enjoying huge market share, is termed as market leader.
 If there are only two sellers, it is a special case of oligopoly known as Duopoly.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 13
Characteristics of Oligopoly Market
 Number of firms are few.
 Interdependence where the action of one firm can affect the action of the other firms.
 Profit maximization.
 price maker.
 Entry barriers are high.
 E.g. Government licenses, patents, access to expensive and complex technology, and strategic actions by
current firms designed to discourage or destroy emerging firms.
 Long run profit: High barriers of entry prevent sideline firms from entering market to capture
excess profits.
 Product differentiation: Product may be homogeneous (steel) or differentiated (automobiles).
 Perfect knowledge: Have perfect knowledge of their own cost and demand functions but their
inter-firm information may be incomplete.
 Non-Price Competition: Competition done based on quality or features.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 14
National Income
National Income (NI)

Source: http://iasdreamz.com
INR INDIA GROSS NATIONAL INCOME
Billion
160000
140000
120000
100000
80000
60000
40000
20000
0
2013 2014 2015 2016 2017 2018 2019 2020

* Data may not be exact

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 16
Definition of National Income
Alfred Marshall (1723-1790) defined
“The labour and capital of country acting on its national resources produce annually
a certain net aggregate of commodities, material and immaterial including services
of all kind. This is the true national income or revenue of the country.”

A. C. Pigou (1877-1959) defined

“The national dividend is that part of the objective income of the public, including
income received from abroad, which can be measured in money.”

C. Rangarajan (Born in 1932) & Bakul Dholakia (Born in 1947) defined

“National income is the aggregate income value of the annual flow of
final goods and services in the national economy.”

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 17
Stock and Flow Concept of NI
 A stock is any quantity which is measured at a single instant in time. E.g. 10 Acres land
 A flow is any quantity which is measured over a period of time. E.g. Income is a flow.
 The amount of orange juice I have right now is a stock.
 The amount of orange juice I drink in a month is a flow.
 Stock is usable for the generation of the flow of income.
 The change in value of stock during the holding period occurs due to following reasons:
 Generation of income will be added to stock for the next period of time.
 Depreciation on fixed assets will reduce value of stock.
 It should be noted that period-end increase in the value of stock arise from the following two
sources:
 Periodic recurring operating income.
 One time capital gain between two points of time.
 E.g. price of land is increase by two lacs in a year.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 18
NI at Current Price
 NI is calculated by using current market price for measurement of factor cost.
 It Includes fluctuation due to inflation.
 It is also known as monetary income.
 It does not give true picture of economic growth.
 In India, NI data compilation is done by Central Statistical Organization (CSO) located in
Delhi.
 Year to year growth rate is calculated as follows:

 Growth rate of net NI at current price for year 2020-2021 is -3%.

 Causes of the changes in the NI at current price are:
 Due to inflation.
 Due to real changes in the final value of goods and services.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 19
NI at Constant Price
 NI is calculated by using some base year’s market price for measurement of factor cost.
 In India current base year is 2011-2012 and before this 2004-2005 was considered as base
year.
 It is not affected due to inflation.
 It is also described as real income.
 It gives true picture of economic growth of a country.
 Growth rate in relation to base year is calculated as follows:

 Growth rate of net NI at constant price for year 2020-2021 is -7.4%.

 Causes of the changes in the NI at constant price are only due to real changes in the final
value of goods and services.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 20
Gross National Product (GNP)
 GNP is the value of all finished goods and services produced in a country in a year by its
nationals.
 GNP is a broad measure of a nation's total economic activity.
 It includes income earned by NRI and companies abroad.
 It does not include income earned by foreigners within the country.
 It Includes manufactured goods and services provided.
 It Includes depreciation and indirect business taxes like sales tax.

 GNP of India in 2020-21 was approximately ` 179.15 lakh crore.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 21
Gross Domestic Products (GDP)
 GDP represents the monetary value of all goods and services produced within a nation's
geographic borders over a specified period of time.
 GDP is the broadest quantitative measure of a nation's total economic activity.

 Consumption: Durable goods, Nondurable goods, Services etc.

Source: www.usatoday.com Source: Source:

 Government Expenditures: Defense, Roads, Schools etc. www.bizbuysell.com www.serviceworld.net.in

Source: http://www.ceetak.com Source: Source: http://mysuperbrain.com

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 –http://meinhardtindia.com
Markets and National Income 22
Cont…
 Investment Spending On: Commercial, Residential, Business inventories etc.

Source: http://www.cgarchitect.com Source: https://stimulrealty.com Source:

http://www.mountainjobs.com
 Net Exports: Exports are added to GDP
 Net Imports: Imports are deducted from GDP
 GDP of India in 2020-21 is approximately ` 135.22 lakh crore.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 23
Net National Product (NNP)
 NNP is the monetary value of finished goods and services produced by a country's citizens,
whether overseas or resident, in the time period being measured.
 Calculated by subtracting depreciation from the gross national product (GNP).

 NNP of India in 2020-21 is approximately ` 1,17,45,872 crore.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 24
Net Domestic Product (NDP)
 NDP is an annual measure of the economic output of a nation that is adjusted to account for
depreciation.
 Calculated by subtracting depreciation from the gross domestic product (GDP).

 NDP of India in 2020-21 is approximately ` 1,18,74,000 crore.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 25
Per Capita Income
 The per capita income indicates a share of every Indian citizen in the total national income.

 Approximate per capita income of year 2020-21 at current price was ` 145680 and at constant
price was ` 99694.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 26
Personal Income (PI) and Disposable Personal Income (DPI)
 PI refers to all the income collectively received by all of the individuals or households in a
country.
 Disposable Income OR Disposable Personal Income (DPI).

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 27
GTU Questions
1. Explain in detail regarding perfect competition and monopoly market.
2. Explain briefly: Price determination in oligopolistic market.
3. Which are the different measures for national income? Discuss briefly.

Prof. Vijay M Shekhat #3140709 (PEM)  Unit 3 – Markets and National Income 28
 Principles of Economics and Management
(PEM)
GTU # 3140709

Thank
You

Prof. Vijay M. Shekhat

Computer Engineering Department
Darshan Institute of Engineering & Technology, Rajkot
Vijay.shekhat@Darshan.ac.in
9558045778