Business Economics and Management
The Business Economics and Management domain tests how markets work and how organisations are managed, with applications to Nepal's open, remittance-supported economy. Expect demand and elasticity, consumer and producer theory, cost and market structures, national income, inflation, monetary and fiscal policy, and the management functions of planning, organising, staffing, directing and controlling.
Core rules
- Price elasticity of demand = percentage change in quantity ÷ percentage change in price. Demand is elastic when |E| > 1, inelastic when |E| < 1, unitary when |E| = 1.
- A change in price moves along the demand curve; a change in income, tastes or prices of related goods shifts it.
- In the short run, at least one factor is fixed; the law of variable proportions explains diminishing marginal returns. Average fixed cost falls continuously, while average total cost is U-shaped.
- Perfect competition has many price-taking firms; a monopoly has one seller and barriers to entry; monopolistic competition has product differentiation; oligopoly has few interdependent firms.
- GDP measures output within borders; GNP adds net factor income from abroad. Real values strip out inflation using a deflator.
- Nepal Rastra Bank uses the bank rate, cash reserve ratio, open market operations and moral suasion; the Ministry of Finance uses taxation and public spending.
- Management process: plan, organise, staff, direct, control. Maslow's hierarchy and Herzberg's two-factor theory explain motivation; leadership styles include autocratic, democratic and laissez-faire.
Worked example
Price falls from Rs 100 to Rs 90 and quantity demanded rises from 40 to 50 units. Using the midpoint formula: %ΔQ = 10 ÷ 45 = 22.2%; %ΔP = −10 ÷ 95 = −10.5%; E = 22.2 ÷ (−10.5) = −2.11, so demand is elastic. Total revenue rises from Rs 4,000 to Rs 4,500, which is consistent with elastic demand when price falls.
Traps
Dropping the negative sign and misclassifying elasticity; confusing a shift with a movement; mixing GDP and GNP; using nominal rather than real data; listing fiscal tools as monetary tools; and treating Maslow's hierarchy as a complete explanation of pay dissatisfaction.