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In economics, a product that is used to satisfy needs and desires are called goods. There are two types of goods i.e. Normal good and Inferior good.

Normal goods have a direct relation of income and the quantity demanded, it means if the income increases then the demand for the good also increase and vice versa but the price remains constant. For example- if the income of the consumer increases then he would consume more so demand increases and when his income decreases he would consume less which means demand decreases.

Inferior goods have an indirect relation of income and the quatity demanded, it means if the income increases then the demand for the good declines/decreases and vice versa but the price remains constant. An example would be of consumer buying non-branded clothes(which he or she can afford) when he or she has a low income. However, when the consumer receives an increase in terms of income, the consumer will switch into buying more expensive and branded clothes that he or she can afford.

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(i) Bank Rate:

The bank rate, also known as the discount rate, is the rate payable by commercial banks on the loans from or rediscounts of the Central Bank. A change in bank rate affects other market rates of interest. An increase in bank rate leads to an increase in other rates of interest and conversely, a decrease in bank rate results in a fall in other rates of interest.

A deliberate manipulation of the bank rate by the Central Bank to influence the flow of credit created by the commercial banks is known as bank rate policy. It does so by affecting the demand for credit the cost of the credit and the availability of the credit.

An increase in bank rate results in an increase in the cost of credit; this is expected to lead to a contraction in demand for credit. In as much as bank credit is an important component of aggregate money supply in the economy, a contraction in demand for credit consequent on an increase in the cost of credit restricts the total availability of money in the economy, and hence may prove an anti-inflationary measure of control.

Likewise, a fall in the bank rate causes other rates of interest to come down. The cost of credit falls, i. e., and credit becomes cheaper. Cheap credit may induce a higher demand both for investment and consumption purposes. More money, through increased flow of credit, comes into circulation.

A fall in bank rate may, thus, prove an anti-deflationary instrument of control. The effectiveness of bank rate as an instrument of control is, however, restricted primarily by the fact that both in inflationary and recessionary conditions, the cost of credit may not be a very significant factor influencing the investment decisions of the firms.

(ii) Open Market Operations:

Open market operations refer to the sale and purchase of securities by the Central bank to the commercial banks. A sale of securities by the Central Bank, i.e., the purchase of securities by the commercial banks, results in a fall in the total cash reserves of the latter.

A fall in the total cash reserves is leads to a cut in the credit creation power of the commercial banks. With reduced cash reserves at their command the commercial banks can only create lower volume of credit. Thus, a sale of securities by the Central Bank serves as an anti-inflationary measure of control.

Likewise, a purchase of securities by the Central Bank results in more cash flowing to the commercials banks. With increased cash in their hands, the commercial banks can create more credit, and make more finance available. Thus, purchase of securities may work as an anti-deflationary measure of control.

The Reserve Bank of India has frequently resorted to the sale of government securities to which the commercial banks have been generously contributing. Thus, open market operations in India have served, on the one hand as an instrument to make available more budgetary resources and on the other as an instrument to siphon off the excess liquidity in the system.

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Consumer Budget states the real income or purchasing power of the consumer from which he can purchase certain quantitative bundles of two goods at given price. It means, a consumer can purchase only those combinations (bundles) of goods, which cost less than or equal to his income.

Budget line is a graphical representation of all possible combinations of two goods which can be purchased with given income and prices, such that the cost of each of these combinations is equal to the money income of the consumer.

Suppose, a consumer has an income of Rs. 20. He wants to spend it on two commodities: X and Y and both are priced at Rs. 10 each. Now, the consumer has three options to spend his entire income: (i) Buy 2 units of X; (ii) Buy 2 units of Y; or (iii) Buy 1 unit of X and 1 unit of Y. It means, possible bundles can be: (2, 0); (0, 2) or (1, 1). When all these three bundles are represented graphically, we get a downward sloping straight line, known as ‘Budget Line’. It is also known as price line.

Budget line is downward sloping because when more and more units of one good can be bought, it leads to decrease some units of other good with the given income.

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Prices of Factors of Production (inputs):

When the amount payable to factors of production and cost of inputs increases, the cost of production also increases. This decreases the profitability. As a result, seller reduces/decreases the supply of the commodity.

For example- To make ice-cream, firms need various inputs like cream, sugar, machine, labour, etc. When price of one or more of these inputs rises, producing ice-creams will become less profitable and firms supply fewer ice-creams.

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Take Precautions While Buying a New Product

Today is the world of consumer. Consumer is supreme, when there are lots of buy options availability in the market. Manufacturing and marketing companies knows the facts well and due to which, well reputed companies offer the best quality products and services to their clients to maintain a good relationship with them. But some of the small companies can make quality compromise to sustain in the cut throat competition to get the prompt market share in compare of the brands. They can hide the few important parameters from the client point of view to make the product cheap. But ultimately it comes with client to suffer. Thus before purchasing any new un-brand products or services, client must go through the details of the products along with comparing the ingredient parameters with the branded one and if everything in un-branded product is as similar or even better than branded one, client should make it confirm with the vendor and/or manufacturer to get satisfied about the quality of the products. This entire process takes time, but gives you long term relief of purchasing the quality product at cheaper rate. Branded goods/products are good at quality, but charging high with accumulation of brand cost. This is the reason when same type of product with different unknown brand is available in the market at cheaper rate, consumers would definitely love to test the quality, as many times client can get the benefit of new product launching at cheaper rate with better quality. Brand Company always gives the best quality products as it consumes more market value for quality checks and marketing cost. Unbranded new products can be a low cost due to readily available process of manufacturing or less marketing penetration efforts. Thus consumer should check the new products and quality to get benefit of low cost. Before buying product, interaction with seller must be appreciable for a good consumer to keep himself safe side. Company conversation can give him enough satisfaction that the product, he is going to purchase is of good quality. Our country has reliable and strong consumer forum, in case of felling cheated by any company. One can log the complain with consumer court and can get the support as per the consumer protection act to fight against the company, which has money and muscle power both.

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In accounting and economics, fair value is a rational and unbiased estimate of the potential market price of a good, service, or asset. It takes into account such objective factors as: acquisition/production/distribution costs, replacement costs, or costs of close substitutes.

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Bill of exchange issued and/or endorsed (accepted) by non-bank entities and which, therefore, can be discounted only at rates higher than the rate for bank bills.

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Hello Aditi,

Overhead is that costs which required to run a business, but which cannot be directly attributed to any specific business activity, product, or service.

Overhead is also known as burden or indirect costs. Thus, overhead costs do not directly lead to the generation of profits. Overhead is still necessary, since it provides critical support for the generation of profit-making activities.

Overhead and direct costs, when combined, equal all of the expenses incurred by a company.

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Hello

In accounting, an offset is essentially a withdrawal from one account to diminish an expense toward other account. A prime example of an offset in government accounting occurs in times of financial uncertainty and budget deficits, where cuts from programs deemed unnecessary serve to offset necessary expenses with the end goal of balancing the books. The same general principle applies to both personal and business accounting; however, in personal and business accounting, running a long-term deficit simply isn't an option and will result in bankruptcy. Offsets may also refer to tax offsets, such as claiming various deductibles.

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Hello Harshit

The following are the main differences between reserve and provision: 1. Mode Of Creation Reserve is created against the charge of the profit and loss appropriation account. Provision is created against the charge of the profit and loss account. 2. Objective Main objective of reserve is to strengthen the financial position and to meet future unknown losses and liabilities. Objective of provision is to meet known losses and liabilities the amount of which is not certain. 3. Accounting Treatment Reserve is shown on debit side of profit and loss appropriation account and liabilities side of balance sheet. Provision is shown on debit side of profit and loss account and assets side of balance sheet as deduction from the concerned asset. 4. Relation With Profit Reserve is created when there is enough profit in the business. Provision is created even if there is loss in the business. 5. Distribution Reserve can be distributed to shareholders as dividend. Provision can not be distributed as dividend to shareholders. 6. Future Requirement Reserve is created without considering the future requirement of the business. Provision is created by estimating the future requirement of the business. 7. Impact Impact of reserve will be on financial position. Impact of provision will be on profit or loss of the business.