Economics Questions and Answers

Excessive demand with limited supply;  it causes rise in prices and increases in equalities: Generally, excess demand results in inflation (continuous rise in prices) without increase in output and employment. People will be will to pay high prices for few goods. which is generally what in flation is about. a fall in the purchasing power of money as more money will be chasing few goods.

A private limited company is a business entity that is held by private owners. However, private limited companies do not need to issue a prospectus because the public is not invited to subscribe for the shares of the company. A private limited company needs a minimum of only 2 directors.  private company, the number of shares traded is relatively smaller and also the traded shares are owned by limited individuals.

On the other hand, the shareholders in a public limited company are the public. A company whose securities are traded on a stock exchange and can be bought and sold by anyone. Public companies are strictly regulated, and are required by law to publish their complete and true financial position so that investors candetermine the true worth of its stock (shares). Also called publicly held company.

Monopoly can be prevented through the following ways

1. By regulation through taxation.; The Govt. can regulate monopoly through taxation. Govt. can levy a tax per unit of output (Specific Tax) or impose a lump sum tax irrespective to its output.

2. By regulation of conditions of monopoly, as in case of natural and regulated monopolies (MC pricing).; The term “public utilities” is applied to such essential services such as water supply, power supply, passenger transport facilities, communication facilities and railway facility. These services should be made available to the society at reasonable prices. Most public utility firms are natural monopolies and are also called as regulated monopolies.

3. By anti-monopoly laws and policies to prevent unfair price discrimination amongst different consumers (Peak load pricing); This is a case of price discrimination peak and off-peak supplies at different prices. Some examples are, electricity has different demand curves at different times during the day. When demand is more, it is called peak period, when less the off-peak period. Hotels at hill stations have peak period in summer and off-peak period in monsoon. Demand for woolens is more in winter (peak period) and less in summer (off- peak period). The traffic rush on roads is more after office hours.

Joint-stock company is  a company whose stock is owned jointly by the shareholders.

A joint-stock company is a business entity in which shares of the company's stock can be bought and sold by shareholders. Each shareholder owns company stock in proportion, evidenced by their shares.

The average fixed costs AFC curve is downward sloping because fixed costs are distributed over a larger volume when the quantity produced increases. AFC is equal to the vertical difference between ATC and AVC. Variable returns to scale explains why the other cost curves are U-shaped.