Thursday, December 27, 2012

Indifference Curve explaining the concept of consumer’s equilibrium

Indifference Curve explaining the concept of consumer’s equilibrium
Reviewed by Hammad Naziron Apr 01 2013
Rating: 5

How Indifference Curve is used in explaining the concept of consumer’s equilibrium?
Let us discuss them:

Equilibrium of the consumer:
In order to explain the consumer’s equilibrium with the help of indifference curves, we make the following assumptions.
 
Assumptions of the Indifference Curve:

  • The consumer purchases two commodities x and y for which he has various combinations. His scale of preferences for the various combinations of these two goods does not change in the analysis.
  • The consumer has a fixed amount of money.
  • The prices of two goods x and y in the market are given and constant.
  • The goods are substitute of each other and divisible.
  • The consumer acts rationally.
Equilibrium of the consumer:
The consumer will be in equilibrium position where the price line or income line is tangent to the indifference curve.

Equilibrium of the consumer with the help of a Diagram:
In this diagram there are three indifference curves, IC1, IC2,IC3.
AB is the price line or income line. Now P is the point where the indifference curve IC2 is tangent to price line. This is consumer’s equilibrium point. Here he purchases OE of y commodity and OH of x commodity and getting maximum satisfaction.
No other point will yield maximum satisfaction. E.g. if consumer purchases at point T. at this point the consumer has to substitute PR amount of y commodity. To get RT amount of x commodity. But during this purchasing process he cannot go beyond AB line. so when he scarifies PR amount of ‘y’ he will get only “RS” of x commodity, so he will be a loser. Similarly indifference curve IC3 is beyond the reach of the consumer. So the consumer will be in equilibrium only at the point where IC2 is tangent to price line.

Introduction of Indifference Curve Approach

Introduction of Indifference Curve Approach
Reviewed by Hammad Naziron Apr 01 2013
Rating: 4
Indifference Curve:
 
Introduction of Indifference Curve:
The indifference curves approach was first introduced by Pareto and Later on it was developed by hicks and Allen. These economists are of the view that utility relates to the state of mind, so it is immeasurable cardinally. They based their theory on scale of preferences and the ordinal measurement of utility. According to these economists, a consumer simply ranks or orders his preferences.

Definition of Indifference Curve:

“An indifference curve is a locus of points or particular budgets or combinations of goods, each of which yields the same level of total utility, or to which the consumer is indifferent”.

Wednesday, December 26, 2012

Complexity of the Global Environment:

Complexity of the Global Environment:
Global strategic planning is more complex than such purely domestic planning.

There are at least five factors that contribute to this increase in complexity:

  1. Global face multiple political, economic, legal, social and cultural environments as well as various rates of changes within each of them.
  2. Interactions between the national and foreign environments are complex because of national sovereignty issues and widely differing economic and social conditions.
  3. Geographic separation, cultural and national differences and variations in business practices all tend to make communication and control efforts between headquarters and the overseas affiliates difficult. This will also results in the Complexity of the Global Environment:
  4. Global face extreme competition because of differences in industry structures.
  5. Global are restricted i their selection of competitive strategies by various regional blocs and economic integrations.

At the Start Of Globalization

At the Start Of Globalization:
External and Internal assessments may be conducted before a firm enters global markets. External assessment involves careful examination of critical features of the global environment. Internal assessment involves identification of the basic strengths of a firm's operations.

  • Internal Assessment
  • External Assessment
Internal Assessment:
 Internal assessments involve identification on the basic strength of the firm's operation. These strength are particularly important in the global operation, because they are often the characteristics of a firm that the host nation values most and thus offer significant bargaining leverage.

Identification of the firms own strength:
  • Managerial skills
  • Capital
  • Labor
  • Raw Material
External Assessment:
External Assessment involves careful examination of critical features of the global environment, particular attention being paid to the status of the host nations in such areas as economic progress Matching host nation's opportunities with own strengths.
  • Economic Progress
  • Political Control
  • Expansion of Industries
  • Favorable Balance of Payment.

 

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