Management

Introduction to Management

Management is a universal phenomenon. It is a very popular and widely used term. All organizations – business, political, cultural or social are involved in management because it is the management which helps and directs the various efforts towards a definite purpose. According to Harold Koontz, “Management is an art of getting things done through and with the people in formally organized groups. It is an art of creating an environment in which people can ...
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As a process, management refers to a series of inter-related functions. It is the process by which management creates, operates and directs purposive organization through systematic, coordinated and co-operated human efforts, according to George R. Terry, “Management is a distinct process consisting of planning, organizing, actuating and controlling, performed to determine and accomplish stated objective by the use of human beings and other resources”. As a process, management consists of three aspects:
  1. Management ...
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Like various other activities performed by human beings such as writing, playing, eating, cooking etc, management is also an activity because a manager is one who accomplishes the objectives by directing the efforts of others. According to Koontz, “Management is what a manager does”. Management as an activity includes –
  1. Informational activities - In the functioning of the business enterprise, the manager constantly has to receive and give information orally or in writing. A ...
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Management as a discipline refers to that branch of knowledge which is connected to study of principles & practices of basic administration. It specifies the certain code of conduct to be followed by the manager & also various methods for managing resources efficiently. Management as a discipline specifies the certain code of conduct for managers & indicates various methods of managing an enterprise. Management is a course of study which is now formally being taught ...
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Management as a group refers to all those persons who perform the task of managing an enterprise. When we say that management of ABC & Co. is good, we are referring to a group of people those who are managing. Thus as a group technically speaking, management will include all managers from chief executive to the first – line managers (lower-level managers). But in common practice management includes only top management i.e. Chief Executive, Chairman, ...
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Science is a systematic body of knowledge pertaining to a specific field of study that contains general facts which explain a phenomenon. It establishes cause and effect relationship between two or more variables and underlines the principles governing their relationship. These principles are developed through a scientific method of observation and verification through testing. Science is characterized by following main features:
  1. Universally acceptance principles – Scientific principles represents the basic truth about a particular field of ...
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Art implies the application of knowledge & skill to trying about desired results. An art may be defined as a personalized application of general theoretical principles for achieving best possible results. Art has the following characters –
  1. Practical Knowledge: Every art requires practical knowledge, therefore, learning of theory is not sufficient. It is very important to know practical application of theoretical principles. E.g. to become a good painter, the person may not only be ...
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Over a large few decades, factors such as growing size of a business unit, separation of ownership from management, growing competition etc have led to an increased demand for professionally qualified managers. The task of manager has been quite specialized. As a result of these developments, the management has reached a stage where everything is to be managed professionally. A profession may be defined as an occupation that requires specialized knowledge and intensive academic preparations ...
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Management is an activity concerned with guiding human and physical resources such that organizational goals can be achieved. Nature of management can be highlighted as: –
  1. Management is Goal-Oriented: The success of any management activity is assessed by its achievement of the predetermined goals or objective. Management is a purposeful activity. It is a tool which helps use of human & physical resources to fulfill the pre-determined goals. For example, the goal of an ...
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The term “Levels of Management’ refers to a line of demarcation between various managerial positions in an organization. The number of levels in management increases when the size of the business and workforce increases and vice versa. The level of management determines a chain of command, the amount of authority & status enjoyed by any managerial position. The levels of management can be classified into three broad categories:
  1. Top level / Administrative level
  2. Middle ...
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The main objectives of management are:
  1. Getting Maximum Results with Minimum Efforts - The main objective of management is to secure maximum outputs with minimum efforts & resources. Management is basically concerned with thinking & utilizing human, material & financial resources in such a manner that would result in best combination. This combination results in a reduction of various costs.
  2. Increasing the Efficiency of factors of Production - Through proper utilization of various ...
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  1. It helps in Achieving Group Goals - It arranges the factors of production, assembles and organizes the resources, integrates the resources in an effective manner to achieve goals. It directs group efforts towards the achievement of pre-determined goals. By defining the objective of the organization clearly, there would be no wastage of time, money and effort. Management converts disorganized resources of men, machines, money etc. into a useful enterprise. These resources are coordinated, directed ...
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Administration
According to Theo Haimann, “Administration means an overall determination of policies, setting of major objectives, the identification of general purposes and laying down of broad programmes and projects”. It refers to the activities of a higher level. It lays down basic principles of the enterprise. According to Newman, “Administration means guidance, leadership & control of the efforts of the groups towards some common goals”. Whereas, management involves conceiving, initiating and bringing together the various elements; coordinating, ...
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management functions
Management has been described as a social process involving responsibility for economical and effective planning & regulation of the operation of an enterprise in the fulfillment of given purposes. It is a dynamic process consisting of various elements and activities. These activities are different from operative functions like marketing, finance, purchase etc. Rather these activities are common to each and every manager irrespective of his level or status. Different experts have classified functions of management ...
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Co-ordination is the unification, integration, synchronization of the efforts of group members so as to provide unity of action in the pursuit of common goals. It is a hidden force which binds all the other functions of management. According to Mooney and Reelay, “Co-ordination is an orderly arrangement of group efforts to provide unity of action in the pursuit of common goals”. According to Charles Worth, “Co-ordination is the integration of several parts into an orderly hole ...
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Co-ordination is an orderly arrangement of efforts to provide unity of action in the fulfillment of common objective whereas co-operation denotes collective efforts of persons working in an enterprise voluntarily for the achievement of a particular purpose. It is the willingness of individuals to help each other. Co-ordination is an effort to integrate effectively energies of different groups whereas co-operation is sort to achieve general objectives of business. Though these two are synonymous but they ...
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A principle refers to a fundamental truth. It establishes cause and effect relationship between two or more variables under given situation. They serve as a guide to thought & actions. Therefore, management principles are the statements of fundamental truth based on logic which provides guidelines for managerial decision making and actions. These principles are derived: –
  1. On the basis of observation and analysis i.e. practical experience of managers.
  2. By conducting experimental studies.
There ...
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  1. Principles of Management are Universal
    1. Management principles are applicable to all kinds of organizations - business & non business.
    2. They are applicable to all levels of management.
    3. Every organization must make best possible use by the use of management principles.
    4. Therefore, they are universal or all pervasive.
  2. Principles of Management are Flexible
    1. Management principles are dynamic guidelines and not static rules.
    2. There ...
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Following are the main importance of the Principles of Management.
  1. Improves Understanding.
  2. Direction for Training of Managers.
  3. Role of Management.
  4. Guide to Research in Management.
  1. Improves Understanding - From the knowledge of principles managers get indication on how to manage an organization. The principles enable managers to decide what should be done to accomplish given tasks and to handle situations which may arise in management. These principles make managers more efficient.
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Fredrick Winslow Taylor ( March 20, 1856 – March 21, 1915) commonly known as ’Father of Scientific Management’ started his career as an operator and rose to the position of chief engineer. He conducted various experiments during this process which forms the basis of scientific management. It implies application of scientific principles for studying & identifying management problems. According to Taylor, “Scientific Management is an art of knowing exactly what you want your men to do and seeing ...
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  1. Development of Science for each part of men’s job (replacement of rule of thumb)
    1. This principle suggests that work assigned to any employee should be observed, analyzed with respect to each and every element and part and time involved in it.
    2. This means replacement of odd rule of thumb by the use of method of enquiry, investigation, data collection, analysis and framing of rules.
    3. Under scientific management, ...
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Time Study
  1. It is a technique which enables the manager to ascertain standard time taken for performing a specified job.
  2. Every job or every part of it is studied in detail.
  3. This technique is based on the study of an average worker having reasonable skill and ability.
  4. Average worker is selected and assigned the job and then with the help of a stop watch, time is ascertained for ...
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Although it is accepted that the scientific management enables the management to put resources to its best possible use and manner, yet it has not been spared of severe criticism. Workers Viewpoint
  1. Unemployment - Workers feel that management reduces employment opportunities from them through replacement of men by machines and by increasing human productivity less workers are needed to do work leading to chucking out from their jobs.
  2. Exploitation - Workers feel they ...
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Both the persons have contributed to development of science of management. The contribution of these two pioneers in the field of science of management has been reviewed as “The work of Taylor & Fayol was, of course, especially complementary. They both realized that problem of personnel & its management at all levels is the key to individual success. Both applied scientific method to this problem that Taylor worked primarily from operative level, from bottom to ...
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Human Resource

Introduction to Human Resource

Human Resource (HR) Is the department or support systems responsible for personnel sourcing and hiring, applicant tracking, skills development and tracking, benefits administration and compliance with associated government regulations. Human Resource Management (HRM) Is the process of employing people, training them, compensating them, developing policies relating to them, and developing strategies to retain them. A human resource manager is responsible for managing the human resources of the organization by implementing policies, programs and practices in ...
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Hard approach to human resource management is a pragmatic perspective to human resource management which looks upon people as  ‘resource’ and measures the tangible benefits accruing from their deployment. The emphasis on
  1. To drive for economy and efficiency
  2. Adoption of a strategic approach that is  in line  with business strategy
  3. Obtaining value-adding services from people through targeted human resource development practices
The ‘soft’ model of human resource management traces its origin to the ...
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Scope refers to the work that should be completed to deliver a product, service, or result with the specified features and functions. The scope of HRM  can be encapsulated in the three aspects
  1. Personnel aspect: It focuses on manpower planning, recruitment, selection, placement, transfer, promotion, training, and development, lay off and retrenchment, remuneration,  incentives, and productivity
  2. Welfare aspect: It emphasizes on working conditions and amenities like canteens, restrooms etc.
  3. Industrial Relations aspect: It is ...
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A belief is a mental acceptance of and conviction in the truth, actuality, or validity of something. HRM emphasizes on the belief that the interests of management and employees are on the same plane also, called as the ‘unitary’ approach’. HRM beliefs can be listed as below
  1. Human resource is the most important asset which can develop and increase.
  2. In a workplace, all employees are equal but have different jobs and because of which ...
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The primary objective of human resource management is to ensure availability of productive workforce to an organization. Hence, objectives of HRM are classified into following four categories HRM Objectives and their supporting functions are listed below
Societal Objectives
1.   Legal compliance
2.   Benefits
3.   Union management relations Organizational Objectives
1.   Human resource planning
2.   Employee relations
3.   Selection
4.   Training and development
5.   Appraisal
6.   Placement
7.   Assessment Functional Objectives
1.   Appraisal
2.   Placement
3.   ...
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In order to achieve the objectives of human resource management, a variety of functions are performed. These functions can be categorized into two groups Managerial Function Managerial functions primarily involve basic management functions such as
  1. Planning: Planning involves activities with an objective to achieve organisational goals
  2. Organizing: Organizing involves development of organizational structure by allocating duties and delegating responsibilities to individuals as and when required.
  3. Staffing: Staffing involves hiring the right quality of people ...
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Importance refers to the state or fact of being of great significance or value. Human Resource Management forms a crucial component of any organization as, organizations are formed, run and serve humans who interface as employees (whether senior management or juniors) or as the end user of company’s products or services. Hence, a productive and motivated workforce not only results in improved customer relations but also affects the company’s bottom line. Due to this influence, ...
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Organizational behavior also called as OB focuses on the behavior of organization on employees because of the structure and working of this structure on an organization as a whole. As companies irrespective of their size, business type, geography etc. are composed of humans working as employees whether as senior managers or subordinates, all of them are organized with specific functions and interactions within the organization with each other in achieving the mission and goal of ...
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Ethics are the set of principles of right conduct and being morally good and bad. Ethical standards of Human Resource Management are moral obligations of the organization towards the employee involves developing an equitable environment without any regard to the education, position, caste, creed, sex or color of the employee Various ethical standards of concern under the Human Resource Management involves the following
  1. Human rights
  2. Civil rights
  3. Employment rights like job security, feedback of ...
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Strategic Human Resource Management

The prescriptive and descriptive management defines strategic management as a cycle that involves multifarious activities dependent upon each other. The strategic human resource management process can be disintegrated into five essential stages: mission and objectives, environmental assessment, strategic formulation, strategic implementation and strategic evaluation. All five stages interact with each other at different levels. At the corporate level, strategic human resource management involves activities centered towards appraising the objectives of the organization and strategic evaluation ...
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The word ‘strategy’, deriving from the Greek noun strategus, meaning ‘commander in chief’. The development and usage of the word suggest that it is composed of stratos (army) and agein (to lead). In the management of an organization, it refers to of decisions and actions by the top management of the organization to achieve performance goals. HR strategies are the science and art of management of people hence, it involves managing company’s people for their ...
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In every organization, motivation and incentives should be attached with a goal to work on. A needs assessment and HR development strategies should be deployed focused towards accomplishing the organization’s mission. Such needs assessment and HR development and their effective planning lead to improved productivity. It is then implemented by using macro tools, such as Management by Objectives at the individual level, and Total Quality Management at the group level. Human resource which used to ...
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Personnel Management and Industrial Relations

Personnel Management It is an important function of an HR manager which encompasses covering all the steps of an employee’s life cycle in the organization i.e. from induction of an employee, day-to-day management of employee and his or her records and finally exit of an employee. Industrial Relations It is also called as employment relations or employee relations. It is a crucial aspect of human resource management especially in the manufacturing sector or those sectors where ...
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  1. Personnel management includes the function of employment, development and compensation- These functions are performed primarily by the personnel management in consultation with other departments.
  2. Personnel management is an extension to general management. It is concerned with promoting and stimulating competent work force to make their fullest contribution to the concern.
  3. Personnel management exist to advice and assist the line managers in personnel matters. Therefore, personnel department is a staff department of an organization.
  4. Personnel ...
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Personnel manager is the head of a personnel department. He performs both managerial and operative functions of management. His role can be summarized as :
  1. Personnel manager provides assistance to top management- The top management are the people who decide and frame the primary policies of the concern. All kinds of policies related to personnel or workforce can be framed out effectively by the personnel manager.
  2. He advises the line manager as a staff ...
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Manpower Planning Manpower Planning which is also called as HR 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. Human Resource Planning has got an important place in the arena of industrialization. Human Resource Planning has to be a systems approach and is carried out in a set procedure ...
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Personal development includes activities that improve awareness and identity, develop talents and potential, build human capital and facilitates employability, enhance the quality of life and contribute to the realization of dreams and aspirations. The concept is not limited to self-help but includes formal and informal activities for developing others, in roles such as a teacher, guide, counsellor, manager, coach, or mentor. Finally, as personal development takes place in the context of institutions, it refers to ...
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Many students of management and laypeople often hear the term HR or Human Resource Management and wonder about the difference between HR and the traditional term Personnel Management. In earlier times, the Personnel Manager of a factory or firm was the person in charge of ensuring employee welfare and interceding between the management and the employees. In recent times, the term has been replaced with HR manager. This article looks at the differences in usage ...
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Every business should have written policies and procedures that document what is expected of employees and what they can expect from the business. Sometimes referred to as an employee manual, these documents provide clear guidelines regarding current laws, employee compensation and how the company conducts business The Facts An effective personnel policy and procedure manual should have written guidelines covering the following sections: responsibilities of each role in the business, employee benefits, sick leave, vacation, ...
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Policy formulation and implementation involve the following steps: Identifying the need Initially, important areas of personnel management in HR (recruitment, selection, training compensating bargaining) must have a policy formulation which is clearly spelt out. Additional policy guidelines can come at any stage depending on the recurrence of a ticklish issue at various levels. Collecting data Once priority areas are listed, steps should be taken to collect facts before formulating a policy. Various sources could be ...
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Human Resource Acquisition

There are three fundamental approaches to job analysis. Job-oriented Approach The job-oriented approach mainly focuses on the job outcomes and factors facilitating these outcomes. This approach essentially forms the reasons for the existence of a particular job. For instance, the activities a receptionist is expected to execute and how they could contribute to the organization’s objectives are the discussants in this approach. Employee-oriented Approach This approach focuses on the behavioral patterns of the employees in ...
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Job Analysis involves eight critical steps for its effective implementation in the HR departments. Step 1: Assimilate information The first step requires the HR manager to obtain the description of the official as well as existing positions. Examine the organization charts closely and decide on the employee having recently filled the position to be interviewed, especially in cases when the position requirements have not changed and the employee has efficiently performed the job responsibilities and ...
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One of the main purposes of conducting job analysis is to prepare job descriptions and job specifications which in turn help hire the right quality of workforce into an organization. The general purpose of job analysis is to document the requirements of a job and the work performed. Job and task analysis is performed as a basis for later improvements, including: definition of a job domain; description of a job; development of performance appraisals, personnel ...
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Manpower Planning It helps in forecasting manpower requirements based on the knowledge and skills and quality of manpower needed in an organization. Recruitment A carefully designed job analysis provides information as to what sources of recruitment are to be used to hire employees. For example, job analysis in retail stores about merchandise sorters tells that village-level schools are the potential source of recruitment. Selection Selection of the right candidate for the right job can only ...
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Job Description It is an important document. It is descriptive in nature. It is useful to identify a job for consideration by job analysis. Important questions to be answered through job description are:
  1. What should be done?
  2. Why should it be done?
  3. Where should it be done?
There is no universal format for writing a job description. According to Ghorpade, the following information is common in most of the job descriptions.
  1. Job ...
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Job analysis methods can be categorized into three basic types: Observation Method Observation of work activities and worker behaviors is a method of job analysis which can be used independently or in combination, with other methods of job analysis. Three methods of job analysis based on observation are:
  • Direct Observation: Using direct observation, a person conducting the analysis simply observes employees in the performance of their duties. The observer either takes general notes or ...
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Job design is next to job analysis. Job design involves systematic attempts to organize tasks, duties, and responsibilities of a unit of work to achieve certain objectives. Job design integrates the work content and qualifications required for each job that meets the needs of the employee and the organization. Job design makes the job highly specialized and well-designed jobs are important in attracting and retaining a motivated workforce. According to Michael Armstrong, “Job Design is ...
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Job Simplification In job design, this simplification technique simplifies or specialized the job. A given job is divided into small sub-parts and each part is assigned to one individual employee. Job simplification is introduced when job designers feel that the jobs are not specialized enough. Job Rotation Job rotation implies systematic movement of employees from one job to the other for job design. The job remains unchanged but employees performing them shift from one job to ...
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Human Resource Planning (HRP)

In simple words, HR Planning is understood as the process of forecasting an organization’s future human resource demand for, and supply to meet the objectives such as the right type of people in the right number. After this process, only the HRM department can initiate recruitment and selection process. HRP is a sub-system in the total organizational planning. Organisational planning includes managerial activities that set the company’s objectives for the future and determines appropriate means ...
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Human resource planning is important for helping both organizations and employees to prepare for the future but you might be thinking “Are not things always changing?” for example, a few years ago, the legal profession seemed to be a good field. But it is now very crowded. So what is the value of planning? The answer is that even an imperfect forecast of the future can be quite helpful. Consider weather forecasts. You can probably ...
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The need for human resource planning arises mostly due to the fact that modern organizations have to survive, operate and grow in a highly competitive market economy where change is the order of the day. The change may be either revolutionary (sudden) or evolutionary (slow). The different areas of change include: change in technology, change in population, change in economic structures and systems, change in policies of the government, change in employee attitudes behavior, etc ...
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Human Resource Planning professionals have to perform the following roles that may be divided into three categories: Administrative role
  1. Managing the organizational resources
  2. Employees welfare activities
Strategic role
  1. Formulating HR strategies
  2. Managing relationships with managers
Specialized role
  1. Collecting and analyzing data
  2. Designing and applying forecasting systems
  3. Managing career development
These roles are neither necessarily found in every HRP work, nor they are evenly weighed in time allocation. Many combinations ...
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There are nine types of plans in HR, such as philosophy, purpose, objectives, strategies, policies, procedures and rules, programmes and budgets. Now we shall discuss in brief each of these types of plans.
  1. Philosophy: The organizations’ role that they wish to play in society in terms of philosophy. The philosophy of the company should have clarity of thought and action in the accomplishment of economic objectives of a country. The philosophy bridges the gap between ...
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Human Resource Forecasting techniques vary from simple to sophisticated ones. It may be stated that organizations generally follow more than one technique. The techniques are:
  1. Managerial Judgement
  2. Ratio Trend Analysis
  3. Work Study Techniques
  4. Delphi Technique
  5. Flow Models
  6. Others.
Huma Resource Demand Forecast The demand forecast is the process of estimating the future quantity and quality of people required. The basis of the forecast must be the annual budget and long-term corporate plan, translated ...
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The second step of the hr planning process involves an analysis of future organizational or personal capabilities. Capabilities include the skill level of employees, productivity rates and a number of employees, etc. In the past, more emphasis was on predicting the number of employees of human resource supply the company was likely to have in the future. Organisations may use varieties of procedures to estimate the supply. These procedures are general categories as either quantitative ...
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Planners face significant barriers while formulating a Human Resource Planning. The major ones are following:
  1. Human Resource Planning practitioners are perceived as experts in handling personnel matters but are not experts in managing the business.
  2. People question the importance or making Human Resource Planning practices future-oriented and the role assigned to HRP practitioners in a formulation of organizational strategies. There are people when needed offer handsome packages of benefits to them to quit when ...
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Recruitment and Selection

Recruitment in Human Resource is referred to as the procedure of attracting, short-listing and selection of a qualified candidate for a particular job. Today, a majority of organizations in any industry prefer to outsource the recruiting process to recruitment agencies. The recruitment industry can be found in four major forms, viz. employment agencies, recruitment web portals and job search engines, headhunters and niche agencies referred to for filling professional and executive positions. Employment agencies transact ...
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Internal Sources of Recruitment The internal sources of recruitment in Human Resource are:-
  1. Promotions: Promotion means to give a higher position, status, salary and responsibility to the employee. So, the vacancy can be filled by promoting a suitable candidate from the same organization.
  2. Transfers: Transfer means a change in the place of employment without any change in the position, status, salary, and responsibility of the employee. So, the vacancy can be filled by transferring a suitable ...
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In today’s fast-paced business environment, a well-structured recruitment policy is critically important to respond to the manpower requirements of an organization in time. And so, it is important to frame a clear and concise recruitment policy, for successful execution in order to recruit the best talent in the industry. An efficient recruitment procedure requires a suitable recruitment policy in place that details the objectives of hiring and a framework for implementing the recruitment programme. This ...
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Employee Selection in Human Resource is the process of putting right men on the right job. It is a procedure of matching organizational requirements with the skills and qualifications of people. Effective selection can be done only when there is effective matching. By selecting the best candidate for the required job, the organization will get the quality performance of employees. Moreover, the organization will face less of absenteeism and employee turnover problems. By selecting the ...
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In HR electing the wrong employees can lead to all sorts of problems down the line. For instance, employees may fail to perform their jobs satisfactorily, they may leave soon after being hired because they are simply not a good fit for the company, or they may require extensive training and mentoring, which you may not have the time to provide. Employees who are a good fit for your company, and have the skills and ...
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Employment testing in Human Resource is the practice of administering written, oral, or other tests as a means of determining the suitability or desirability of a job applicant. The premise is that if scores on a test correlate with job performance, then it is economically useful for the employer to select employees based on scores from that test. Employers often use such tests and other selection procedures to screen applicants for hire. The types of ...
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A job interview is a process in which a potential employee is evaluated by an employer for prospective employment in their company, organization, or firm. During this process, the employer hopes to determine whether or not the applicant is suitable for the role. Role of Job Interview A job interview typically precedes the hiring decision and is used to evaluate the candidate. The interview is usually preceded by the evaluation of submitted résumés from interested ...
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Employment Testing

Assessments centers can be designed to measure many different types of job-related skills and abilities, but are often used to assess interpersonal skills, communication skills, planning and organizing, and analytical skills.  The assessment center typically consists of exercises that reflect job content and types of problems faced on the job.  For example, individuals might be evaluated on their ability to make a sales presentation or on their behavior in a simulated meeting.  In addition to ...
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The content of biographical data instruments varies widely and may include such areas as leadership, teamwork skills, specific job knowledge and specific skills (e.g., knowledge of certain software, specific machine tool use), interpersonal skills, extraversion, creativity, etc.   Biographical data typically uses questions about education, training, work experience, and interests to predict success on the job.  Some biographical data instruments also ask about an individuals attitudes, personal assessments of skills, and personality. Advantages of Biographical Data ...
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Cognitive ability tests typically use questions or problems to measure the ability to learn quickly, logic, reasoning, reading comprehension and other enduring mental abilities that are fundamental to success in many different jobs.  Cognitive ability tests assess a persons aptitude or potential to solve job-related problems by providing information about their mental abilities such as verbal or mathematical reasoning and perceptual abilities like speed in recognizing letters of the alphabet. Advantages of Cognitive Ability Tests ...
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Integrity tests assess attitudes and experiences related to a person’s honesty, dependability, trustworthiness, reliability, and pro-social behavior. These tests typically ask direct questions about previous experiences related to ethics and integrity OR ask questions about preferences and interests from which inferences are drawn about future behavior in these areas. Integrity tests are used to identify individuals who are likely to engage in inappropriate, dishonest, and antisocial behavior at work. Advantages of Integrity Tests
  1.  Have ...
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Interviews vary greatly in their content, but are often used to assess such things as interpersonal skills, communication skills, and teamwork skills, and can be used to assess job knowledge.  Well-designed interviews typically use a standard set of questions to evaluate knowledge, skills, abilities, and other qualities required for the job.  The interview is the most commonly used type of test.  Employers generally conduct interviews either face-to-face or by phone.  (For more information on this ...
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Job knowledge tests typically use multiple choice questions or essay type items to evaluate technical or professional expertise and knowledge required for specific jobs or professions.  Examples of job knowledge tests include tests of basic accounting principles, A+/Net+ programming, and blueprint reading. Advantages of Job Knowledge Tests
  1.  Have been demonstrated to produce valid inferences for a number of organizational outcomes, such as job performance.
  2.  Can reduce business costs by identifying individuals for hiring, promotion ...
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Some commonly measured personality traits in work settings are extraversion, conscientiousness, openness to new experiences, optimism, agreeableness, service orientation, stress tolerance, emotional stability, and initiative or proactivity.  Personality tests typically measure traits related to behavior at work, interpersonal interactions, and satisfaction with different aspects of work.  Personality tests are often used to assess whether individuals have the potential to be successful in jobs where performance requires a great deal of interpersonal interaction or work in ...
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Physical ability tests typically use tasks or exercises that require physical ability to perform. These tests typically measure physical attributes and capabilities, such as strength, balance, and speed. Advantages of Physical Ability Tests
  1.  Have been demonstrated to produce valid inferences regarding the performance of physically demanding tasks.
  2.  Can identify applicants who are physically unable to perform essential job functions.
  3.  Can reduce business costs by identifying individuals for hiring, promotion or training who possess the ...
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These tests typically focus on measuring specific job skills or job knowledge, but can also assess more general skills such as organizational skill, analytic skills, and interpersonal skills.  Work samples and simulations typically require performance of tasks that are the same or similar to those performed on the job to assess their level of skill or competence.  For example, work samples might involve installing a telephone line, creating a document in Word, or tuning an ...
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Accounting & Finance

Financial Accounting

Accounting has been hailed by many as the “language of business”. There are many quotations like “A pen is mightier than the sword but no match for the accountant” by Jonathan Glancey which tell us about the power and importance of accounting. The text book definition of accounting states that it includes recording, summarizing, reporting and analyzing financial data. Let us try and understand the components of accounting to understand what it really means: Recording ...
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One can never really understand a subject, unless they know where it came from. Therefore, a short history of the subject of accounting may be of interest to students of accounting. Here is a very brief history of how accounting evolved:
  • Single Entry Accounting System Accounting is as old as financial transactions themselves. As soon as credit was invented, humans began to use accounting to simplify their lives. As expected, the oldest system ...
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Every activity that a business firm does must be done for a reason and accounting is no exception. Accounting helps the company achieve a myriad of objectives. Here is the list of objectives that accounting helps the company to obtain.
  • Permanent Record Any business firm needs a permanent record of the transactions that it indulges in. These records could be required for internal purpose, for taxation purpose or for any other purpose. Accounting serves ...
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Although accounting may be heralded as being the language of the business, it is definitely not error free. This has been highlighted by the fact that accounting scams have occurred one after the other for many years. In fact, even after stricter regulation and tightening of accounting rules, accounting scams just don’t cease to stop. As a student and practitioner of accounting, it is therefore imperative to know the limitations of accounting. Knowledge of limitations ...
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Financial reporting is used by a wide variety of users for a wide variety of purposes. For this reason it has been difficult to set a common framework of accounting. The many stakeholders often have contrasting needs from accounting information. Let’s look at the stakeholders and their need for accounting data:
  • Capital Markets: Accounting information is widely used in the capital markets. The stock price moves up and down in relation to financial data. This ...
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The entity concept is one of the central tenets of accounting. An understanding of the same is therefore of paramount importance to students. However, the entity concept came as a solution to a problem faced by earlier accountants. To understand the benefits of the solution provided, we must look at the problem first. Confusion in Measurement In reality a business is just another aspect of a person’s life. When many people get together and start ...
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Businesses may all look the same when you look at the building in which they operate, the employees they hire and the product they sell. However, they can be very different when it comes to their legal structure. The legal structure determines the type of entity they are which in turn determines the rules that will be applied to them. Here is a list of the types of entities and their relevance to accounting. Sole ...
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The entity concept separates the concerns of the owners from the business. An extension of the same concept is the concept of accounts which splits up the business’s affairs further. The account concept becomes clearer once the double entry system of accounting is explained. That is done at a later stage in the tutorial. Transactions within the Firm The firm conducts transactions with outside parties and the accounting system is capable of keeping a track ...
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Debits and credits are the building blocks of the double entry accounting system. Many accounting students find the usage of these words confusing. Many try to understand them by trying to draw an analogy with something they already know like plus and minus. However, debits and credits are distinctly different from plus and minus. Sometimes a debit entry may make an account balance go up whereas other times it will make an account balance go ...
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The Problem with Debit Credit Rules The system of debit and credit is right at the foundation of double entry system of book keeping. It is very useful, however at the same time it is very difficult to use in reality. Understanding the system of debits and credits may require a sophisticated employee. However, no company can afford such ruinous waste of cash for record keeping. It is generally done by clerical staff and people ...
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Following are the basic fundamental principles of Accounting:
  1. Monetary Unit Accounting needs all values to be recorded in terms of a single monetary unit. It cannot account for goods like the barter system. Assigning values to goods and items therefore becomes a problem since it is subjective. However, accounting has prescribed rules to deal with the same.
  2. Going Concern A company is said to have an eternal existence. Once it is formed, ...
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Cash Basis of Accounting Cash Basis of Accounting uses receipts and payments of cash to record incomes and expenses. Therefore, under the cash basis of accounting, if a corporation makes salary payments of January, 3 months later in April, it will be considered as expenses in the month of April, since that is when the cash was paid. Also, if the same company pays advance salary for the month of May in April, then it ...
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What is Single Entry System? Single entry accounting systems record only one side of every transaction. This happens because they use one entry to record every transaction. Therefore single entry system does not use nominal and real accounts. The emphasis is on cash and accounts receivable. Single entry accounting system can be described as a system that businesses use to get by rather than something that companies may find desirable. Small Firms Single entry system ...
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The double entry system of bookkeeping is said to have revolutionized growth in modern business. It is only because businesses are able to keep track of their growing scale of transactions efficiently that they grow further. This has been facilitated by a well designed, error preventing accounting system called the double entry system. Here are more details about this system: What Is Double Entry System ? In a double entry bookkeeping system there are two ...
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Marketing & Sales

Introduction to Marketing

There are many definitions of marketing, however put broadly, marketing is a strategic mix of business activities that work towards a bigger goal of building your brand and business. Marketing is about identifying and understanding your customers and developing products and services that meet their needs. Marketing is important across many areas of your business, including how your customers are greeted on the phone, your customer service procedures, what your staff wear, and your email signature ...
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Today, large and small-scale, global and local, innovative and traditional, public and private, everyone is competing for the same market. Companies have realized the power of holistic approach to marketing to create and maintain a desirable demand, reputation, and competition. The role of marketing is too diverse to be summarised in one small article. Nevertheless, we’ve come up with few arguments to state the importance of marketing in today’s world.  Creating A Brand According to Stephen King of the WPP ...
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Helping you set marketing objectives to provide the right direction to meet your goals. Once you have established your strengths and weaknesses and the opportunities and threats available through the marketing audit you can redefine your marketing objectives and how these fit into your business objectives. Typically, clients marketing objectives include some or all of the following:
  1. Increase sales
  2. Build brand awareness
  3. Grow market share
  4. Launch new products or services
  5. Target new customers
  6. Enter new markets internationally ...
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The marketing mix deals with the way in which a business uses price, product, distribution and promotion to market and sell its product. The marketing mix is often referred to as the “Four P’s” – since the most important elements of marketing are concerned with:
  1. Product – the product (or service) that the customer obtains
  2. Price – how much the customer pays for the product
  3. Place – how the product is distributed to the customer
  4. Promotion – how the customer is found and ...
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To stay in the market for long and to find a position in customers’ minds, you have to think like customers and form strategies which benefit both the parties. The 4C’s marketing concept focuses on niche marketing, unlike mass marketing which was propagated by the 4P’s. The more you know the consumer, the better are your targeting strategies, and more is the conversion rate. The 4C’s of Marketing Mix are: Consumer wants and needs Similar to product ...
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The first four elements in the services marketing mix are the same as those in the traditional marketing mix. However, given the unique nature of services, the implications of these are slightly different in case of services.
  1. Product: In case of services, the ‘product’ is intangible, heterogeneous and perishable. Moreover, its production and consumption are inseparable. Hence, there is scope for customizing the offering as per customer requirements and the actual customer encounter therefore ...
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Marketing Mix 4 Ps and 7 Ps

4P’s of the Marketing Mix: Product A business starts with a need.  It is this need of a specific market that the company should provide the solution to. This solution is a product or a service that the company has the resources to provide. Product is one of the P’s referred to in the marketing mix enumerated in basic marketing theories. Companies have to take time to develop a quality product that is responsive to the needs of ...
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4P’s of the Marketing Mix: Price Price is the amount of money that your customers have to pay in exchange for your product or service. Determining the right price for your product can be a bit tricky. A common strategy for beginning small businesses is creating a bargain pricing impression by pricing their product lower than their competitors. Although this may boost initial sales, low price usually equates to low quality and this may not ...
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4P’s of the Marketing Mix: Promotion Promotion is the part of marketing where you advertise and market your product, also known as a promotional strategy. Through it, you let potential customers know what you are selling. In order to convince them to buy your product, you need to explain what it is, how to use it, and why they should buy. The trick in promoting is letting consumers feel that their needs can be satisfied ...
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4P’s of the Marketing Mix: Place (Distribution) Place refers to distribution or the methods and location you use for your products or services to be easily accessible to the target customers. Your product or service dictates how it should be distributed. If you own a retail shop, for example, the distribution chain ends with you and you supply to your customers directly. If you own a factory, your options will be to either sell your ...
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7P’s of the Marketing Mix: People in the Marketing Mix In marketing mix, people are also important. In fact, without them, products will not exist. Without them, no one would be responsible for selling and getting those products out there. However, more often than not, the importance of people in marketing is being neglected. This is due to the fact that not everyone is being respectful of their customers. How many times have you seen establishments fail ...
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7P’s of the Marketing Mix: Process The Glorious Processes of Marketing Let’s talk about the marketing mix process. It’s really one of the most important things in the marketing mix 7P’s. After all, no business has survived without a proper plan in place to back it and no advertising campaign has been successful without proper processes of execution. In short, in whatever it is that you need to do in life, there really has to be a ...
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7P’s of the Marketing Mix: Physical Evidence Why Physical Evidence is Important in Marketing It is said that you shouldn’t judge a book by its cover. But come to think of it, more often than not, you choose to buy or patronize products that already look appealing on the get-go. This is because you really do not expect people to research first about the products they want to buy all the time. For example, if ...
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Social Media Marketing

Introduction to Social Media Marketing

Social media is an internet-based form of communication. Social media platforms allow users to have conversations, share information and create web content. There are many forms of social media, including blogs, micro-blogs, wikis, social networking sites, photo-sharing sites, instant messaging, video-sharing sites, podcasts, widgets, virtual worlds, and more. Social media marketing for business involves using websites such as Twitter, Facebook, and Foursquare, to grow your business online. Business owners can choose to connect with friends, ...
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Social Media Portal (SMP) is a news and information directory mapping all aspects of social media globally. SMP has free resources through social media technology on academics, advertisers, businesses, marketers, PRs, researchers and more. We spoke to Tim Gibbon, Director of the Social Media Portal about what partnering with a4uexpo London means to SMP, Tim said that “ At the Social Media Portal (SMP), we seek to partner with progressive and intelligent conferences that are ...
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Sites for social news appear quite often which disappear after a number of seconds. A social news site does not become useful until it gains a solid community adding and voting on links, but it is difficult to gain a community if the site is not useful. A few popular social news sites are:
  1. Digg,
  2. Propeller (formerly Netscape),
  3. Reddit, and
  4. Newsvine.
All of the above have an elaborate community and a different appearance ...
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Web 2.0 was introduced as social bookmarking became popular with Digg and Delicious. Since this inception, social bookmarking has evolved and grown with only a handful of the original social bookmarking sites retaining some sort of relevance (Reddit, StumbleUpon, to name a few). Yet, social bookmarking can send your website hundreds of thousands of visitors overnight (aka the ‘Digg Effect’). Social Bookmarking Sites List
  1. Digg
  2. Folkd
  3. Colivia
  4. Diggita
  5. Ebaum’s World
  6. LinkaGoGo
  7. News Me Back
  8. ...
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Social Networking is connecting to friends and family through the usage of the Internet. Social networking websites are not necessarily about meeting new people online, although this does happen. Instead, they are primarily about connecting with friends, family, and acquaintances you already have in real life. The most well known social networking sites are Facebook, Twitter, MySpace, and Bebo. These sites allow you to share photos, videos, and information, organize events, chat, download music and ...
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Online marketing (web marketing/internet marketing) is the process by which a business can sell its services and products over the Internet. In such a competitive world, for every type of business, use of online marketing has become really important. One reason why businesses give more importance to is their ranking in search engines is because there is a notion that in order to succeed in an online business, ranking high in Google search is extremely ...
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Goal Setting In a Social Environment

Uncontrolled communications channels are the media used to present messages that an organization has less control over. They cannot be easily influenced by the company. These media include press reports, feature articles, and TV programmes. Although controlled communications including press releases and exhibitions can be used by organizations to influence these channels, what is reported and the way in which it is presented ultimately rests with outside agencies. Even though it is more difficult to manage ...
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Being transparent means that no secrets or vital information should be kept from the team. Secrets can poison any work culture. Here are 5 musts to being a transparent leader:
  1. Listen and provide feedback – being a good listener is a must but being a good leader and providing feedback in an absolute. Try to avoid overpromising when you give feedback …… by the way, this is so easy to do!
  2. Communicate with effectiveness and efficiency – ...
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The importance of listening applies to more than only academic and professional purposes. Understanding how to practice good communication even in your day to day life, among friends, family, and significant others, is important for a number of reasons:
  1. fostering good self-esteem,
  2. maximizing productivity,
  3. improving relationships, and
  4. becoming a better speaker.
It is easy to mistake listening as a simple, passive task, but it requires more than just the ability to absorb information ...
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A key part of a successful social media strategy is knowing what results are desired out of social media since this will drive actions and help in measuring progress. Select Your Key Social Media Marketing Metric
  1. Traffic: If you’re an ad-supported website, you care a lot about eyeballs on your site. More eyeballs mean more advertising dollars. You want to use social media to drive a larger and larger audience to visit your website.
  2. ...
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Increased traffic to your site Social media marketing can significantly increase the traffic to your site. This traffic consists of both primary and secondary traffic. Primary traffic comes directly from the social media site where your content is tagged to read your article or watch your video. Secondary traffic comes from a third party website that has linked to your site after seeing it tagged on a social media site. Although a larger portion of ...
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Awareness is the first step in the customer purchase process. A prospective buyer needs to be aware of the product or service before evaluating and consciously choosing to purchase the brand. Measurements of the early stages of the customer purchase funnel are dependent on surveys of perceptions such as awareness, consideration, preference and/or purchase intention. This is where the definition of brand awareness becomes incredibly important. If you are making the case that brand awareness ...
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Economics

Introduction to Economics

Economics is the study of how society allocates scarce resources and goods. Resources are the inputs that society uses to produce output, called goods. Resources include inputs such as labor, capital, and land. Goods include products such as food, clothing, and housing as well as services such as those provided by barbers, doctors, and police officers. These resources and goods are considered scarce because of society’s tendency to demand more resources and goods than are available. While most resources and goods are scarce, ...
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An economic policy is a course of action that is intended to influence or control the behavior of the economy. Economic policies are typically implemented and administered by the government. Examples of economic policies include decisions made about government spending and taxation, about the redistribution of income from rich to poor, and about the supply of money. The effectiveness of economic policies can be assessed in one of two ways, known as positive and normative economics. Positive and normative economics Positive ...
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The prefix micro means small, indicating that microeconomics is concerned with the study of the market system on a small scale. Microeconomics looks at the individual markets that make up the market system and is concerned with the choices made by small economic units such as individual consumers, individual firms, or individual government agencies ...
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Economics-Economic-Analysis
Economic analysis is marginal analysis In marginal analysis, one examines the consequences of adding to or subtracting from the current state of affairs. Consider, for example, an employer’s decision to hire a new worker. The employer must determine the marginal benefit of hiring the additional worker as well as the marginal cost. The marginal benefit of hiring the worker is the value of the additional goods or services that the new worker could produce. The ...
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Demand, Supply, Elasticity

In every market, there are both buyers and sellers. The buyers’ willingness to buy a particular good (at various prices) is referred to as the buyers’ demand for that good. The sellers’ willingness to supply a particular good (at various prices) is referred to as the sellers’ supply of that good. The buyers’ demand is represented by a demand schedule, which lists the quantities of a good that buyers are willing to purchase at different ...
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Economics-Supply
The buyers’ demand for goods is not the only factor determining market prices and quantities. The sellers’ supply of goods also plays a role in determining market prices and quantities. Like the buyers’ demand, the sellers’ supply can be represented in three different ways: by a supply schedule, by a supply curve, and algebraically. An example of a supply schedule for a certain good X is given in Table, and the corresponding supply curve is drawn in Figure. Note that as the ...
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In addition to understanding how equilibrium prices and quantities change as demand and supply change, economists are also interested in understanding how demand and supply change in response to changes in prices and incomes. The responsiveness of demand or supply to changes in prices or incomes is measured by the elasticity of demand or supply. Price elasticity of demand and supply. The price elasticity of demand is given by the formula: The price elasticity of supply is given by a ...
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Economics-Equilibrium-Analysis
In the market for any particular good X, the decisions of buyers interact simultaneously with the decisions of sellers. When the demand for good X equals the supply of good X, the market for good X is said to be in equilibrium. Associated with any market equilibrium will be an equilibrium quantity and an equilibrium price. The equilibrium quantity of good X is that quantity for which the quantity demanded of good X exactly equals the quantity supplied of good X. The equilibrium price for good X is that price per unit of good X that ...
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Unemployment, Inflation, GDP

Economics-GDP
GDP is defined as the market value of all final goods and services produced domestically in a single year and is the single most important measure of macroeconomic performance. A related measure of the economy’s total output product is gross national product (GNP), which is the market value of all final goods and services produced by a nation in a single year.   GDP or GNP? The difference between GDP and GNP is rather technical. GDP includes only goods and services produced by a nation’s ...
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Economics-Nominal-GDP-Real-GDP-and-Price-Level
Nominal GDP is GDP evaluated at current market prices. Therefore, nominal GDP will include all of the changes in market prices that have occurred during the current year due to inflation or deflation. Inflation is defined as a rise in the overall price level, and deflation is defined as a fall in the overall price level. In order to abstract from changes in the overall price level, another measure of GDP called real GDP is often used. Real GDP is GDP ...
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Economics-Unemployment-Rate
The unemployment rate measures the percentage of the total civilian labor force that is currently unemployed. The formula for the unemployment rate is given by  The civilian labor force consists of all civilians (non‐military personnel), 16 years of age or older, who are willing to work and are not incarcerated. The number of people unemployed is determined according to certain criteria. In the U.S., an unemployed person is a member of the civilian labor force who is ...
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Aggregate Demand & Aggregate Supply

In macroeconomics, the focus is on the demand and supply of all goods and services produced by an economy. Accordingly, the demand for all individual goods and services is also combined and referred to as aggregate demand. The supply of all individual goods and services is also combined and referred to as aggregate supply. Like the demand and supply for individual goods and services, the aggregate demand and aggregate supply for an economy can be represented by a ...
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The aggregate supply curve depicts the quantity of real GDP that is supplied by the economy at different price levels. The reasoning used to construct the aggregate supply curve differs from the reasoning used to construct the supply curves for individual goods and services. The supply curve for an individual good is drawn under the assumption that input prices remain constant. As the price of good X rises, sellers’ per unit costs of providing good X do ...
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When the aggregate demand and SAS (short-run aggregate supply) curves are combined, as in Figure , the intersection of the two curves determines both the equilibrium price level, denoted by P *, and the equilibrium level of real GDP, denoted by Y * .
  If it is further assumed that the economy is fully employing all of its resources, the equilibrium level of real GDPY *, will correspond to the natural level of real GDP, and the LAS curve may be drawn as a vertical line at Y *, ...
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Classical & Keynesian Theories: Output, Employment

The fundamental principle of the classical theory is that the economy is self‐regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP or output, which is the level of real GDP that is obtained when the economy’s resources are fully employed. While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP, self‐adjustment mechanisms exist within the market system that work ...
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Keynes’s theory of the determination of equilibrium real GDP, employment, and prices focuses on the relationship between aggregate income and expenditure. Keynes used his income‐expenditure model to argue that the economy’s equilibrium level of output or real GDP may not corresPond to the natural level of real GDP. In the income‐expenditure model, the equilibrium level of real GDP is the level of real GDP that is consistent with the current level of aggregate expenditure. If the current ...
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Money & Banking

What is money? Money is any good that is widely used and accepted in transactions involving the transfer of goods and services from one person to another. Economists differentiate among three different types of money: commodity money, fiat money, and bank money. Commodity money is a good whose value serves as the value of money. Gold coins are an example of commodity money. In most countries, commodity money has been replaced with fiat money. Fiat money is a good, ...
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Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account. Medium of exchange Money’s most important function is as a medium of exchange to facilitate transactions. Without money, all transactions would have to be conducted by barter, which involves direct exchange of one good or service for another. The difficulty with a barter system is that in order to obtain a ...
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The demand for money is affected by several factors, including the level of income, interest rates, and inflation as well as uncertainty about the future. The way in which these factors affect money demand is usually explained in terms of the three motives for demanding money: the transactions, the precautionary, and the speculative motives. Transactions motive The transactions motive for demanding money arises from the fact that most transactions involve an exchange of money. Because it is necessary to have money available ...
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There are several definitions of the supply of money. M1 is narrowest and most commonly used. It includes all currency (notes and coins) in circulation, all checkable deposits held at banks (bank money), and all traveler’s checks. A somewhat broader measure of the supply of money is M2, which includes all of M1 plus savings and time depositsheld at banks. An even broader measure of the money supply is M3, which includes all of M2 plus large denomination, long‐term time deposits—for example, certificates of deposit (CDs) in amounts over $100,000. Most ...
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Fiscal & Monetary Policy

Fiscal policy is carried out by the legislative and/or the executive branches of government. The two main instruments of fiscal policy are government expenditures and taxes. The government collects taxes in order to finance expenditures on a number of public goods and services—for example, highways and national defense.   Budget deficits and surpluses When government expenditures exceed government tax revenues in a given year, the government is running a budget deficit for that year. The budget deficit, which is the difference between government expenditures and tax ...
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Monetary policy is conducted by a nation’s central bank. In the U.S., monetary policy is carried out by the Fed. The Fed has three main instruments that it uses to conduct monetary policy: open market operations, changes in reserve requirements, and changes in the discount rate. Recall from the earlier discussion of money and banking that open market operations involve Fed purchases and sales of U.S. government bonds. When the Fed purchases government bonds, it increases the reserves of the banking ...
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Theory of Consumer

The consumer equilibrium condition determines the quantity of each good the individual consumer will demand. As the example above illustrates, the individual consumer’s demand for a particular good—call it good X—will satisfy the law of demand and can therefore be depicted by a downward‐sloping individual demand curve. The individual consumer, however, is only one of many participants in the market for good X. The market demand curve for good X includes the quantities of good X demanded by all participants in the market for good X. The market demand ...
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Individuals consume goods and services because they derive pleasure or satisfaction from doing so. Economists use the term utility to describe the pleasure or satisfaction that a consumer obtains from his or her consumption of goods and services. Utility is a subjective measure of pleasure or satisfaction that varies from individual to individual according to each individual’s preferences.For example, if an individual’s choices for a Saturday evening are to watch television, go out to dinner, or go to ...
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When consumers make choices about the quantity of goods and services to consume, it is presumed that their objective is to maximize total utility. In maximizing total utility, the consumer faces a number of constraints, the most important of which are the consumer’s income and the prices of the goods and services that the consumer wishes to consume. The consumer’s effort to maximize total utility, subject to these constraints, is referred to as the consumer’s problem. The solution to the consumer’s problem, which entails ...
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The consumer’s choice of how much to consume of various goods depends on the prices of those goods. If prices change, the consumer’s equilibrium choice will also change. To see how, consider again the example considered above where the consumer must decide how much to consume of goods 1 and 2. Suppose that the price of good 1 increases from $2 per unit to $3 per unit, while the price of good 2 remains unchanged at $1 ...
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The difference between the maximum price that consumers are willing to pay for a good and the market price that they actually pay for a good is referred to as the consumer surplus. The determination of consumer surplus is illustrated in Figure , which depicts the market demand curve for some good.   The market price is $5, and the equilibrium quantity demanded is 5 units of the good. The market demand curve reveals that consumers are willing ...
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Theory of the Firm

The theory of the consumer is used to explain the market demand for goods and services. The theory of the firm provides an explanation for the market supply of goods and services. A firm is defined as any organization of individuals that purchases factors of production (labor, capital, and raw materials) in order to produce goods and services that are sold to consumers, governments, or other firms. The theory of the firm assumes that the firm’s primary objective is to maximize profits. In maximizing profits, firms are ...
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The firm’s primary objective in producing output is to maximize profits. The production of output, however, involves certain costs that reduce the profits a firm can make. The relationship between costs and profits is therefore critical to the firm’s determination of how much output to produce. Explicit and implicit costs A firm’s explicit costs comprise all explicit payments to the factors of production the firm uses. Wages paid to workers, payments to suppliers of raw materials, and ...
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In the short‐run, some factors of production are fixed. Corresponding to each different level of fixed factors, there will be a different short‐run average total cost curve (SATC). The average total cost curve is just one of many SATCs that can be obtained by varying the amount of the fixed factor, in this case, the amount of capital. Long‐run average total cost curve. In the long‐run, all factors of production are variable, and hence, all costs are variable. The long‐run average ...
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Perfect Competition

When economists analyze the production decisions of a firm, they take into account the structure of the market in which the firm is operating. The structure of the market is determined by four different market characteristics: the number and size of the firms in the market, the ease with which firms may enter and exit the market, the degree to which firms’ products are differentiated, and the amount of information available to both buyers and ...
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The demand and supply curves for a perfectly competitive market are illustrated in Figure (a); the demand curve for the output of an individual firm operating in this perfectly competitive market is illustrated in Figure (b).   Note that the demand curve for the market, which includes all firms, is downward sloping, while the demand curve for the individual firm is flat or perfectly elastic, reflecting the fact that the individual takes the market price, P, as given. The difference ...
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In determining how much output to supply, the firm’s objective is to maximize profits subject to two constraints: the consumers’ demand for the firm’s product and the firm’s costs of production. Consumer demand determines the price at which a perfectly competitive firm may sell its output. The costs of production are determined by the technology the firm uses. The firm’s profits are the difference between its total revenues and total costs.  Total revenue and marginal ...
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In the long‐run, firms can vary all of their input factors. The ability to vary the amount of input factors in the long‐run allows for the possibility that new firms will enter the market and that some existing firms will exit the market. Recall that in a perfectly competitive market, there are no barriers to the entry and exit of firms. New firms will be tempted to enter the market if some of the existing firms in the market are earning positive ...
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Monopoly

In a perfectly competitive market, there are many firms, none of which is large in size. In contrast, in a monopolistic market there is only one firm, which is large in size. This one firm provides all of the market’s supply. Hence, in a monopolistic market, there is no difference between the firm’s supply and market supply.   Three conditions characterize a monopolistic market structure. First, there is only one firm operating in the market. Second, there are high barriers to entry.These barriers are ...
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Because the monopolist is the market’s only supplier, the demand curve the monopolist faces is the market demand curve. You will recall that the market demand curve is downward sloping, reflecting the law of demand. The fact that the monopolist faces a downward‐sloping demand curve implies that the price a monopolist can expect to receive for its output will not remain constant as the monopolist increases its output.   Price‐searching behavior. Unlike a perfectly competitive firm, the monopolist does ...
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A monopolist produces less output and sells it at a higher price than a perfectly competitive firm. The monopolist’s behavior is costly to the consumers who demand the monopolist’s output. The cost of monopoly that is borne by consumers is illustrated in Figure . The firm’s marginal cost curve is drawn as a horizontal line at the market price of $5.   In a perfectly competitive market, the firm’s marginal revenue curve is also equal to the market price of ...
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In the discussion of a perfectly competitive market structure, a distinction was made between short‐run and long‐run market behavior. In the long‐run, all input factors are assumed to be variable, making it possible for firms to enter and exit the market. The consequence of this entry and exit of firms was that each firm’s economic profits were reduced to zero in the long‐run. The distinction between the short‐run and the long‐run is not as important ...
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The monopolist’s profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output. Indeed, the condition that marginal revenue equal marginal cost is used to determine the profit maximizing level of output of every firm, regardless of the market structure in which the firm is operating. In order to determine the profit ...
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Monopolistic Competition & Oligopoly

Perfect competition and pure monopoly represent the two extreme possibilities for a market’s structure. The structure of almost all markets, however, falls somewhere between these two extremes. This section considers two market structures, monopolistic competition and oligopoly, which lie between the extreme cases of perfect competition and monopoly. Monopolistic competition, as its name suggests, is a combination of monopoly and competition. However, monopolistic competition is more closely related to perfect competition than to monopoly. Oligopoly is also a combination of ...
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Oligopoly is the least understood market structure; consequently, it has no single, unified theory. Nevertheless, there is some agreement as to what constitutes an oligopolistic market. Three conditions for oligopoly have been identified. First, an oligopolistic market has only a few large firms.This condition distinguishes oligopoly from monopoly, in which there is just one firm. Second, an oligopolistic market has high barriers to entry. This condition distinguishes oligopoly from perfect competition and monopolistic competition in which there are ...
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Because the monopolistically competitive firm’s product is differentiated from other products, the firm will face its own downward‐sloping “market” demand curve. This demand curve will be considerably more elastic than the demand curve that a monopolist faces because the monopolistically competitive firm has less control over the price that it can charge for its output. The firm’s control over its price will depend on the degree to which its product is differentiated from competing firms’ products. If the firm’s ...
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As mentioned above, there is no single theory of oligopoly. The two that are most frequently discussed, however, are the kinked‐demand theory and the cartel theory. The kinked‐demand theory is illustrated in Figure and applies to oligopolistic markets where each firm sells a differentiated product. According to the kinked‐demand theory, each firm will face two market demand curves for its product. At highprices, the firm faces the relatively elastic market demand curve, labeled MD 1 in Figure .   Corresponding to MD 1 is the marginal revenue curve labeled MR 1.At low prices, the firm faces the relatively inelastic market ...
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A cartel is defined as a group of firms that gets together to make output and price decisions. The conditions that give rise to an oligopolistic market are also conducive to the formation of a cartel; in particular, cartels tend to arise in markets where there are few firms and each firm has a significant share of the market. In the U.S., cartels are illegal; however, internationally, there are no restrictions on cartel formation. The organization of ...
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The difference between the short‐run and the long‐run in a monopolistically competitive market is that in the long‐run new firms can enter the market, which is especially likely if firms are earning positive economic profits in the short‐run. New firms will be attracted to these profit opportunities and will choose to enter the market in the long‐run. In contrast to a monopolistic market, no barriers to entry exist in a monopolistically competitive market; hence, it ...
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An illustration of the monopolistically competitive firm’s profit‐maximizing decision is provided in Figure .   The firm maximizes its profits by equating marginal cost with marginal revenue. The intersection of the marginal cost and marginal revenue curves determines the firm’s equilibrium level of output, labeled Q in this figure. The firm finds the price that it can charge for this level of output by looking at the market demand curve; if it provides Q units of output, it can charge ...
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Labor Market

In addition to making output and pricing decisions, firms must also determine how much of each input to demand. Firms may choose to demand many different kinds of inputs. The two most common are labor and capital.   The demand and supply of labor are determined in the labor market.The participants in the labor market are workers and firms. Workers supply labor to firms in exchange for wages. Firms demand labor from workers in exchange for wages. The firm’s demand for labor. The firm’s demand for labor is a derived demand; it is derived from ...
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A labor market in which there is only one firm demanding labor is called a monopsony. The single firm in the market is referred to as the monopsonist. An example of a monopsony would be the only firm in a “company town,” where the workers all work for that single firm.   Wage‐searching behavior. Because the monopsonist is the sole de‐mander of labor in the market, the monopsonist’s demand for labor is the market demand for labor. The supply of labor that ...
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While each labor market is different, the equilibrium market wage rate and the equilibrium number of workers employed in every perfectly competitive labor market is determined in the same manner: by equating the market demand for labor with the market supply of labor. The determination of equilibrium market wage and employment is illustrated in Figure .    The equilibrium market wage is W, and the equilibrium number of workers employed is Q. At wage rates greater than W, the demand for labor would be ...
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In a monopsony market, the monopsonist firm—like any profit‐maximizing firm—determines the equilibrium number of workers to hire by equating its marginal revenue product of labor with its marginal cost of labor. Figure illustrates the monopsony labor market equilibrium, using the supply and cost data from Table . The marginal revenue product of labor equals the marginal cost of labor when the firm employs 3 workers. The equilibrium market wage rate is determined by the market labor supply ...
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Capital Market

While labor is measured in terms of the number of workers hired or the number of hours worked, it is difficult to measure capital in terms of physical units because there are so many different types of capital goods. Capital goods, therefore, are simply measured in terms of their market or dollar value.   Capital stock. The market value of capital goods at a given point in time, for example, at the end of a year, is referred to as the capital stock. A firm’s capital ...
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The demand and supply for different types of capital take place in capital markets. In these capital markets, firms are typically demanders of capital, while households are typically suppliers of capital. Households supply capital goods indirectly, by choosing to save a portion of their incomes and lending these savings to banks. Banks, in turn, lend household savings to firms that use these funds to purchase capital goods.   Loanable funds. The term loanable funds is used to describe funds that are available for borrowing. Loanable funds consist ...
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Firms purchase capital goods to increase their future output and income. Income earned in the future is often evaluated in terms of its present value. The present value of future income is the value of having this future income today.   Present value formula.The present value of receiving $20,000 one year from now can be calculated using the present value formula. The formula for finding the present value of X dollars received t years from now at the current market interest rate r is ...
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