Delhi School of Management

A
Report on
‘Economics Operations on Different
Articles’

Submitted To: Submitted By:

Ms. Sonal Thukral Sajeet Prasad Sah (2K18/MBA/116)
(Economics Faculty) Vivek Rathi (2K18/MBA/123)
The Mystery of the Disappearing Avocado
-ELAINE SCHWARTZ MAY 7, 2017

Avocado Markets

Between 2000 and now, American avocado consumption tripled to seven or so

pounds a person. Meanwhile Business Insider tells us that “Australians are Going
Bananas for Avocados” and Bloomberg says the Chinese and Europeans are a part
of the trend.

Predictably, production is way up from 17 years ago when Mexico sent US 24

million pounds of Hass avocados. In the 2015/2016 marketing year, the total was
2.3 billion pounds. However, California is due for a smaller crop this year because
avocado trees are alternate bearing (less one year and then more the next). And we
can only guess what a border tax would do to avocado imports.
Economic Explanations

Effects Demand and Supply on Price

1. When demand increases and supply is constant.

In the above diagram P0, Q0, D1, and S1 are initial equilibrium price, quantity,
demand curve and supply curve respectively. Now when there is a surge in demand
of avocados it will have increasing effect in both price and quantity supplied. So, we
can observe that when demand curve shifts from D1 to D2 price increases from P0
to P1 and quantity increased from Q0 to Q1 and forming new equilibrium point.
 2. When demand increase is more than supply decrease

In the above figure, P0, Q0, D1, S1 are initial equilibrium price, quantity, demand
curve and supply curve respectively. Now, if supply decreases from S1 to S2 and
demand increases from D1 to D2 then following effects take place:
 Price Increases from P0 to P1
 Quantity increase from Q0 to Q1

We also observe that there is significant rise in price as compared to quantity.

RATIONING OF THE GOOD TO THE CONSUMER
- Pravesh Aggarwal, RGNUL

1.1) Introduction
Rationing of the good is the means by which government ensures equitable
distribution of resources by putting a restraint on the purchase of the commodity in
the market for the rich people. Rationing is the controlled distribution of scarce
resources, goods, or services and it controls the size of the ration, one’s allotted
portion of the resources being distributed on a particular day or at a particular time.
In economics, rationing is an artificial restriction of demand and is done to keep
price below the equilibrium (market-clearing) price determined by the process of
supply and demand in an unfettered market. Thus, rationing can be complementary
to price controls which can be explained through indifference curve approach.
There are two kinds of rationing done by the government to reduce consumption-
price rationing and non-price rationing. By rationing, we mean exercise tax and by
non-price rationing, we mean all types of control on the quantity consumed. Non-
price rationing could be done by giving away of coupons that would enable low-
income families to obtain some good at affordable prices, which could not be
possible if the prices were to increase alone. With coupon scheme, it would develop
a black market for coupons, which would paradoxically increase the utility for those
who are in need of that commodity by collection of more of these coupons from
those who are not in need. This ensures greater marginal utility for those people who
are in need of the commodity and will provide exchange of money to those who sell
these coupons. For this, it is necessary for the government to encourage trading of
the coupons.
The major importance of introducing rationing is to keep the price of important
commodity under control, as for a necessary commodity, there will be an excessive
demand in the market which will drive their price up in the market and high prices
leads to reduction of consumption and utility for those who could not afford it. This
ensures that the resources are planned in favor of the poor people of the country and
restricting the rich people to ensure excessive purchase of limited resources of the
country. This ensures development and equality of welfare and utility between the
rich and the poor people. Rationing of the good is done by the government and not
the private sector. There is the same limit put on every person on the budget spending
to which people could buy the commodities and within the limit, one could buy any
amount of the commodity.
1.1.1) Persuasive and Binding power of rationing
In many cases, Rationing of goods do not have the binding value on the consumers
and it proves to be quite ineffective in restricting the consumption of a good, thereby
quashing its objective of affecting the budget limit of the consumer. This persuasive
value is more common for the poor people in the country where they even could not
afford to the buy the rationed commodity. This annuls the importance of the
rationing and reflects the importance of the income as a binding value on the
consumption choice and not the ration limit. It has its binding value for the rich
people which put a limit on their high consumption of goods, i.e. puts a limit on their
budget.
1.2) Examples related to rationing of goods
In India, rationing of good is done by the government through public distribution
system by providing food grains at a cheap rate to the people (especially poor); the
same can be explained through indifference curve analysis. Due to rationing of
wheat and rice in Delhi, every resident in India will get same amount of wheat and
rice by using ration cards. Every month, through the use of ration cards, one could
purchase 4 kg of wheat and 1 kg of rice and one family could buy 5 kg of rice, no
matter how many members are there in the family. But, south Indians will get more
satisfaction from rice than the wheat, and so if the rationing is done more on the
purchase of rice than the wheat, then it would amount to decline in the utility to the
south Indian people and vice versa. Similarly, for the Punjabi’s living in Delhi,
normally, getting more wheat gives them more utility than the purchase of rice. With
the help of indifference curve, Punjabis and South Indians will be able to decide the
rate at which they should exchange wheat and rice among themselves so as to get
maximum satisfaction.[4] This further shows that the effect of rationing may be
fruitful and provide more utility to some and not so good for the others and vice
versa. Hence, Government introduces rationing of only those goods which are not in
excess in the market and for which demand in the market is very high, i.e. these are
very common consumer good and hence, the government introduces the rationing
taking into account the balance of utility between different classes of people for the
purpose of satisfying mostly every people.
Economic Explanation of Rationing through Ordinal Approach

In the above indifference curve, Government imposes rationing of good X at point

R, i.e. beyond OR, consumption cannot be increased. Initially, for the poor
consumer, equilibrium is at point P because at this point, indifference curve is
tangent to the budget line and similarly, equilibrium for rich consumer at point Q.
The permissible limit of X’s consumption (OR) far exceeds the equilibrium quantity
of X which the poor consumer would like to purchase, rendering the rationing at OR
ineffective, and calling such type of rationing as preventive rationing for poor
consumer. Whereas for the rich consumer, the equilibrium point changes from point
Q to point U since after rationing, rich consumer cannot purchase OA quantity of
good X as it is beyond OR quantity ( rationing quantity), as a result of which
Indifference curve shifts from IC2 to IC3. This type of rationing of good is effective
rationing for the rich.
Conclusion
This shows that utility of the poor consumer remains the same with no downward
shift in the indifference curve but the utility for the rich consumer declines with
imposing restriction on the purchase of commodity X by the downward shift in the
indifference curve. This rationing helps in restricting the excessive amount of
purchase of important and scarce commodity X by the rich people and making it
available for all in an optimum quantity.
FOOD STAMP PROGRAM VS. CASH GRANT
PROGRAM: WHICH IS BETTER FOR THE POOR?

Food Stamp program is a type of food subsidy to provide poor people with
adequate quantity of food. It is another form of in-kind food subsidy which is
discerning from the subsidy in the form of cash income, called as cash subsidy
which is provided in the cash grant program. Food Stamp program is a boon in
providing nutritional assistance benefits to different classes of people i.e. families
and children, unemployed people and the working families, elderly and disabled
people. It solely objective is to alleviate hunger among poor people. These food
stamps are available to only those people whose income lie below a certain
minimum level. For e.g. In US, a person with income $400/month might be able to
buy $100/month worth of food, and any excessive consumption from the given
$100/month must be bought in for cash.
The purpose of giving food stamp is to purchase only food products and not to
purchase cigarettes, alcohol, and other lethal products. These food stamps are
exchanged for cash by the food retailers from the government. For e.g. In US, the
number of people receiving food stamps through the federal Supplemental
Nutrition Assistance Program rose during the recession. The higher poverty rate,
poor job market, and changes to the way applicants are evaluated have contributed
to the rising ranks. In the year 2012, about 48 million people drew utility from food
stamp benefits. This can be contrasted with cash grants in the sense that it provides
money to the people which can be used not only in buying food but also any other
commodity. So it provides a wider scope for the people on the consumption of
various commodities in the market. It acts as a supplementary income to the
consumer. In many cases, cash grants are given to meet the specific demand of the
people, like in Massachusetts (US), The Cash Grant Program, under the
Massachusetts Department for Higher education, is designed to assist needy
students in meeting institutionally held charges such as mandatory fees and non-
state-supported tuition. This raises the utility for the people in spending according
to one’s wish and desire.
Indian Railways: A Monopoly Organisation
Suruchi Agarwal
Visiting/ Empanelled Faculty, National Institute of Financial Management
Ministry of Finance, Govt. of India

Abstract:
This article deals in depth in the functioning and features of the Indian Railways,
the advantages and disadvantages of being a monopoly organisation. The arrogant
attitude and inefficiency that creeps in as soon as the word monopoly is attached
and why in today's world competition is necessary for efficient functioning of the
organization

Indian Railways is the biggest monopoly organization in India. Having a budget of

few thousand crores, the organization has 1.6 million employees, the largest
employer in India. The Railway network was started in 1853, to cater to the needs
of the defence forces, which had to travel all over India. Initially the network was
controlled by a number of companies, which were later joined together after
independence to form a single system. In the first few years after independence, a
few of the state railways, such as Jodhpur Railways, Kutch Railways etc. were also
merged in the same system. The whole system is under the ministry of railways,
also called the Railway Board. The system is so big, that a separate budget is
presented in the parliament. Indian Railways is the biggest transportation system in
India, and has the second biggest rail network in the whole world, next only to
China. It carries twenty one million passengers per day, out of which about eleven
million are on suburban system. For suburban traffic, especially in Mumbai, rail
traffic is the main lifeline, accounting for about eighty percent of the whole
suburban traffic. Any failure of the suburban network in Mumbai has very serious
ramifications on the overall city life. Indian Railways are the major carrier for bulk
goods like steel, cement, coal, fertilizers etc. It carries more than nine hundred
million tons of freight traffic per year. It can thus be seen that it is the lifeline for
movement of bulk goods in the country. With a budget of approx. One lac crore of
rupees, it is a vast network spread over more than sixty thousand km. with a staff
strength of more than 13.2 lacs, with an average wage bill of more than four lacs
per employee. The problems involved in managing such a large system can be
imagined, especially when the whole system is under the central government.
The whole system has been divided in sixteen zones, besides one zone for metro
Kolkata, each headed by a general manager for running of trains. Besides there are
eight more units each headed by a general manager to look after research,
electrification, construction, and manufacturing units for locomotives, passenger
coaches, wheels and axles etc. Besides this there are sixteen public sector
undertakings/organizations to look after other work like consultancy, construction,
catering, finance, and container services etc. This gives a rough idea of the astness
of the system. Because of the large staff strength, the unions are very powerful.
The top people of the two unions also interact with the cabinet secretary, the senior
most civil servant of the central government, besides co-ordinating with the
railway minister and chairman Railway Board.
Because of govt. control, the system remained independent, and private sector was
not allowed to participate in it. Efforts are now being made to allow private sector
in limited areas, but the overall progress is negligible. One of the major reasons for
the same is that it is highly capital intensive, with a low profitability. The Railways
is a mixture of opposites. While it is supposed to be financially viable, at the same
time, the fares are kept low, so that the common man can freely travel on the same.
On the one hand, all principles of commercial working are applicable, at the same
time; the fares are being kept very low. A situation has arisen where the bus fare is
six to seven times more than the railway fare in passenger trains, over the same
distance. In the railway system, friction is between steel and steel and as such,
tractive effort required to pull the trains is much lower. In case only business
principles are followed, the railways can be a highly profitable organisation.
However, the decisions are not on business principles, but popular demands of the
masses, thereby finishing off the viability of the system. A few of the non-business
decisions being taken are
 Decisions on construction of new railway lines. Instances are galore, where after
spending hundreds of crores on the construction of a new railway line, there is not
enough traffic even to run the system. We spend a lot of money to construct a
railway line, and pay for running the line, for all subsequent years. This is
unthinkable in any business proposition.
 Because of public pressure, we continue to run trains where it results in massive
losses, what to talk of recovering interest on the capital employed.
 In suburban travel, the monthly pass, is only of six single journey tickets, making
it so low, that the public only travels by train, bringing the system under strain.

Indian Railways is a monopolistic organization controlled by the central

government. Because of its being a ministry, it is not allowing any legislation to be
passed, which will give it any competition. Since the earlier freight rates were
much cheaper than the road freight, the administration because of populist
measures raised the freight rates to compensate for the loss in passenger traffic,
where the fares have been kept very low, to please the masses. A situation has
arisen, where the road traffic is giving tough competition, which it was
not supposed to do. On the other hand, the passenger fares are so low, that the
masses want to travel by train, resulting in overcrowding in trains with its own
safety implications. Since there is no competitor, the railway has been dictating its
own terms, thereby losing business. One of the worst examples is transportation of
oil from the refineries to the petrol pumps. Sending by truck is not possible
because of the logistics involved. All the refineries initially came to the Railways
for transportation of finished goods such as petrol, diesel etc. to the destination.
The railways hiked the freight rates abnormally high and also asked for
compensation for extra facilities being created for transportation of oil.
As the oil companies had to transport oil, initially they accepted a lot of demands
under duress. But the overall scenario was so tough that it became costlier than the
pipe lines. Since the railways did not treat the oil companies as big customers, but
as persons who needed them, the oil companies became sick of the entire
arrangement and decided to go in for the pipe lines. The railways being a ministry
became aware of these plans when they came before central planning board, but
the railways did not wake up, and as a result, lost the entire business to the pipe
lines, resulting in a big loss to the railways. A situation arose when the railways
started soliciting traffic to use their wagon fleet, but the oil companies gave only
marginal traffic, which could not be carried by pipe line. Since there is no
competition, the unions bargained hard for extra facilities, lower output, and a
number of other issues. Since there was no competition, the general feeling
remained, that additio9nal money could come out of increased fares, both
passenger and freight. The political class was against rising of passenger fares,
therefore there was no alternative but to raise freight fares, which became so
high that it lost in competition to the road traffic. The above are a few examples, as
how an organization, which if run on commercial lines could have minted money
became financially bankrupt, requiring a lot of assistance from the central govt.
Safety was also affected, as the railways were not able to purchase critical spare
parts for want of funds. Being a monopoly organization, the staff strength was
much above the actual need. Various committees have recommended that the
staff strength be reduced drastically, but the same could not be implemented
because of stiff resistance of the two unions. Any major downsizing requires
shifting of staff on a major scale, which the two unions are not prepared to agree.
The staff cost is 54% of the total working expenses, a figure unheard of in any
organization. In spite of these high figures, there is no serious effort to reduce staff
strength, because of the reasons already given. Being a government organization,
all pay commission, recommendations become applicable on railways also, which
the central government insists has to be financed by the railways from their own
sources, which is not possible considering, the amount of money involved. The
pension payments are also creating havoc, because of the numbers and the amount
of pension being paidHigh cost of staff is playing havoc with the maintenance of
the infrastructure, such as locos, coaches’ wagons, track, signaling equipment etc.
Out of total money received, payment to staff, pensioners and fuel has to be made
on priority, leaving little margin for purchase of spare parts, maintenance contracts
etc. this severely affects the maintenance programme, affecting the working
efficiency f the system and also affecting safety to some extent. Situations arise
when the minimum schedule of replacement of spare parts, as prescribed by the
Railway Board, are not adhered to, when the coaches, locos, wagons etc. are sent
for regular maintenance schedule. The reason for the same has already been
mentioned earlier. Cases are also galore where the over aged locos, wagons,
coaches etc. continue in service, against the norms laid down by the
Railway Board, affecting safety. Because of lack of competition, serious efforts are
not made to bring in financially viable system. The import of technology depends
on the views of the railway board members, who can be prejudiced, for one reason
or the other. One such example is the freight corridor, on the Indian Railways,
which was a very profitable item, especially on Delhi – Mumbai route, but has lost
its profitability because some of the people at the top, have introduced
specifications superior to high speed trains, forgetting that the corridor is meant
to run goods trains. In case there is fair competition in the rail transportation
system, the staff and the management would wake up to the problems more
seriously, and the efficiency would. Improve. The private sector has been asking
for slots on the railway track to run their own trains, but so far the progress has
been negligible. Some serious thought is required to introduce fair competition in
the system.
10/21/2018 Jeera: Jeera may firm up on high demand, low rains - The Economic Times

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Jeera may firm up on high demand, low

rains
By PK Krishnakumar, ET Bureau | Oct 12, 2018, 10.58 AM IST Save

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Rebound in export demand and deficient rainfall may drive

jeera (cumin) prices up in the coming weeks.
The October futures contract prices in NCDEX hovered
around Rs 195 per kg on Thursday.

The overseas demand for Indian jeera is expected to

increase as the supply from other sources are limited and SPOTLIGHT
Jeera futures prices had crossed Rs of poor quality. “The stock from Turkey and Syria has been
International Affair
200 per kg in August damaged by rain. Though Indian jeera is priced $300
higher at $2500 per tonne in the global market NSE 0.00 % , it
is drawing more buyers because of superior quality,’’ said Dipak Parikh, partner of Kanu
https://economictimes.indiatimes.com/markets/commodities/news/jeera-may-firm-up-on-high-demand-low-rains/articleshow/66174710.cms 1/31
10/21/2018 Jeera: Jeera may firm up on high demand, low rains - The Economic Times

Krishna Corporation, an exporter.

Demand from China, which is a significant buyer, is expected to go up in the next few
weeks. “There are some problems in Hai Phong port in Vietnam which is delaying the
shipments to China. Once it is cleared, more consignments may go to China,’’ Parikh said.
Exporters feel the prices will cross Rs 200 per kg by November.
Some of the chilling attacks in
Lack of sufficient rains in some jeera growing regions in Gujarat and Rajasthan, two top covert operations
producers, may impact the sowing that will begin by the end of the month. “There may not Over two weeks ago, Khashoggi entered
be any increase in the sowing area because of dry weather. But those regions which have the Saudi consulate in Istanbul to obtain
documents for his upcoming wedding and
good irrigation facilities will have good output,’’ said Ritesh Kumar Sahu, analyst at Angel
never came out.
Commodity Broking.
Trump says US will pull out of nuclear
arms deal with Russia
Jeera futures prices had crossed Rs 200 per kg in August but then fell on profit booking Afghans shut out by polling station chaos
return to vote
and subdued demand. Robust domestic demand is keeping the prices at above Rs 190
per kg level now. “If the producing states receive good rains in November, then the sowing
area could see an increase,’’ Sahu said. In the event, prices may see a decline.

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10/21/2018 The Diminishing Marginal Utility of Excess Bank Reserves

4,447 views | Jun 26, 2012, 07:09pm

The Diminishing Marginal Utility

of Excess Bank Reserves
Bob McTeer Contributor i

Washington
A former Dallas Fed president, I cover the economy.

This is not an argument for more quantitative easing, or QE3, as it would

inevitably be called. Instead, this is about the logic of the argument for more
quantitative easing. It is intended as a response to the oft-heard argument that
more quantitative easing wouldn’t stimulate the economy because past
quantitative easing hasn’t produced the desired results.

The answer is a simple economics concept, the concept of diminishing marginal

utility. Other things equal, the more you have of something the less additional
satisfaction comes from more of it.

Given the financial crisis, recession, slow recovery, and the pounding the banking
industry has taken from all fronts, the banks have had a large appetite for excess
reserves as a contingency. They may be excess in a technical sense, but they are
not excess to the bankers under current circumstances. Therefore, the huge
amount of reserves created by the Fed’s past open market purchases have largely
https://www.forbes.com/sites/bobmcteer/2012/06/26/the-diminishing-marginal-utility-of-excess-bank-reserves/#6d5bfd2570b9 1/2
10/21/2018 The Diminishing Marginal Utility of Excess Bank Reserves

ended up on banks’ balance sheets as excess reserves rather than being fully
utilized to make money-creating bank loans and investments. A similar
phenomenon occurred during the depression.

If the Fed had not engaged in aggressive open market operations to create
reserves, chances are the banks would have tried to add to their reserves by
shrinking their balance sheets. At this point, additional reserve creation may lead
to more reserve hoarding, but, given the diminishing marginal utility of those
reserve, at some point what can be done with additional reserves will become
more attractive to banks than accumulating more reserves.

If a medicine has been sufficient to keep a patient from worsening, but not
sufficient to restore his health, the answer may be to increase the dosage rather
than remove the medicine altogether.

Don’t worry whether diminishing marginal utility is a Keynes or Hayek concept.

It is neither. It is micro rather than macro.

I am a former president of the Dallas Fed and member of the FOMC 1991-2004.
I'm also a former Chancellor of the Texas A&M University System 2004-2006. I
was a CNBC Contributor and a Distinguished Fellow at the National Center for
Policy Analysis 2007-2014. I had a 36 yea... MORE

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