ECONOMICS FOR BUSINESS AND MANAGEMENT

Economics for Business and Management



PART A

Q1 - Why do some people believe that the market system is the best mechanism for allocating scarce resources and thereby encouraging a positive 'investment climate'? Explain your reasoning.

Theodore Levitt argued that a market is composed of people who have various needs and wants. Economists across the world consider markets as the group of buyers and sellers. Marketers differ from economists in that they consider sellers as the constituents of industry and buyers as constituting the market. Jack Z. Sissors argued that market consists of many things related to selling products that meet consumers' needs and wants. He further argued that there are two main dimensions of a market: physical and behavioral. Physical dimension considers the physical attributes of the market for a product or product class such as market size, location, and prospective buyers' demographical characteristics. Physical dimension helps define the market in terms of the product or product class whereas behavioral dimension helps in developing a customer-oriented perspective of the market. Behavioral dimension focuses on behavioral characteristics of the prospective buyers such as the influences, reasons, quantities, frequencies, and timing of purchases as well as their social and psychological characteristics. There are several ways in which markets have been classified.

Traditionally, markets have been defined and classified either in terms of geographical locations or product class. Examples of markets identified by product class include a cotton market, cheese market, food grains market, fruits and vegetables market, etc. Some examples of location-based markets include New York market, London market, Calcutta market, Valencia market, etc. Some of these locations were also very strongly identified with a product class. For example, Valencia market in Spain was traditionally known for cotton and Calcutta market in India was known for jute.

Since more and more companies are selling their products and services abroad, it is now common practice to classify markets as domestic markets and global markets. Some of them classify and identify their international markets based on regions, e.g., U.S. market, European Union market, southeast Asian market, Asian market, Pacific market, Indian market, Chinese market, French market, etc. Many people continue to identify markets in terms of geographical location or product class. Markets are also classified as business markets and consumer markets based on the nature of consumption.

Q.2 - Why do some people believe that not everything can be left to the free market, but that governments also have a role to play in encouraging a positive 'investment climate'? Explain your reasoning.

Business markets are constituted by those buyers who buy goods and/or services to resell to others or to use them to produce another product and/or service. These buyers are known as organizational buyers or business buyers, and they sell or rent or supply their outputs to other businesses or to individual consumers. Business buyers, although few in number, usually buy in bulk. Industrial markets, institutional markets, and government markets are among the key business markets. Industrial markets include buyers for raw materials, components, finished ...