Economic & Business Environment Test - 1

The basis of the distinction between market price and factor cost is Net indirect taxes (i.e., Indirect taxes - Subsidies).

The market price is basically the current price at which an asset is bought or sold in the market. It includes the cost of production in the form of wages, rent, interest, profit, etc. whereas factor cost may not reflect the effect of taxes and subsidies, unlike market price. It only considers the actual cost of production, including the profit. So, the reason for the difference between market price and factor cost is indirect taxes and subsidies.

Net Indirect Tax (NIT) refers to the difference between indirect taxes and subsidies. Indirect Taxes are the taxes imposed on the production and sale of goods and services by the Government of a country, for example, GST (Goods and Services Tax).

The correctly matched pairs are- i - (b), ii - (d), iii - (a), iv - (c)

The political-legal environment is a combination of a lot of factors such as the current political party in power, the degree of politicization of trade and industry, the efficiency of the current government, government policies, current legal framework, the public attitude towards the economy, etc.

The demographic environment is about the characteristics of the population in a specific area and includes multiple factors like age, race, income, etc. Every business can be concerned with different aspects of the demographic characteristics of a population.

The economic environment refers to all the economic factors that affect commercial and consumer behavior. The economic environment consists of all the external factors in the immediate marketplace and the broader economy. These factors can influence a business, i.e., how it operates and how successful it might become.

Environmental Geography is a branch of geography. It deals with the spatial distribution of various ecosystems, habitats, plants, animals, and human life.

Prem Watsa run Fairfax Financial Holdings’ proposed acquisition of additional nine per cent stake in ICICI Lombard General Insurance Company for an estimated Rs. 1,550 crore has received clearance from CCI. Following the transaction, Fairfax will hold 35 per cent in ICICI Lombard, while ICICI Bank will have about 64 per cent stake. The proposed transaction values the company at Rs. 17,225 crore ($ 2.6 billion), Fairfax had said. Earlier, foreign partners were only allowed to hold 26 per cent stake in an insurance venture which has now been increased to 49 per cent after the passage of the Insurance Laws (Amendment) Act earlier this year.

Optimum Tariff: According to the economists' optimal tariff theory, countries that are typically big, powerful importers of products can use tariffs to influence the global prices of those items. The concept of optimum tariff concerns large countries that carry the bulk of the purchasing power for various goods. The less elastic the foreign offer curve, the higher will be the optimum tariff. Therefore, it must occur in the elastic range of the partner country's offer curve.

The correct answer is Must occur in the elastic range of the partner country's offer curve.

Before embarking on an entrepreneurial journey, one must be introspective about "One’s own entrepreneurial passion and capability". It is useful to break the entrepreneurial process into five phases: idea generation, opportunity evaluation, planning, company formation/launch and growth.

Production-Linked Incentive or PLI scheme is a scheme that aims to give companies incentives on incremental sales (over FY 2019-20) from products manufactured in domestic units. The scheme invites foreign companies to set up units in India, however, it also aims to encourage local companies to set up or expand existing manufacturing units and also to generate more employment, and cut down the country's reliance on imports from other countries.

It aims at boosting domestic manufacturing of goods for domestic consumption, enhance exports and reduce dependence on imports. So, statement 1 is not correct.

In case more applications are received, then companies having the highest consolidated global manufacturing revenues will be considered. Accordingly, the scheme is designed to select only a few top companies as the Government has limited funds to disburse. So, statement 2 is correct.

The Ministry of Micro, Small and Medium Enterprises, is the apex executive body for the formulation and administration of rules, regulations and laws relating to micro, small and medium enterprises in India. A small enterprise is the enterprise where the investment in plant and machinery or equipment does not exceed 10  crore rupees and the annual turnover limit does not more than 50 crore rupees.

Berkshire Hathaway exits Paytm sells 2.46% stake for Rs 1,371 cr.

Answer B: Paytm ✅

Below is the correct match of the table:

(a) Income elasticity less than unity:

• The income elasticity of demand measures the responsiveness of sales to changes in income. It is defined as the percentage change in sales divided by the corresponding percentage change in income.
• Income elasticity less than unity implies that positive income elasticity of demand would be less than unitary when the proportionate change in, the quantity demanded is less than the proportionate change in income.
• For example, if the income increases by 50% and demand increase only by 25%. For eg. Superior Goods.

(b) Cross elasticity less than unity:

• Cross elasticity is the percentage change in quantity demanded divided by the percentage change in the price of some other product that brought it about.
• Cross elasticity of demand measures the responsiveness of demand for one good to a change in the price of the other good.
•  When a large change in the price of good A causes a small change in quantity demanded of good B, it implies cross elasticity less than unity. For example Competitive Goods.

(c) Cross elasticity less than zero:

• If two goods are not at all related then they have negative cross elasticity of demand i.e., cross elasticity less than 0. For eg. Complementary Goods.

(d) Income elasticity less than zero:

• Income Elasticity less than 0 refers to a kind of income elasticity of demand in which the demand for a product decreases with an increase in consumer’s income.
• The income elasticity of demand is negative for inferior goods, also known as Giffen goods.

The given demand curve has Zero slope and infinite elasticity.

• If the demand curve is horizontal its slope is zero, but its elasticity is infinite.
• By contrast, if the demand curve is a vertical straight line its slope is infinite, but elasticity is zero.
• If the demand curve is a straight line its slope is constant, but elasticity falls as price drops.