QUESTION BANK EEM
UNIT-1
Q1. What is demand? Explain law of demand
Meaning of Demand:-
In ordinary language the word demand means desire. But in economics demand
means desire backed up by the enough money to pay for the good. Only desire
cannot be called demand.
Law of Demand: -
Other things remaining the same when the price of any commodity increases its
demand falls and when price falls its demand increases."
According to the law of demand there is inverse relationship between demand and
price.
When the price of any commodity falls, people are tempted to purchase more
commodities. On the other hand when price of any commodity raises people
demand less quantity.
Law of demand explains consumer choice behavior when the price changes.
DEMAND CURVE: Demand curve is a graphic representation of the demand
schedule.
Explanation: In the demand curve, the price is shown on the vertical and quantity
demand is plotted on the horizontal axies.
The curve DD' demand curve slopes down, which shows that price and quantity
demanded work in opposite direction.
Factors Affecting Demand / Determinants of Demand
Price of commodity
Income of consumers
Price of related goods
Change in taste and preference of consumers
Size of population
Q2. Differentiate between microeconomics and macroeconomics.
Economics: "Economics is the science which studies human behavior as a relationship
between given ends and scarce means which have alternative uses."
Comparison Chart
Basis for
Microeconomics Macroeconomics
Comparison
The branch of economics that The branch of economics that studies
studies the behavior of an individual the behavior of the whole economy,
Meaning
consumer, firm, family is known as (both national and international) is
Microeconomics. known as Macroeconomics.
Covers various issues like demand,
Covers various issues like, national
supply, product pricing, factor
Scope income, general price level,
pricing, production, consumption,
distribution, employment, money etc.
economic welfare, etc.
Maintains stability in the general
Helpful in determining the prices of
price level and resolves the major
a product along with the prices of
problems of the economy like
Importance factors of production (land, labor,
inflation, deflation, reflation,
capital, entrepreneur etc.) within the
unemployment and poverty as a
economy.
whole.
Its main tools are demand and Its main tools are aggregate demand
Tools supply of a particular and aggregate supply of economy as a
commodity/factor. whole.
Basis for
Microeconomics Macroeconomics
Comparison
Price is the main determinant of Income is the major determinant of
Determinant
microeconomic problems. macroeconomic problems.
Examples are: individual income,
Examples are: National income,
individual savings, price
national savings, general price level,
Example determination of a commodity,
aggregate demand, aggregate supply,
individual firm's output, consumer's
poverty, unemployment etc.
equilibrium.
Q3. What do you mean by supply? Explain law of supply.
Meaning of supply
Supply is defined as the quantity of a product that a producer is willing and able to
supply onto the market at a given price in a given time period.
Law of Supply
The law of supply is the microeconomic law that states that other factors remaining
constant, price and quantity supplied of a good are directly related to each other.
Law of supply depicts the producer behavior at the time of changes in the prices of
goods and services.
When the price of a good rises, the supplier increases the supply in order to earn a
profit because of higher prices.
The above diagram shows the supply curve that is upward sloping (positive relation
between the price and the quantity supplied).
When the price of the good was at P3, suppliers were supplying Q3 quantity. As the
price starts rising, the quantity supplied also starts rising.
In the diagram above, as the price rises from P1 to P2 there is an expansion of
supply.
Factors Affecting Supply / Determinants of Supply
Following are the major determinants of supply:-
Number of Sellers
Prices of Resources
Technology
Taxes and Subsidies
Prices of Related Products
Q4. Explain Law of Demand and Supply/ Explain law of Equilibrium
Introduction:
Supply and demand is perhaps one of the most fundamental concepts of economics
and it is the backbone of a market economy.
Demand refers to how much (quantity) of a product or service is desired by buyers.
Supply represents how much the market can offer.
The relationship between demand and supply underlie the forces behind the
allocation of resources.
Equilibrium
When supply and demand are equal (i.e. when the supply function and demand
function intersect) the economy is said to be at equilibrium.
At this point, the allocation of goods is at its most efficient because the amount of
goods being supplied is exactly the same as the amount of goods being demanded.
At the given price, suppliers are selling all the goods that they have produced and
consumers are getting all the goods that they are demanding.
As you can see on the chart, equilibrium occurs at the intersection of the demand
and supply curve, which indicates no allocative inefficiency.
At this point, the price of the goods will be P* and the quantity will be Q*. These
figures are referred to as equilibrium price and quantity.
Disequilibrium
Disequilibrium occurs whenever the price or quantity is not equal to P* or Q*.
Excess Supply
if the price is set too high, excess supply will be created within the economy and
there will be allocative inefficiency.
Excess Demand
Excess demand is created when price is set below the equilibrium price. Because the
price is so low, too many consumers want the good while producers are not making
enough of it.
Q 5. What is Elasticity? Explain price, income and cross Elasticity
Elasticity is used to determine how changes in product demand and supply relate to
changes in consumer income or the producer's price.
If a curve is more elastic, then small changes in price will cause large changes in
quantity consumed.
Elasticity measures the percentage reaction of a dependent variable to a percentage
change in a independent variable
Elasticity = % Change in Quantity/
% Change in Price
Price Elasticity: - Price elasticity of demand, also called the elasticity of demand, refers to
the degree of responsiveness in demand quantity with respect to price.
Factors Affecting the Price Elasticity of Demand
Availability of substitutes
Degree of necessity or luxury
Proportion of the purchaser's budget consumed by the item
Time period considered
Permanent or temporary price change
For example, if the price of a daily newspaper increases from Rs.1.00 to Rs. 1.20, and the
daily sale falls from 500,000 to 250,000
P0= 1 Q0= 500,000
P1= 1.20 Q1= 250,000
P= 1.20-1.00=0.2/1=0.2*100=+20
Q= 250,000-500,000= (-250,000)/500000)= (-0.5)*100= -50
- 50% / + 20%
= (-) 2.5
e >1
In this case, the quantity demanded is relatively elastic, meaning that a price change
will cause an even larger change in quantity demanded.
e <1
In this case, the quantity demanded is relatively inelastic, meaning that a price
change will cause less of a change in quantity demanded. The case of Ed = 0 is
referred to as perfectly inelastic
e =1
In this case, the product is said to have unitary elasticity; small changes in price do
not affect the total revenue.
Income Elasticity
The income elasticity of demand is a measure of the relationship between a change
in the quantity demanded for a particular good and a change in income.
As incomes rise, more goods are demanded at each price level
Income Elasticity of Demand = % change in quantity demanded/
% change in income
For example, if the quantity demanded for a good increases for 15% in response to a
10%increase in income, the income elasticity of demand would be 15% / 10% =
1.5.
For example, if, following an increase in income from Rs.40, 000 to Rs. 50,000, an
individual consumer buys 40 DVD films per year, instead of 20, and then the
coefficient is:
I0= 40,000 Q0= 20
I1= 50,000 Q1= 40
I= 50,000-40,000/40,000=10,000/40,000=0.25*100=25
Q= 40-20/40= 20/20=1*100=100
+100/+25
= (+) 4.0
The positive sign means that the good is a normal good, and because the coefficient
is greater than one, demand for the good responds more than proportionately to a
change in income.
The negative sign means that the good is inferior, and, because the coefficient is less
than one, demand for the good does not respond significantly to a change in income.
Cross Elasticity
Cross price elasticity measures the responsiveness of demand for good X following a
change in the price of a related good Y.
It is measured as the percentage change in quantity demanded for the first good that
occurs in response to a percentage change in price of the second good
Cross elasticity of demand indicates whether any two products are substitute goods,
complementary goods or independent goods.
With cross elasticity we make a distinction between substitute and
complementary products.
Positive cross elasticity denotes two substitute products.
A negative cross elasticity denotes two products that are complements
A near zero cross elasticity of demand means that the products are independent
goods i.e. quantity demanded of product A is not affected by any movement in price
of product B.
% increase in quantity demanded of A
Cross Elasticity of Demand EA, B =
% increase in price of product B
The quantity demanded or product A has increased by 12% in response to a 15%
increase in price of product B.
Cross elasticity of demand = % change in quantity demanded of A % change in
price of B = 12%/15% = 0.67.
Since the cross elasticity of demand is positive, product A and B are substitute
goods. They are most likely apples and oranges.
UNIT-9
Q1. What is Production Management? Explain objectives of Production
Management.
Production Management deals with decision-making related to production process.
Production management deals with converting raw materials into finished goods or
products.
Production is a scientific process which involves transformation of raw material
(input) into desired product or service (output) by adding economic value
5 P`s of Production Management
1. Products
2. Plant
3. Process
4. Programs
5. People
Objective of production Management
The main objective of production management is to produce goods and services of
the right quality, right quantity, at the right time and at minimum cost. It also tries to
improve the efficiency
Production management ensures full or optimum utilization of available production
capacity.
To produce goods and services as per the estimated manufacturing cost and
minimum inputs of resources.
To produce right quality goods and services as per the established standards and
specifications.
To produce goods and services as per the decided time schedule.
Minimize the use of resources to the optimum level. These are 4 M's :- like
Machinery, Materials, Manpower and Money. These inputs are to be used to full
extent to result minimum cost, quality and time.
Minimizing the total cost of production with continuous elimination of non-value
added activities
Inventory Control- There must be neither over stocking nor under stocking of
inventories.
Reducing spoilage, wastages and breakage of all kinds, this in turn leads to saving of
time, effort and money which is essential for the growth & prosperity of the
enterprise.
Q2. Plant location is very crucial decision. Explain the justification of statement
OR Explain factors affection the plant location.
What is an ideal location?
An ideal location is one where the cost of the product is kept to minimum, with a large
market share, the least risk and the maximum social gain.
In fact, several factors influence the entrepreneurs decision in selecting the location for
industry. Selection of industrial location is a strategic decision. It is a onetime decision
and not be retracted again and again without bearing heavy costs.
The following are the factors to be considered for the selection of the location:
1. Availability of Raw Materials: The biggest advantage of availability of raw
material at the location of industry is that it involves less cost in terms of
transportation cost.
2. Proximity to Market: Consumption involves market that is, selling goods and
products to the consumers. Thus, an industry cannot be thought of without
market.
3. Infrastructural Facilities: Availability of infrastructural facilities plays a deciding
role in the location selection of an industry. The infrastructural facilities include
power, transport and communication, water, banking, etc.
4. Government Policy: In order to promote the balanced regional development, the
Government also offers several incentives, concessions, tax holidays for number
of years, cheaper power supply, factory shed, etc.
5. Availability of Manpower: Availability of required manpower skilled in specific
trades may be yet another deciding factor for the location of skill- intensive
industries.
6. Local Laws, Regulations and Taxes: In order to control industrial growth, laws
are enforced to decongest some areas while simultaneously encourage certain
other areas. Taxation is a Centre as well as State Subject.
7. Ecological and Environmental Factors: In case of certain industries, the
ecological and environmental factors like water and air pollution may turn out to
be negative factor in deciding enterprise location.
8. Competition: The revenue of a particular site depends on the degree of
competition from other competitors location nearby plays a crucial role in
selecting the location of an enterprise.
9. Political Conditions: Political stability is essential for industrial growth. That
political stability fosters industrial activity and political upheaval derails
industrial initiates is duly confirmed by political situations across the countries
and regions within the same country.
10. Climatic Conditions: climatic conditions affect both people and manufacturing
activity. It affects human efficiency and behavior to a great extent.
Q3. What is plant layout? Explain different types of plant layout.
Plant layout is the most effective physical arrangement, either existing or in plans of
industrial facilities i.e. arrangement of machines, processing equipment and service
departments to achieve greatest co-ordination and efficiency of 4 M's (Men, Materials,
Machines and Methods) in a plant.
Plant layout is the arrangement of machines, work areas and service areas within a
factory. George R. Terry
Types of plant layout
A well designed plant layout is concerned with maximum and effective utilization of
available resources at minimum operating costs.
1. Product or Line Layout
2. Process or Functional Layout.
3. Fixed Position Layout.
4. Combination type of Layout.
5. Cellular Layout
1. Product or Line Layout:
If all the processing equipment and machines are arranged according to the
sequence of operations of the product, the layout is called product type of
layout.
In this type of layout, only one product of one type of products is produced
in an operating area.
The product must be standardized and produced in large quantities in order
to justify the product layout.
The raw material is supplied at one end of the line and goes from one
operation to the next quite rapidly with a minimum work in process, storage
and material handling.
2. Process or Functional Layout:
The process layout is particularly useful where low volume of production is
needed. If the products are not standardized, the process layout is lower
desirable, because it has creator process flexibility than other.
In this type of layout, the machines and not arranged according to the
sequence of operations but are arranged according to the nature or type of
the operations. This layout is commonly suitable for non repetitive jobs.
There will be less duplication of machines. Thus, total investment in
equipment purchase will be reduced.
3. Fixed Position Layout:
This type of layout is the least important for todays manufacturing
industries. In this type of layout the major component remain in a fixed
location, other materials, parts, tools, machinery, man power and other
supporting equipments are brought to this location.
The major component or body of the product remain in a fixed position
because it is too heavy or too big and as such it is economical and convenient
to bring the necessary tools and equipments to work place along with the
man power.
This type of layout is used in the manufacture of boilers, hydraulic and steam
turbines and ships etc.
4. Combination Type of Layout:
Flexibility is a very important factory, so layout should be such which can be
molded according to the requirements of industry, without much investment.
If the good features of all types of layouts are connected, a compromise
solution can be obtained which will be more economical and flexible.
Many situations call for a mixture of the three main layout types. These
mixtures are commonly called combination or hybrid layouts. For example,
one firm may utilize a process layout for the majority of its process along
with an assembly in one area. Alternatively, a firm may utilize a fixed-
position layout for the assembly of its final product, but use assembly lines to
produce the components and subassemblies that make up the final product
(e.g., aircraft).
5. Cellular Layout
Cellular manufacturing is a type of layout where machines are grouped
according to the process requirements for a set of similar items (part
families) that require similar processing.
These groups are called cells. Therefore, a cellular layout is an equipment
layout configured to support cellular manufacturing.
Processes are grouped into cells using a technique known as group
technology (GT). Workers in cellular layouts are cross-trained so that they
can operate all the equipment within the cell and take responsibility for its
output
Q 4. Explain different functions of production management
The concept of production management is related mainly to the organizations
engaged in production of goods and services.
In modern times production management has to perform a variety of functions,
namely:
1. Selection of Product and Design: - Production management first selects the right
product for production. Then it selects the right design for the product.
2. Selection of Production Process Production management must select the right
production process. They must decide about the type of technology, machines,
material handling system, etc
3. Selecting Right Production Capacity: - Production management must select the right
production capacity to match the demand for the product.
4. Production Planning: - Production management includes production planning. Here,
the production manager decides about the routing and scheduling.
5. Production Control: - Production management also includes production control. The
manager has to monitor and control the production.
6. Quality and Cost Control: - Production management also includes quality and cost
control. Quality and Cost Control are given a lot of importance in today's competitive
world
7. Inventory Control: - Production management also includes inventory control. The
production manager must monitor the level of inventories. There must be neither
over stocking nor under stocking of inventories.
8. Maintenance and Replacement of Machines: - Production management ensures
proper maintenance and replacement of machines and equipments. The production
manager must have an efficient system for continuous inspection (routine checks),
cleaning, oiling, maintenance and replacement of machines, equipments, spare
parts, etc. This prevents breakdown of machines and avoids production halts.
[Link] is human resource Management? Explain objectives of human resource
management.
Meaning: In simple words, HRM is a process of making the efficient and effective
use of human resources so that the set goals are achieved. It is the process of hiring
and developing employees so that they become more valuable to the organization.
Why name human resource management?
Human: refer to the skilled workforce in the organization.
Resource: refer to limited availability or scarce.
Management: refer to maximize or proper utilization and make best use of limited
and a scarce resource.
Objectives of HRM
The primary objective of HRM is to ensure the availability of right people for right
jobs so as the organizational goals are achieved effectively.
1. To help the organization to attain its goals effectively and efficiently by providing
competent and motivated employees.
2. To utilize the available human resources effectively.
3. To increase to the fullest the employees job satisfaction and self-actualization.
4. To develop and maintain the quality of work life (QWL) which makes employment
in the organization a desirable personal and social situation.
5. To help maintain ethical policies and behavior inside and outside the
organization.
6. To establish and maintain cordial relations between employees and management.
7. To reconcile individual/group goals with organizational goals.
[Link] is recruitment? Discuss different sources of recruitment
Recruitment is a positive process of searching for prospective employees and
stimulating them to apply for the jobs in the organization.
Recruitment is concerned with reaching out, attracting, and ensuring a supply of
qualified personnel and making out selection of requisite manpower both in their
quantitative and qualitative aspect.
Sources of recruitment
Basically, there are two sources of recruitment i.e., internal and external sources.
Internal Sources: Best employees can be found within the organization, when a
vacancy arises in the organization. The employees can be informed of such a
vacancy by internal advertisement.
Methods of Internal Sources:
1. Transfers: Transfer involves shifting of persons from present jobs to other similar
jobs. These do not involve any change in rank, responsibility or prestige. The
numbers of persons do not increase with transfers.
2. Promotions: Promotions refer to shifting of persons to positions carrying better
prestige, higher responsibilities and more pay.
3. Present Employees: The present employees of a concern are informed about likely
vacant positions. The employees recommend their relations or persons intimately
known to them.
External Sources: All organizations have to use external sources for recruitment to
higher positions when existing employees are not suitable. More persons are
needed when expansions are undertaken.
Methods of External Sources:
1. Advertisement: - it is a method of recruitment frequently used for skilled workers,
clerical and higher staff. Advertisement can be given in newspapers and
professional journals.
2. Employment Exchanges: - Employment exchanges in India are run by the
Government. For unskilled, semi-skilled, skilled, clerical posts etc., it is often used as
a source of recruitment.
3. Campus Interview: - Direct recruitment from educational institutions for certain
jobs (i.e. placement) which require technical or professional qualification has
become a common practice. Junior level executives or managerial trainees may be
recruited in this way.
4. Recommendation of Existing Employees: The present employees know both the
company and the candidate being recommended. Hence some companies encourage
their existing employees to assist them in getting applications from persons who are
known to them.
5. Labor Unions: - In certain occupations like construction, hotels, maritime industry
etc., (i.e., industries where there is instability of employment) all recruits usually
come from unions.
6. Former Employees: - In case employees have been laid off or have left the factory
at their own, they may be taken back if they are interested in joining the concern
(provided their record is good).
Q7. What is Selection? Explain selection process
Meaning
Selection can be defined as process of choosing the right person for the right job
from a pool of different candidates who applied for a certain job.
Selection Process
The procedure for selection should be systematic so that it does not leave any scope
for confusions and doubts about the choice of the selected candidate.
Various steps in selection procedure are given as follows:
1. Preliminary Interview: The purpose of preliminary interviews is basically to
eliminate unqualified applications based on information supplied in application
forms. On the other hands preliminary interviews is often called a courtesy
interview and is a good public relations exercise.
2. Selection Tests: Jobseekers who past the preliminary interviews are called for
tests. There are various types of tests conducted depending upon the jobs and the
company. These tests can be Aptitude Tests, Personality Tests, and Ability Tests
and are conducted to judge how well an individual can perform tasks related to
the job.
3. Employment Interview: The next step in selection is employment interview.
Here interview is a formal and in-depth conversation between applicants
acceptability. It is considered to be an excellent selection device. Interviews can
be One-to-One, Panel Interview, or Sequential Interviews.
4. Reference & Background Checks: Reference checks and background checks are
conducted to verify the information provided by the candidates. Reference checks
can be through formal letters, telephone conversations.
5. Selection Decision: After obtaining all the information, the most critical step is
the selection decision is to be made. The final decision has to be made out of
applicants who have passed preliminary interviews, tests, final interviews and
reference checks.
6. Physical Examination: After the selection decision is made, the candidate is
required to undergo a physical fitness test. A job offer is often contingent upon
the candidate passing the physical examination.
7. Job Offer: The next step in selection process is job offer to those applicants who
have crossed all the previous hurdles. It is made by way of letter of appointment.
8. Final Selection and placement: This is a final step. A suitable job is allocated to
the appointed candidate so that they can get the whole idea about the nature of
the job.
Q8. Explain Manpower planning
Meaning: Manpower Planning which is also called as Human Resource Planning
consists of putting right number of people, right kind of people at the right place,
right time, doing the right things for which they are suited for the achievement of
goals of the organization.
It may be rightly regarded as a multi-step process, including various issues,
such as:
(A) Deciding goals or objectives
(B) Auditing of the internal resources
(C) Formulation of the recruitment plan
(D) Estimating future organizational structure and manpower requirements
(E) Developing a human resource plan
Examining organizational objectives and policies: Manpower planning starts
with examining the overall objectives of the organization. In fact, manpower plan
should be integrated into the overall objectives. The number of employees required to
perform various operations will be derived from the objectives of the Organization.
Assessing manpower demand: Manpower demand is the number of people
required to handle the present jobs. Forecasting the demand for manpower is the
process of estimating the future quantity and quality of employees required.
Forecasting supply of manpower: Supply forecast is also known as manpower inventory.
The objective of preparing manpower inventory is to find out the number and quality of
manpower available within the Organization to employee in various jobs identified in the
Organization.
Gap analysis: Gap analysis is the process of identifying the difference in the
estimated number of employees and actual number of employees available in the
Organization. This enables to determine the quantity and quality of manpower
needed. This gap reveals the number of personnel to be recruited to fill the gaps.
Manpower plan implementation: Implementation is the process of converting
plan into action. Implementation of manpower plan is done with the help of various plan
designed.
Q9. Explain different types of selection Test.
All the tests so far developed for the selection of employees can broadly be divided
into two categories:
(i) Ability Tests and
(ii) Personality Tests.
Ability Tests:
1. Aptitude tests measure ability and skills of the testee. These tests measure and
indicate how well a person would be able to perform the task on the basis of
aptitude knowledge.
2. Achievement tests measure a persons potential in a given area/job. In other words,
these tests measure what a person can do based on skill or knowledge already
acquired by him/her.
3. Intelligence tests measure general ability for intellectual performance. The core
concept underlying in intelligence test is mental age.
4. Judgment Tests: These tests are designed to know the ability to apply knowledge in
solving a problem.
Personality Tests:
1. Interest Tests: These tests are designed to discover a persons area of interest, and
to identify the kind of work that will satisfy him. Interest is a prerequisite to
successfully perform some task.
2. Personality Tests: These tests are also known as personality inventories. These
tests are designed to measure the dimensions of personality i.e., personality traits
such as interpersonal competence, dominance- submission, extroversions-
introversions, self-confidence, ability etc.
3. Projective tests: These tests are based on pictures or incomplete items. The testee
is asked to narrate or project his own interpretation on these. The way the testee
responds reflects his /her own values, motives, attitude, apprehensions, personality,
etc.
4. Attitude Tests: These tests are designed to know the testees tendencies towards
favoring or otherwise to people, situations, actions, and a host of such other things.