The Law of Supply: Supply Schedule and Supply Curve

As we have seen earlier, a supplier always tries to sell more and more commodities when prices are high, and, conversely, restricts his supplies when prices start falling. This is the underlying law of supply.

The law of supply employs this basic reality in its definition. It assumes that, while other factors determining supply remain constant, price changes will result in changes in the quantity supplied.

The Law of Supply Definition

The law of supply states that "all other factors remaining constant, an increase in the price will result in an increase in quantity supplied and vice versa". 

In other words, the law of supply states that there is a direct relationship between price and quantity.

Businessmen, whether producers, sellers, or service providers, tend to release more of their products into the market when prices rise, in order to pocket more profits.

Conversely, when prices fall, they tend to withdraw or restrict stocks to stabilise the prices of their goods.

These variations in the supply chain are studied and controlled by preparing presentations through charts and graphs. They are known as "Supply Schedules" and "Supply Curves" in economics. 

Supply Schedule

A supply schedule is a table or chart showing the changes in quantities supplied at varying ranges of the price of a commodity.

Suppose a supplier deals in rice.

 

At a price of, say, Rs. 50 per kg, the supplier will put into the market all of his stock, say 10,000 kg of rice. 

If the price comes down to Rs. 45 per kg, he may sell only, say, 8,000 kg. 

If the price further goes down to Rs. 40, he will restrain more and will supply only 5,000 kg. 

On the other hand, suppose the price increases from Rs. 50 to Rs. 60 per kg, he will try to procure more stocks from other sources and increase his supplies to 15,000 kg. 

The same can be presented through a chart as shown below:

Supply Schedule chart

Price of Rice (Rs. Per kg)	Quantity of rice supplied (in Kg)
60	15,000
50	10,000
45	8,000
40	5,000

So, it is clear from the above supply schedule that the supplier decreases his supply quantity when prices fall. 

If you view the same chart from bottom to top, you will realise that the supplier has increased his supply whenever the price increased from the previous price. 

The same thing can be illustrated through a supply curve also.

Supply Curve

A supply curve is the line or graph connecting all the points representing supply levels at various commodity prices.

So, a Supply Curve can be defined as the graphic representation of the relationship between the price of a commodity and the quantities supplied by the supplier.

The quantities supplied are measured on the horizontal axis and the prices on the vertical axis in the graph below.

Example of Supply Curve:

From the above supply schedule of rice, we can draw the supply curve. 

Let us start with the price as 'zero' and quantity supplied also as zero. And then, denote the points from the Supply Schedule.

So, the supply curve will be like this, as represented below:

The supply curve will rise as prices increase, because the supplier will continue to increase the quantity supplied with every price increase, unless he is unable to do so because of other factors affecting supply. In such cases, when he is unable to maintain his supply, the supply curve may begin to fall.

There can be many factors that affect supply. To know the factors affecting supply, you may view the information at this link.

Revenue Definition, and Different Types of Revenue in Economics

Definition of Revenue:

According to the International Financial Reporting Standards (IFRS), Revenue is the inflow of economic benefits arising during the ordinary course of an entity's economic activities.

The inflows should directly come from its product-selling activities or services rendered. They should not include other income.

According to the above definition, Revenue = Gross Receipts from sales or services. Other receipts like interest, royalties, and rents (which are not part of their core business) are treated as Misc. Income/Receipts.

Revenue is also referred to as Gross Income or Gross Receipts.

Generally, revenue is measured as receipts accrued from sales or services performed during a specific period of time - say, a particular week, a particular month, or a year. It is irrespective of whether payment is received during that same period or not.

IFRS Definition vs Accounting Concept of Revenue:

But, for accounting purposes, while preparing the Profit and Loss/ Balance Sheets, or Revenue Budgets, all types of income are considered as revenue. So, an accountant takes receipts from the sale of assets, interest received from banks, and rent receipts, etc., as Revenue in his books.

Revenue is the income earned by a business enterprise, organisations, or governments. Revenue may be either in the form of sales proceeds from goods and services sold, or in the shape of receipts from other activities and sources of any enterprise or government. So, for business organisations, revenue includes sales income and/or fees received for services rendered.

In the case of Governments, revenue includes receipts from the collection of taxes, duties, and Bonds and Debentures, if any, invested by them. It can include even donations received from others, funds received from other social activities, etc. All these receipts are collectively known as revenue.

Financial Statements prepared by companies for arriving at Net Profit/Loss consider income received from other sources also as their receipts in order to tally them against their total expenditure.    

Different Types of Revenue in Economics

There are different concepts of revenue according to the nature of organisations.

Sometimes, revenue can be referred to as business revenue, government revenue or association revenue based on the nature of organisation or enterprise.

Business Revenue

Business revenue refers to income or receipts from normal business activities of any organisation. Businesses that indulge in the manufacturing and/or selling of products, or in providing services to their clients, receive income either in the form of sales or as fees for services. This income is known as 'business revenue'.

 

The main point is that the income should be from their primary business activity. 

If one is engaged in a rental business, then his business income is the rent received. 

If it is a financial institution, then its income will be from interest and other charges received from lending loans.

This business revenue can be classified into two parts: sales income and other income.

1) Sales Revenue or Sales Income;
Sales revenue denotes the income received by way of sales of goods or services. 

For a manufacturer, it is income from the sale of produced goods. 

For a grocery store or merchant, it is income from the sale of provisions or merchandise. 

For a banker, it can be the sale of loans. 

For a service provider, such as a consultant, barber, or cobbler, it is the service charges received. 

So, sales revenue is their business income.

2) Other Revenue or Other Income:
While performing a business, you may receive some income that is not directly related to your primary business activity. 

For example, you are running a manufacturing business. You sell your produce and receive the revenue. Now, you may not be spending all that income for your business. 

You may deposit some money in fixed deposits or invest in other investments. So, you will be receiving interest from these investments. It is not your sales income. It is to be termed as 'other income'.

Similarly, you may sell some old machinery or assets and buy new ones. This sale of old assets is not your primary sale. It is your 'other income'.

If you can rent a part of your building or any machinery to others for a short period, the rent received is also treated as 'other income'.

Government Revenue

Government revenue is entirely different from business revenue. Government revenue is the money received from various taxes and duties imposed by the government to meet its expenditure in the running of the government and funding various development programs of the country.

The receipts include collections from Income Tax, Goods and Services Tax, Sales Tax, etc., and duties such as Customs Duty, Excise Duty, Export/Import Duty, etc. 

Government revenue may also include income generated through financial and banking operations and through the railways and tourism departments. All these are part of government revenue intended for spending it back on public works and other welfare activities for the country.

Association Revenue (Social & Non-Profit Organisations)

Association revenue is that type of revenue generated by non-profit organisations and public associations like cooperatives and NGOs. It is a fund created through non-business-oriented activities for a common cause of the members of the organisation or for public welfare. The revenue generated includes membership fees of members, donations or charity funds received from outsiders, and any financial help received from governments, etc. They may also generate revenue through sponsorship of cultural or other programmes.

For information regarding the Concepts of Total Revenue, Average Revenue, and Marginal Revenue,

please go to this link: Concepts of Revenue and Calculation formulae

Definition of Cost: Different Types and Elements of Cost in Economics Explained

What is Cost

In Economics, Cost is the value of inputs employed to produce an output. It is the aggregate of various cost elements.

It includes the cost of materials, labour charges, rent or depreciation of tools incurred in producing the output, interest paid or foregone by employing the capital, and the value of efforts and sacrifices made by the producer in producing the output.

Cost can be defined as the monetary value of all materials, resources, and efforts involved in producing an output, along with the value of time, the opportunity foregone, and the risks involved in producing the output.

For example, to understand the elements of cost, look at the example of a housewife preparing food.

• The housewife purchases provisions and vegetables, etc. 
• She invests money in utensils, a gas stove, and gas. 
• She labours in the kitchen for hours cutting vegetables, cooking the ingredients, and doing other related tasks. 
• She employs a maid to wash dishes and pays her periodically. 
• She sweats in the kitchen instead of resting in the hall or her bedroom, watching TV or reading books. 
• Further, she risks getting cut or burning her fingers while cooking. 
• So each one of these factors, when taken in their monetary value, constitutes the cost factor of the food she prepared.

This is how the cost of any product is assessed. 

All elements taken together constitute the total cost of the product.

Types and Elements of Cost in Economics

The following are the different types of costs in economics that refer to different aspects of the cost.

• Total cost
• Fixed cost
• Variable cost
• Average cost
• Marginal cost
• Explicit cost
• Implicit cost

Now, let us have a look at the features of each and every aspect of these costs.

Total Cost

Total cost refers to the total amount of expenses incurred in producing the output, which includes the monetary value of each and every aspect mentioned in the above example of a housewife preparing food. It is the cost as a whole of the product. So, total cost constitutes all the expenses incurred in achieving the output.

Fixed Cost

Fixed cost is a more or less lump-sum cost that must be incurred irrespective of the quantity or quality of the product produced. It has no relation to the volume of output. 

For example, in the above illustration of a housewife preparing food, you can see that the stove is needed irrespective of the quantity of food to be cooked. Again, you need the utensils also for cooking. So, these are fixed expenses that are needed as a base for cooking the food. 

The risk factor and the labor are also there, which constitute fixed costs for most part of it. 

In general, fixed costs include all salaries and administrative expenses, including the value of depreciation of assets during that period. 

These are compulsory expenses incurred irrespective of production.

Here, you should note one point. The fixed cost for smaller quantities of production may be high, whereas if the production quantity increases, the fixed cost per unit decreases. 

With the same fixed expenses, you can produce more quantities up to some limits.

Variable Cost

Variable costs are variable in nature. They depend on the quantity and quality of the produce. If food is to be cooked for more people, the expenses increase, and for fewer people, they decrease. If you have to produce high-quality food, you need high-quality ingredients, which are more expensive. So, the cost depends on these factors.

In the above example of a housewife cooking food, the cost of provisions, vegetables, and gas consumption can vary depending on the quantity of food to be prepared. 

If you are cooking for four people, it will be less. But if you cook for 10 people, the total expenses will be much more. This is one variable cost example.

But, on the whole, you should note that the variable cost per unit of food may remain the same. Because the same quantity of provisions and vegetables is required per head.

Average Cost

Average cost refers to the cost per unit of production. It is derived by dividing the total cost by the number of units produced. 

Suppose in the above example of cooking food, if total expenses incurred are Rs.1,000 and the food is served to 10 people, the average cost per meal is 1000 / 10 = Rs.100 per meal. 

Or, if the total monthly expense for cooking comes to Rs.6,000, then the average cost per day is Rs.200 (6,000 / 30 days = 200). 

And if 4 people eat per day, then the average cost per head is 200 / 4 = 50.

Marginal Cost

Marginal cost is the extra amount of expenditure incurred for the addition of one unit of extra product.

Say, for example, a guest visited your home, and you cooked one more plate of meals for him. 

You had to spend on some extra rice, dal, and vegetables for him. Now, the value of these extra items is the additional expenditure incurred in cooking an extra meal. All other expenses remained the same. 

But you had to put in some more effort while cutting extra vegetables, etc. 

So, in this case, the marginal cost incurred is the value of that extra rice, pulses, vegetables, and any other extra ingredients used by you. 

This is the notion or concept of marginal cost.

Explicit Cost

Explicit means clearly and physically visible. You are seeing those expenses clearly without any doubt or misunderstanding. You will be paying the amount, can get bills for them, and enter the amounts in your records as proof of payment. 

In the above example, the cost of provisions, vegetables, utensils, and payment to your maid are all explicit costs.

Implicit Cost

Implicit means implied or understood. They can not be directly experienced. You are not making direct payments to outsiders to prove those expenses. But, you can evaluate such expenses with the aid of the prevailing market value of such expenses.

In the above-cited example of food preparation by the housewife, you can see that the gas stove and utensils are used for cooking. So, it is an element of cost. If you hire the same things from the market to cook food, you might have to pay some rent. So, that much of the rent is an implicit cost of the food. Or, you may calculate the depreciation (if the stove or utensils are too costly) and include that amount as an implicit cost, in place of rent.

So, whatever items get used in production that are not directly and completely identifiable with production, calculate the value of those items through other means of calculation. All such costs are known as implicit costs.

Production Process: Classification of Production Processes

We have learnt that Production is one of the major economic activities that employs land, labour, capital, and entrepreneurship as its factors of production.

Now, what is the production process? Let us understand how production takes place and what processes are involved in production activity.

Production Process Definition and Meaning

The production process can be defined as any activity involved in transforming inputs into outputs. It is the act of manufacturing or producing outputs of economic value to meet the demands and needs of customers and consumers, employing the various processes or techniques available. It involves employing two types of resources.

• The first type involves the employment of tools known as transforming resources. Land, building, labour or manpower, machinery, and managerial skills- all these are examples of transforming resources. They transform the inputs into end products.
• Similarly, production involves employing another kind of resource known as ingredients or inputs in achieving the desired level and quality of production. These ingredients are known as transformed resources. For example, in a cement production process, the ingredients used are limestone, gypsum, and ash, which get transformed into cement.

Classification of Production Processes

Now, coming to different types or classifications of production processes, each process can be identified and classified based on many different sets of features.

I am providing two major types of classification in this article. One classification is based on the volume and the type of market. The other classification is based on the nature of activities involved.

Classification Based on Volume of Production | Type of Market

This classification identifies the following types of production processes to target specific customers and volumes.

1) Mass Production Process/Flow Production Process:

 
In this process, production is carried out on a large scale, employing extensive machinery and automated processes.

Production quantities are not limited to any particular demands or orders but are decided by management through estimates. 

You are able to produce a wide range of output varieties and qualities on a large scale, as most of the work is automated and there is a continuous supply of inputs to achieve the output.

There will be different sections or departments of production staff overseeing and streamlining the activities from one stage of production to another, until the output is complete in all respects and put into the market for sale.

2) Job Production Process: 

Job production involves taking orders from customers and producing the goods according to those orders. 

It may include taking orders from different customers for different items or only for a specific item of production. 

But the quantity produced is equal to the orders placed by the buyer or customer. 

Examples: Hundred Cupcakes for a wedding ceremony; or four kinds of Sweet Dishes, 50 pieces each, for a birthday party.

3) Batch Production Process: 

In this process, goods are produced in batches in sequence according to your own set goals. 

If your target is to produce 4 types of items, each numbering 100 units, then you will produce them one by one. First, you will produce 100 units of item no. 1, then 100 units of item no. 2, and so on. 

Your attention will be concentrated on each item till it is produced completely. So, your machines and workforce are fully employed on each item of good till it is completed.

4) Just-in-Time Production Process: 

Just-in-time process involves producing goods or services as and when they are actually required. It may be similar to the job production process. But not exactly the same. 

Job production is directly linked with your customers, whereas just-in-time is related to demands or orders placed by your agents and retailers.

Production Processes Based on Nature of Functions

Production processes can be classified according to the nature of function or activity involved in the process. So this classification identifies the production process either as a manufacturing process, an administrative process, a selling and distribution process, or a marketing process.

This classification is useful for Cost Accountants. It helps in bifurcating the cost of production stage-wise.

Let us look at these processes:

1) Manufacturing Process

All activities directly related to the production of output are identified as the manufacturing process.

For example, if you are producing bread, the cost of the flour and the activities of making sponge with wheat flour, then fermenting it and mixing the flour to make dough, and baking the bread in an oven to make the final product- all these functions are known as the manufacturing process of the bread. It determines the basic cost of bread.

2) Administrative process

The administrative process involves the administrative expenses involved in the procurement of raw materials and tools for preparing the bread, the planning of resources including finances for running the business and management functions, etc.

3) Selling and Distribution Process

The actual selling functions, including storage in godowns or selling outlets, including the distribution of finished products to selling points and other related selling activities, are all to be cited as features of the selling process.

4) Marketing Process

The marketing process involves locating the market for goods by identifying more profitable markets through surveys and analysis reports; promoting sales through advertising and publicity; promoting the brand image of the product and the company; and promoting the company's shares, etc.

Basic Economic Activities: Capital Formation

Capital Formation is one of the basic economic activities that determine a country's economic development. The other three factors are Production, Distribution, and Consumption, which eventually lead to the capital formation stage.

  

The four basic economic activities are interlinked, and each activity leads to the next stage of the economy.

• The production of goods and services leads to the distribution of goods that are ultimately either consumed or stocked.
• Distribution of goods to all corners of the economy results in the streamlined consumption of those goods and services.
• Consumption can be controlled at a certain state of satiety, and the excess portion can be diverted into investment for future stocks and capital formation.

So, each economic activity leads to the next stage, and thereby they are interlinked with one another.

Capital Formation

Now, coming to capital formation, there are two types of capital: either working capital or fixed capital.

Working capital is used for running the business. It includes stores and stocks, semi-finished goods, cash and bank balances, etc.

Fixed capital is the foundation of a business. It consists of land, buildings, plant and machinery, etc.

Note:

The creation of capital, or capital formation, refers to the net worth of assets. It is the net value of capital, calculated by deducting all liabilities from assets.

Capital Formation Process

A decrease in expenses and present consumption leads to excess income and excess stocks of produced goods and services. 

Whenever there is more production and less consumption, it leads to capital formation. 

Therefore, restraint on present consumption and the generation of savings are the major sources of capital formation. Overall, production is either consumed or used to create capital.

Consumption plays an important role in capital formation.

• Whenever you refrain from present consumption and save your money, it is generally deposited in banks.
• The banks, in turn, lend that money to producers or invest it in shares and equity funds.
• This investment is again used by producers and businesspeople to purchase machinery and equipment and to start new ventures or increase current production levels. Increased production is possible because of this extra income or savings, which producers use positively.
• This will again boost the economy and can increase both workers' income and consumption levels.
• Increased consumption is a sign of an elevated standard of living and symbolizes a developed economy.

Increased consumption does not always imply that whatever you are producing is consumed entirely.

When the production of goods and services greatly exceeds initial requirements, and since you have more money to spend in developed economies, it is possible to consume more goods at relatively affordable prices and still save sufficient money. 

These savings, in turn, create capital formation.

Capital formation occurs when these savings are deposited in banks and used to invest in shares or to finance producers. 

If the savings are kept idle at home, no capital formation can occur. 

Therefore, idle funds must be used to produce more goods and services, which is considered part of the capital formation process.

Basic Economic Activities: Consumption of Goods and Services, Limitations and Bad Effects on Economy

Consumption is the 3rd basic economic activity that follows after Production and Distribution of goods.

In some cases, consumption may not necessarily go through the intermediary process of distribution, as in the case of a roadside eatery, where food is produced and consumed immediately with no intermediary.

Consumption is the act of using up something. Economically, it is the usage or utilisation of goods and services that are being produced. 

Whatever goods and services get produced, we use them up to satisfy our needs - let it be our immediate need or some future need. Either way, it is the act of consumption. 

So, whenever we eat food, or purchase groceries, clothes, and other household and electronic goods, all these are counted as acts of consumption. 

Similarly, consulting a Doctor, availing hospital services, legal services, or salon services - all these acts also add to the concept of consumption function.

Types of Consumption

Not every consumption leads to immediate satisfaction of wants.

• A portion of consumption adds to storage and future utilisation of those goods. For example, purchasing a bag of rice and other monthly or weekly purchases. These items are consumed throughout the month or week.
• Some items of consumption are used for longer periods of life, like electronic goods, furniture, and other equipment which are utilised for years.
• Many items of goods and resources are procured for using them in manufacturing other end products. This consumption can be termed as industrial consumption. 
• Industrial consumption leads to production of many goods and products that are again utilised by end users or intermediaries. So, it is a chain of consumption.
• Then, there are the types of physical goods, professional services, and digital content (Spotify, YouTube, OTT platforms, etc), and movies, dramas, TV shows, books, and other multiple forms of consumption.

Limitations of Consumption

There are some limitations to consumption as it is dependent on other circumstances that are interlinked with it. 

• An individual's income determines his consumption. Because income is limited for any one person, he can spend only a certain amount of money to purchase goods or services. So, his consumption is limited by his income.
• The availability of goods also determines or affects the consumption function. You may want to buy something, but it is not available in your region or is not in stock. So, you are unable to buy it and should look at other options or go without it.
• Ignorance of knowledge also affects consumption, as you are unaware of some goods in the market and so do not consider purchasing them.

Bad Effects of Consumption

Consumption, if uncontrolled, can lead to many worst situations in the economy.

• Consumption can leave goods and services out of stock at times.
• Consumption can deplete the economy's resources, thereby depriving future generations of them.
• Consumption can make governments depend on other countries for goods and resources, thereby tilting the balance of payments position negatively.

To sum up:

Consumption is a major indicator of the progress of an economy. But there are some limitations and negative effects of the consumption process. So, it requires much planning and management to develop a country's growth.

Basic Economic Activities: Distribution of Goods and Services

Distribution of goods and services plays an important role in the economy. It is the activity that comes after production, and its job is to distribute the goods and services to their points of consumption.

Goods produced do not get consumed in their local markets when production is on a large scale. 

So, they need to be transported to all corners of the market depending upon their requirements. First of all, you may need to create awareness in the market about your produce so that people come to know of it and demand it for their requirements. This involves publicity and advertisement. Then, you need transportation and storage facilities for the goods until they get consumed.

So, distribution of goods and services involves the following major activities:

Publicity:

To acquire demand for your goods, the public should be aware that you are producing so-and-so goods and/ or services. But, how can they know if you are doing your business in a confined zone? Only your neighbours and acquaintances could be aware of your activities.

So, you need publicity for your produce.

This can be achieved through advertisements in all leading newspapers or broadcasts on Radio and TV. 

Information about your products, including their quality and functions, also needs to be publicized through pamphlet distribution and TV advertisements. 

This will encourage interested people to demand your products.

Transportation

Upon receiving a goods requirement, you need to transport them to their designated locations. 

The destination can be either your godown, an agency, or directly to the customer's address.

This can be done either with your own fleet of vehicles or through public transportation facilities, such as carriers, couriers, railway freight services, cargo services, etc.

Storage

Distribution of goods may require storage space and facilities for storing them at destination points or even at intermediary points till actual consumption takes place, to protect them from heat and rain. 

You can't ship each and every requirement separately, since it will not be economical and may delay the supplies. So, storage occupies an important role in the distribution of goods.

So, from the above analysis, you can see that distribution of goods is a very complex economic activity involving publicity, transportation, and storage of goods.

Note:
There can be exceptions, in which case this distribution activity may not be necessary. 

For example, food consumed directly at small roadside eateries, a haircut at the salon, etc., where there is no involvement of distribution activities. It is a case of direct production and consumption.

Basic Economic Activities: Production and Factors of Production

Production is one of the four basic economic activities.

 

Production can be defined as the conversion of resources or raw materials, with the help of other inputs, into usable goods and services. It turns raw materials into finished goods with other inputs.

It is the process of manufacturing, producing, or developing user-friendly goods and services, employing various means and resources that are available in an economy.

Man can not consume goods in their raw form in most of the cases. Even the food grains and other foods require some form of processing to be edible. 

The raw materials and resources need to be processed, tanned, and tamed to be utilised by markets. 

For example, production of cars, buses, trains, etc. requires the steel to be first mined in its raw form, then melted, and moulded to build their frames and shapes. It requires engineering skills, labour force, and financial capital (for purchasing the raw iron/steel, machines and tools for moulding, and for payments to labour, etc). 

Further, it requires the skills of efficient management for the controlling and overseeing of various processes as well as efficient usage of inputs.

So, production implies utilisation of resources as well as the other input factors of production. 

Here one should notice that only those inputs which become a part of the output, or are consumed and used up during the production process, or help in producing those goods are to be treated as the real factors of production.

Factors of Production

There are four important factors of production without which production may not be possible. They are as follows:

• Land,
• Labour,
• Capital and
• Entrepreneurship. 

Now, let me give a brief account of these factors of production as to their importance in production.

1. Land

Land is one important factor of production. Land is used for building plants and factories, offices, and for the cultivation of food grains, vegetables, and plantations, as well as for trees. So, land provides the foundational base for businesses. 

Furthermore, soil fertility is used for agricultural production. Again, land contains rivers and lakes that provide water for production units, besides serving fisheries and internal transportation. 

Land is the base for all our minerals, oils, and other production activities.

2. Labour

Labour is required to perform all physical tasks as well as other skilled operations in order to produce something.

Purely physical labour includes lifting of heavy materials, ploughing of soil for agriculture, construction work, and other unskilled jobs like helpers and servants.

Skilled labour requires special talents in the field through education and training, like engineers, technicians, and draughtsmen.

All of these professionals aid in the production of goods and services as their time and energy are consumed in the process.

3. Capital
Capital is one more important factor of the four factors of production. 

You can't do any business without capital. 

Production requires the accumulation of resources, which are procured by paying money or equivalent before starting any production. So, you have to invest capital before starting production or establishing any kind of business.

Even after accumulating the required resources, you have to pay for the services utilised for land, labour, and other intermediary activities before you may start earning income or profits from the business. 

So, capital is one important factor of production.

4. Entrepreneurship
Even after all your resources and inputs have been procured to start your production, you still need some managerial skills and talents to run your production process. 

You need to organise everything in a planned and systematic manner to enable production. 

You need to know what to produce, how much to produce, and the inputs required for the planned output. 

You should be able to calculate and predict things prudently and efficiently to produce maximum output with the available limited resources.

So, entrepreneurship plays an important role in production, and you can't ignore it. 

Four Basic Economic Activities: An Introduction

When we talk about an economy (say the US economy or the Indian economy), we are referring to its structure, institutions, activities, and development. We think of its standards and position in the world.

Coming to economic activities, there are four basic activities involved:

• Production,
• Distribution,
• Consumption and
• Capital formation.

These are the backbone of any economy. These economic activities create the wealth and purchasing power for the economy. They lead to capital formation also. 

Production

Production refers to the manufacturing of goods or services. 

Though services are not produced, they are created. They are part of projects devised through plans and creativity. So, they can also be treated as a form of production, producing services.

Coming to the point of the manufacturing of goods, most of them are produced from the processing of Raw Materials. It requires processing, refining, shaping, mixing, tanning, manufacturing, cultivating, and many other procedures to make the resources consumable by human beings. All these are done through production. 

Production uses available resources to produce the required outputs to meet people's needs. We always need the production of finished products for sustenance.

Distribution 

Distribution refers to the passage of goods and services from one point to another, or from the producer to the consumer through exchange or transfer. 

It involves intermediary agents also in the process, like distributing agents and courier services. It can also include the bequeathing of assets, transfer of charity funds, subsidies, and free social welfare services, all of which imply economic values.

Consumption

Consumption refers to the activities of buying goods and services for one's needs.

It is the result of our desires and wants, which can be satiated through possession and use of those produced goods or services. So, consumption implies production in most cases. 

Consumption is an unending activity. We always need something to satisfy most of our recurring wants on a daily basis. So, there will be an everlasting consumption activity in any economy at any given point in time. It is a continuous process requiring continuous production of goods and services.

Capital Formation

Large quantities of goods and services produced result in accumulation of stocks and wealth. Further, production uses the factors of land, labour and capital, resulting in wealth distribution to the providers of these factors in return for their use or services, mostly in the form of rent, wages, interest, etc. 

This income again gets used for consumption of goods and services, and the balance income gets reinvested in assets and stocks to form capital for future usage. 

It becomes a recurring circle of production, distribution, consumption, and capital formation, repeatedly, again and again.

So, we see that there are four basic economic activities in a society that impact the economic position and development of any economy.

Let us have a deeper look into each of these activities in our next chapters.

Allocation of Resources and Other Economic Problems: Importance and Need for Allocation of Resources

What is allocation, and why is the allocation of resources important?

Allocation of resources refers to the process of prudently distributing available resources among various options to achieve optimal utility.

The problem or need for allocation arises due to two facts:

a) resources are not sufficient in any economy and 
b) each resource or factor of production has varying uses.

 
So it becomes necessary to efficiently utilise the available resources to their best possible results by choosing among their multiple uses and combinations.

Need for Allocation of Resources

• It is a well-known fact that no economy can be fully equipped on its own to meet all its demands or satisfy all the needs of its consumers. 
• Wants are innumerable and vary. 
• Different wants require different products or services to satisfy them, and they require the necessary resources or inputs to produce those goods and services. 
• But no country can independently produce all the goods and services required by it, nor does it possess all the resources required to produce them. 
• Each one has to depend on its neighboring country for some of its needs and resources.
• So, a country should produce those goods or services that are most efficiently produced and rely on its neighbouring countries for other needs.
• Allocate available resources for producing those goods and services through efficient management.

So, the best economy is one that tries to meet all its needs through better management and efficient allocation of resources to their best and utmost use, thereby depending very rarely on other countries.

As we know, allocating resources to their best possible uses is a very challenging problem. 

For this purpose, you should collect extensive details about the nature of resources, their varying qualities, and the probable ways of using them to produce the required goods and services and obtain maximum beneficial results. You should think in terms of whatever combinations of resources can be tried to produce the required maximum beneficial results.

Major Economic Problems

1) Availability of resources
What are the resources available in the economy? Does the economy have sufficient stocks of all resources required in producing its goods and services? Water, power, minerals, fuel stocks, land, and manpower are some of the major requirements for producing any goods or services. Does the country possess all these resources? To what extent does it have these stocks?

2) Locating the needs and wants of consumers
While producing goods and services, you should first know about the needs and wants of people and the quantum of those demands. Only when you understand the needs and wants in marketing can you start thinking of allocating the resources for their production. Then you will come to know of the gaps between needs and available resources.

3) Knowledge about ways and means of producing goods and services
Once you know the demand for goods and services, you will picture what to produce. 

Then, you should think about the ways and means of producing those goods and services.

You should consider different methods of producing goods and services by using different combinations of resources. The same product can be produced using different combinations of materials, labor, and power. So, you should decide which combinations work out.

4) Locating priorities for production
You should consider preferences in the order of producing goods and services. Which goods and services need to be produced with greater urgency and importance compared with others? Which classes of consumers or regions of demand need more attention than others? You must decide whether you consider food grains and medicines more important than beverages, garments, and electronic goods, or vice versa.

5) How much to produce of each item?
Then, you need to decide how much of each item to produce, considering the continuous demand for many goods and services due to the recurring nature of wants. 

For example, food and water are recurring and continuous requirements, so they need to be produced in vast quantities. Cars and bikes are not in high demand, so they are produced in smaller quantities. Even among cars, certain models and brands are too costly and not sold regularly.

So, you have to know how much to produce of each item. Research which items need to be produced in greater quantities and which in smaller quantities.

6) Factors of Production and choice making
We need to make decisions regarding which factor of production is to be used and in what mix ratio. For example, farming can be done on land either by using manual labour or with the help of mechanised processes. Water can be supplied by digging bore wells, through river canals, or by means of water tankers. 

This way, you decide the means of production.

7) Dealing with scarcity of resources
How to deal with the problem of scarcity? There are two ways of dealing with scarcity, as mentioned below.

• Scarcity leads to choice among available alternatives and also to full utilisation of available resources. So, you should minimise the bad effects of scarce resources by choosing the right product or service at the right time that fits into your model. By doing so, you put your resources to their full utilisation level. 

As a consumer, you will buy what is most important and provides maximum satisfaction. 

As a producer, you will produce those goods and services that are most demanded by consumers, and which are the result of a most perfect combination of resources, thereby increasing your profits.

• The other solution to scarcity is growth of resources. Inventing new means of resources through continuous research and experimentation. Any kind of resource, land, labour, mines, and capital, is always prone to expansion through continuous exploration.

So, these are some of the major economic problems faced by any kind of economy which need to be given utmost attention, whether it is a capitalist, planned, or mixed economy. 

Allocating resources to their best combinations and uses, managing them efficiently, using them to their full extent, and contributing to the growth of resources are some of the best ways of tackling this problem.

Economy - Understanding its Importance: Types of Economy and Stages of Economy

What is an economy?
An economy is a system or organisation wherein economic activities take place. 

It is a man-made system for facilitating the satisfaction of the various wants and needs of human beings through the generation of income and the production and consumption of goods and services.

How does an Economy come into Existence?

The system of the economy was created by people to facilitate their existence in society. They had to follow a structured system of enjoying goods and services in order to survive.

As centuries passed, people had to look for better procedures to satisfy their wants in some way or another and to manage their existence in this world. They needed a system for managing and enjoying resources systematically. Because resources are limited in number and confined to certain regions only, they had to be shared and consumed in an economic manner.

In the primitive world, there was no need for any system as populations were low and confined to places where daily needs were available freely.  

Man used to satisfy his wants randomly on his own. He plucked fruits or dug edible roots from the earth and hunted birds & animals to satisfy his hunger. He used to live near water resources to satisfy his thirst. He covered himself with leaves to protect himself from heat, cold, and rain. He never thought of the need for economic institutions, nor did he possess such kind of knowledge.

But, gradually, he learnt to exchange his goods for items available from others (known as the barter system) and then invented coins and currency, production, distribution, and consumption, gradually, to satisfy his ever-growing needs. 

Slowly, he began learning to save or economize goods and resources as the population grew and natural resources seemed insufficient to satisfy his needs. He developed other means, such as improved farming, manufacturing, marketing, and professional services, to earn income and exchange goods with others, and thus the modern economy and economic systems came into existence.

Notable Features of an Economy

• An economy or economic system is man-made to get a living.
• Economies are always susceptible to changes.
• Economies differ according to geographical, cultural, and available natural resources.
• Demand, Production, Consumption, Saving, and Investment are the important activities of an economy. 
• The producer and consumer can be the same person in an economy, as whatever he produces, he consumes also.

Purpose of Economy

• The primary goal of any economy is to satisfy human wants through interactions among people.
• This involves a process of providing goods and services to consumers through various activities of production, supply, and consumption, all supported by available resources and factors of production. 
• To generate income for those involved in economic activities.
• To locate and distribute the resources. 
• Discover new resources or semi-used ones.
• Strengthen the economy through efficient management.

Three Types of Economy

Broadly speaking, there are three types of economy:

Capitalism, Socialism, and Mixed Economy.

 

Let us look at the salient features of these economies.

Capitalist Economy

• Under a capitalist economy, producers are free to make decisions without any interference from government mechanisms.
• They own the property and resources (acquired by them). There are no restrictions as to ownership and boundaries.
• Profit earning is the main force driving the capitalist economy. Producers are interested in increasing their profits, and consumers are interested in availing utmost satisfaction.
• But the capitalist economy has the drawback of monopolising the markets.

Socialist Economy

• Under socialist economic conditions, the common cause of society is considered a more important factor.
• The government interferes in all matters and sets norms and guidelines for producers and businessmen.
• All resources are owned by the government in the interests of the public, and they are allotted to producers and manufacturers according to some procedures and laws established by the government in the interest of the public.
• Social welfare is the main goal in this kind of economy rather than the profit motive.

Mixed Economy

• This is a mixture of capitalism and a socialist economy. The good features of both economies are combined together to form a mixed economy.
• In this mixed economy, both private and public participation are present.
• More essential resources and factors of production, along with business activities, are controlled by the government through the creation of public enterprises and corporations.
• Price mechanisms are controlled by the government, fixing prices of essential commodities and controlling hoarding and black-marketing, etc.
• Annual plans and long-term plans are made by the government to control all financial and economic activities.
• This mixed economy is a good type of economy for the development of society, if both the government and businessmen manage honestly.

Economy vs Economic Development

The economy of any place gets identified by its developed, undeveloped, or underdeveloped nature. 

So, economic development is the standard for identifying economies at any given time.

Meaning of Economic Development

Economic development refers to the overall growth of an economy. It means that the people living in that economy are enjoying a good standard of living by being able to earn ample income, satisfying almost all of their wants. 

Some of the salient features of economic development include the following.

• It is not simply limited to a mere growth of income and standard of living. 
• Economic development implies that people are living a better life in every aspect of life. 
• There is a reduction in poverty, unemployment, and diseases. 
• The gap between rich and poor gets narrowed with more opportunities created to earn income and acquisition of wealth made accessible to the poor also.
• There will be control over population growth and hygienic conditions of the environment.
• The overall expenditures of public and governments will be within the limits of available income and resources.
• A state of improvement in technology and trade relations has been achieved.

Three Stages of Economy Based on Their Development

Based on economic development, economies can be classified into developed, underdeveloped, or developing ones. 

Let us take a look at the features of these economies:

Developed Economy

A country that has achieved strong economic growth and enjoys a relatively high standard of living and quality of life, with higher per capita income, is known as a developed economy. Such countries typically have higher levels of education, better amenities, and lower mortality rates, among other characteristics. 

Indicators of a developed economy include GDP (Gross Domestic Product), Gross National Product, Advanced infrastructure, and the level of industrialization. 

Countries such as the USA, UK, Germany, Japan, and Australia are examples of developed economies.

Underdeveloped Economy

Countries with poor growth and poor standards of living are classified as underdeveloped economies. They are characterized by very low GDP, low per-capita income, poor amenities and standards of living, and high mortality rates. But most of these countries have now moved to the class of developing countries.

Developing Economy

This group consists of all those countries that are still developing but have moved out of the underdeveloped category of economy. 

These countries are characterized by declining growth rates and standards of living, major disparities, and wide economic gaps between classes of people and regions. Resources in these economies are not fully utilized or tapped. 

Countries such as India, Pakistan, Sri Lanka, Brazil, and Mexico are among the many developing countries. But India is developing fast now and reaching the status of a developed economy.

Characteristics of Human Wants

As discussed earlier, human wants are desires backed by some purchasing power. Now, these human wants have many characteristics of their own, and different levels of satisfaction capacity. 

Let us look at some of these characteristics of human wants.

Wants are Unlimited in Number
Just like desires, wants are also unlimited. If you satisfy one want, another want arises, and it is an endless process. But your resources are limited, and so, you can not satisfy all your wants. Ultimately, you will satisfy some most urgent wants and postpone the others for later periods.

Some Wants are Recurring in Nature
Many wants are of recurring nature. They need to be satisfied again and again at intervals. For example, hunger needs to be satisfied 3 or 4 times in a day. Maintaining a good look of your face and head requires periodic haircuts, shaving, applying lotions, creams, and face powders. All these are examples of recurring wants.

Wants are Satiable
We know that we can satisfy most of the wants to their utmost satiety at any given point in time. We satisfy every single want to its full extent. We are satisfying hunger, for example, by consuming a plate of meal or two, or at most by eating three plates. Likewise, we satisfy thirst by drinking one or two to three glasses of water for that particular occasion. 

So, wants get satisfied to their full extent at any given point in time.

Wants are sometimes Free Wants (Economic and Non-economic Wants)
Some of the wants get satisfied without having to pay anything in return. For example, air, water, sunlight, and nature's beauty are all free wants. We need not pay anything to satisfy these wants. 

But, with time, they may become non-free items: 

We pay for bottled water, oxygen cylinders, and the like. But, basically, some of these wants are free and known as non-economic wants; while other wants (paid wants) are classified as economic wants.

Present Wants have an edge over Future Wants
Most of us give more weight to satisfying our most recent and present wants, and postpone other future wants due to the reason of limited resources available to us in satisfying them. So we give more importance to our present wants.

Wants Change according to Place and Time, and from person to person
Wants depend on your place, tastes and likings, and on time also. For example, people living on land can eat rice and wheat meals while people surviving in forests or oceans may have access to animal food only. Further, different people have different wants in different environments. They depend upon culture, civilisation, time, and age. Culture and civilisations determine your food habits. Young people can eat all items, whereas older ones can digest only soft foods.

Wants change with Economic and Technological Development
Advances in the economy and technology greatly affect our wants. Previously, we wanted a radio or a telephone set. Now most of us, if not all of us, want to possess a TV set or a mobile phone as a basic requirement. This is due to progress in the economy and technology.

Thus, we can see that wants differ in characteristics and have varying levels of satisfaction according to circumstances and environmental factors.

Human Wants: How they Differ from Desires, and Get Satisfied?

Here, I am giving some basic knowledge and facts about desires and wants and their satisfaction. To understand Human Wants in Economics and their characteristics, we should first know the difference between wants and desires and be able to distinguish each from the other.

What is Desire

All human beings have desires. They are like natural instincts or longings. We desire to be rich, to be healthy, to be happy, and to reach a high status and position in society. We like to live in a posh bungalow, own a car, dine in 5-star hotels, wear stylish apparel, have a huge bank balance, and travel by air, and so on; it is an endless list. These are all desires and can be had by anyone. Desires and dreams are fantastic things. They can be had at any odd occasion also because they need no price to be paid for having them.

Human Wants

Now, coming to wants. In economics, human wants are desires that are backed by purchasing power. You cannot fulfill all of your desires at any time. You need money or purchasing power to satisfy them. A desire becomes a want when you think of achieving it and try to satisfy it with your purchasing power. You will try to earn income or accumulate wealth in order to satisfy them.

Difference between Wants and Desires

• Desires are natural instincts which start even from birth. Wants are developed from these natural desires, while man grows along with his earning capacity and purchasing power.
• Desires do not require purchasing power for their existence. But wants require to be backed by some purchasing power.
• Desires are infinite in number. They keep on growing always. Wants are also innumerable, but they often develop with your growing capacity and environmental conditions.
• Most of the Desires are left unsatisfied. But, in the case of Wants, most of them get satisfied during your lifetime. 

How are wants satisfied? 

Wants are satisfied by way of acquiring and strengthening your purchasing power. You earn income and accumulate purchasing power to satisfy all your wants. But simple money power is not sufficient in satisfying your wants. 

Other conditions determine the satisfaction levels.

• Wants get satisfied in two different ways. They are satisfied through consumption of goods or by utilising the services of different service providers.
• Some wants are free and do not need purchasing power, like water and air.
• Purchasing a house, car, clothes, food, etc., are examples of some wants satisfied with goods. 
• But these goods alone can not satisfy your wants. You will further require the services of a doctor, a hair cutter, a washerman, a housemaid, and other providers to satisfy some of the wants.
• Again, wants are satisfied with the backup of resources. So, you can satisfy wants as long as the resources are there, not after that.
• Some wants are satisfied with a single consumption, whereas many other wants require recurring and regular consumption, such as eating food, wearing clothes, shaving, haircuts, and others.

What is Break-Even-Point? How to Calculate the Break-Even Point in Businesses

The break-even point is the level of business activity at which a firm's total revenue equals its total costs, so there is no profit or loss. At this point, the cost of production and the price match each other. From this point, you can move toward profit by improving your operations efficiently, or, on the other hand, you may incur losses due to mismanagement and defective planning.

Break-Even Point Definition

Break-Even Point can be defined as a point in business scale at which the value of total costs equals total sales or revenue at any point in time. 

It is a point where expenses equal income, and there is neither profit nor loss in the operations of the business. The values of sales and production of the business break even at this point on a curve or line joining the costs and revenues.

Importance of Break-Even Point

• Break-even points help calculate the minimum level of output that must be exceeded to make a profit in business. In other words, you can determine the minimum quantity of sales required to cover all expenses and generate an additional unit of profit.
• The business owner can determine the minimum number of units that must be produced and sold to cover both fixed and variable costs, so that profits can begin with an extra unit sold.
• Break-even point calculations are used by management to decide a product price and the minimum sales target to be achieved.
• Further, it is very useful in controlling fixed costs, as able to understand the impact of fixed costs on your performance level.

How to Calculate Break-even Point

The break-even point formula assumes that Total Cost is equal to Total Revenue or income.
Now, total cost includes both Fixed Cost and Variable Cost.

Total Fixed Cost is your fixed expenses, which more or less remain the same. 

But Variable Cost is related to the number of units produced. So Total Variable Cost depends on your production and sales quantity. 

Let us assume that Variable Cost multiplied by the number of units gives you the Total Variable Cost. 

If Variable Cost is V and the number of units is X, then Total Variable Cost = V*X (Variable cost multiplied by X units).

Now, Let Total Fixed Cost be TFC, and Total Revenue be TR. 

But Total Revenue is the Price of one unit multiplied by the number of units produced or sold. So, let TR be equal to P*X (Price multiplied by X units)

Now, the break-even point, or BEP, will be equal to TFC + VX = PX 

Let us find the value of TFC (by subtracting VX from PX):
TFC= PX- VX  = X (P-V)

Now, to find the number of units required to be produced or sold, the equation will be
X = TFC divided by P-V

If we give values to the above concepts:- 

Suppose TFC = 10,00,000

P is 100 and V is 60.

Substituting the values from the above formula,

X is equal to TFC/ (P-V), so 

ie., 10,00,000 divided by (100- 60) 

ie. 1000000 divided by 40.

= 25,000 units

The number of units required to produce and sell is 25,000 units. This is the break-even production or break-even sales to be achieved in order to cover the full expenses incurred by the business.

Benefits of using Break-Even-Point concept

• By using this method, you can determine the production and sales targets your business should achieve during any period.
• You can control costs by determining the production levels based on your available options to maximize benefits and manage profits.
• In the example above, if you find it difficult to produce 25,000 units, you may consider other options, such as reducing your Total Fixed Cost, reducing the Variable Cost, or even increasing the selling price of your product to meet your production expenses.
• You can plan your future and build budgets and projects with the help of this break-even concept.

Limitations to Break-Even-Point applications

There are some limitations in applying this method as it is based on assumptions.

• Break-even concept assumes that Fixed Costs are constant. But in real practice, fixed costs can also change when there is a large-scale increase in production or sales, as you need to employ more staff and hire more space for increased activities, and many other related expenses also increase.
• This concept again assumes that variable cost is constant during the entire period of application of this concept. If there is any slight variation in the variable cost during the period of application, then also, the entire calculation will become useless, and all predictions will go wrong.
• This method does not take into account the stock of inventory as it assumes that production quantity is equal to sales quantity.
• It further assumes that in multiple product companies, the mix ratios of produced goods are equal to the ratios of sold items. It considers that the relative ratios between different products are maintained the same as those of sales. But in actual practice, you may not be able to sell all of your produced goods. If there is a stock of varying products, their stock ratio can differ from the production ratio of goods.

Marketing Strategy & Techniques :Three Stages in Business for Applying Marketing Strategy

Need for implementing Marketing Strategies:
As I discussed earlier in another chapter, marketing managers apply both scientific and artistic approaches to create a solid customer base, devising strategic techniques and employing a 4P plan. So, I will discuss other important points that need attention.

Selling your product requires a great deal of wooing your customers. 

Gone are the days when businessmen used to simply open their shops and wait for customers to come and buy goods with their money. There is much competition now, and nobody will approach you on his own to buy your product unless you attract him with your Marketing Strategy.

Selling your product requires compelling appeals and effective strategies to attract buyers and establish your market. Marketing strategies are aimed at expanding sales and promoting the business. It is a package of plans and techniques employed to establish and promote your business. It involves the use of many different techniques at different levels of business. 

Before starting a business, you need to understand buyers' tastes, identify your prospective buyers, and determine the areas for your market. Then, you need to advertise your products and services, offer discounts and incentives to create a market for your goods, and establish a strong hold in your area.

Apply Strategies According to Nature of Business:

Different types of products or areas of market require strategies typical of their business types. 

So strategies can differ from product to product or from area to area. 

An agricultural product requires its own typical strategy, and an electronic product requires its own strategy for marketing. 

Similarly, more advanced cultures need their own typical strategies, whereas rural culture has its own strategy for marketing. 

But overall, the principles are the same. We need to find out our market and prospective buyers. Then we establish our business by choosing the products and areas of operation according to the requirements. Then it involves retaining the customers with incentives so that they may not shift to other products and sellers.

Three Stages of Businesses in Applying Marketing Techniques

 
Any type of business goes through three stages while setting up their business and its market. These stages are as follows:

• Locating business opportunities and areas before starting a business through study and research.
• Promotion of the business after setting up your product and market.
• Retaining the market base and customer confidence through good quality, after-sales service and support.

All three stages of business require employment of appropriate and efficient marketing techniques. Let us study the techniques employed at each of these stages of business.

Marketing Techniques Before Establishing a Business

1. Conduct research to study the culture and tastes of the area where you want to establish your business. This will let you know what options are available for you to trade in, and you can choose one that is most suitable to you. For example, if the people are more cultured and like fashionable dresses, advanced electronic items, or continental foods, you can choose one of these items as your business.
2. Know about the resources available for procuring or producing your goods and about available transportation facilities for conducting your business.
3. Keep knowledge of the local laws and restrictions that are in effect in your business area to protect yourself from any later complications. 

Marketing Techniques Upon Starting the Business

1. Ensure good quality of your products. Your product should be preferred by customers in comparison with other sellers. Only then will they come to you.
2. Pricing should be reasonable. Fix your product price at a reasonable level, a bit lower than other traders, so that customers are attracted by the low price. The difference need not be much. Even a fraction of 1% can attract more customers to your product.  
3. Ensure continuous availability of your products. If customers do not get what they want readily from your store, they will go to other shops, and you can lose your customer base.
4. Promote your business through activities like distributing pamphlets, erecting posters and banners at different places in your area so that people come to know of your business. You can advertise through TV channels and by placing advertisements in newspapers also. Showing a celebrity using your product can be a more effective tool of publicity for your product. These are all publicity stunts for growing your business.
5. Make your online presence felt by maintaining a website and posting the salient features of your business and all your products there. This will help prospective buyers find sellers of their products more easily.

Marketing Techniques for Retaining Customers

1. Offer some value-added services and discounts to regular customers. Offer a discount, a coupon, or a points card to attract new customers and satisfy regular customers. They are pleased to know that they receive points or discount coupons every time they shop with you, and they return more frequently to enjoy this satisfaction.
2. Offer free Appraisals and usage/maintenance tips on your products. Let the customers know some important features and facts of your product that they do not know. Also instruct them how to use and maintain the product for longer-lasting benefits. This will make them more confident about your products.
3. Another important technique to be employed in business is the packaging and brand image of your product. A nice package with good design and appealing colours will enhance your product. They get associated with your brand image as an identity for good quality. 
4. Ask for feedback from customers to know their opinions about your products and services. Thereby, you can know about the likes and dislikes of customers, why they are choosing your product instead of others, and how you can improve your quality to satisfy them. This will always help you improve your business and grow your customer base.
5. One more technique is Goodwill to interact with customers in a cool manner when they come to you or are online. Applying gentle manners and a sweet voice enhances your image in their minds and creates a great image of your business and goodwill among customers.
6. Adding new items to your business can keep the customer base intact and also create new customers.
7. Finally, be prepared to adapt to the changes in tastes, culture, and technology.