December 20, 2011

Business System - Free Markets - Ethics

Free market system may have variety of competitive market systems depending on the product life cycle and competitive situation in a product market (industry). Perfect competition, oligopoly, duopoly, and monopoly are some of the types.

Perfect competition

In a perfectly competitiive market, there are numerous buyers and sellers and none of them will have sizeable market share. Entry and exit of buyers and sellers is free. In a perfectly competitive market, prices and quantities always move toward the equilibrium point.

Velasquez wrote, perfectly competitive free market achieves or satisfies three moral criteria: Justice, Utility and Rights.

Capitalist criterion of justice: Benefits and burdens are distributed justly when a person receives in return at least the value of the contribution he or she made to an enterprise. Fairness is getting paid fully, in return for what one contributes. It is this form of justice (capitalist criterion of justice) that is achieved in perfectly free competitive markets.


Unregulated monopoly markets can fall short of the three values - capitalist justice, economic efficiency, and respect for negative rights that perfect competitive markets achieve.


Oligopoly also can result in shortfall of the three values: capitalist justice, economic efficiency, and respect for negative rights that perfect competitive markets achieve. In oligopoly markets price-fixing, manipulation of supply, exclusive dealing arrangements, tying arrangements, retail price maintenance arrangements, price discrimination are identified as unethical practices.


Manuel G. Velasquez, Business Ethics: Concepts and Cases, Fourth Edition, Prentice Hall Inc., Upper Saddle River, N.J., 1998, Business Ethis by Manuel G. Velasquez - Book Information and Review

First published in

December 15, 2011

Predetermined Motion Time Systems (PMTS)

Predetermined Motion Time System (PMTS) - Introduction

A predetermined motion time system (PMTS) consists of a set of time data for basic human motions and a systematic procedure which analyses and subdivides any manual operation of human task into motions, body movements, or other elements of human performance, and assigns to each the appropriate time value.

Each system of time data was originally developed from extensive studies of all aspects of human performance through measurement, evaluation, and validation procedures.

PMTS in Use

Barnes listed 9 perdetermined motion time systems in his 1980 Edition.

They are:
1. Motion-Time Analysis (MTA) - 1924
2. Body Member Movements - 1938
3. Motion Time Data for Assembly Work - 1938
4. The Work-Factor System 1938
5. Elemental Time Standard for Basic Manual Work 1942
6. Methods-Time Measurement (MTM) 1948
7. Basic Motion Timestudy (BMT) 1950
8. Dimensional Motion Times (DMT) 1952
9. Predetermined HumanWork Times 1952

Source: Barnes, Ralph M., Motion and Time Study: Design and Measurement of Work, Seventh Edition, 1980, Chapter 27.

PMTS - Differences

Predetermined motion time systems can be categorized as motion based, action based and activity based systems.

Motion based systems


Action based systems


Activity based systems


"MTM" stands for Methods-Time Measurement. It is a procedure for improving methods and establishing time standards by recognizing, classifying, and describing the motions used or required to perform a given operation and assigning pre-determined time standards to these motions.

MTM evolved into a dynamic family of systems. It is continuing to grow and meet more needs of its practitioners and users. It has developed from a single system of work measurement and analysis to a family of systems that meets the varied demands of different users.

The basic MTM data was developed by H B Maynard, J L Schwab and G J Stegemerten of the Methods Engineering Council during a consultancy assignment at the Westinghouse Brake and Signal Corporation, USA in the 1940's. This data and the application rules for the MTM system were refined, extended, defined, industrially tested and documented as a result of further work in later years.

In 1948 Maynard, Stegemerten and Schwab published the book "Methods ­Time Measurement" giving full details of the development of the MTM system and its application rules. The use of MTM spread, firstly in the USA, and then to other industrialised countries. In 1951 the US/Canada MTM Association for Standards and Research was formed by MTM users. The system originators then assigned the MTM copyrights to the MTM Association. ( )

In 1963, a new member of MTM family with the name MTM-GPD (General Purpose Data) was introduced. The original MTM of 1948 was termed as MTM-1.


The unit of time used in MTM tables is one hundred-thouandath of an hour (0.00001 hour). The time units of MTM aer referred to as Time Measurement Unit (TMU). One TMU is equal to 0.0006 minute.

The basic motions used in MTM-1 are:

Reach - R
Move - M
Turn - T
Apply Pressure - AP
Grasp - G
Position - P
Release - RL
Disengage - D
Eye Travel - ET and Eye Focus - EF
Leg Foot Motions: FM, FMP, LM_,
Horizontal Motions - Side Step - SS_C1, SS_C2, Turn Body TBC1, TBC2,
Walk: W_FT, W_P, W_PO
Vertical Motion SIT, STD, [B,S,KOK], [AB,AS,AKOK], KBK, AKBK

Source: Barnes, Ralph M., Motion and Time Study: Design and Measurement of Work, Seventh Edition, 1980, Chapter 28.

Generic Systems of MTM

MTM Systems designed to do work measurement in multiple environments.


MTM-1 is the basic system form which all other MTM systems have been developed. This system is used worldwide. It determines the time necessary for performing a given operation by analyzing the manual motions required and assigning a time value to each. MTM-1 is ideally suited to use in high volume production environments.


MTM-UAS represents a second generation of synthesized data, based on the MTM-1 system. It was constructed through use of statistical analysis of basic MTM-1 motion patterns. This system is best-suited for use in environments which exhibit the characteristics of batch production.


MTM-MEK, a third generation system based on statistical analysis of MTM-1 data, is designed for economical measurement of small lot or one-of-a-kind production, with long-cycle times, as well as other infrequently performed tasks previously considered too costly or difficult to measure.


4M is a second level system used to convey MTM-1 level information to the MTM-LINK software for use in methods analysis and standards development. It is suited to long run production.


MTM-B represents a third generation of synthesized data, based on the MTM-UAS system. It was constructed through use of statistical analysis of basic MTM-UAS motion patterns. This system is best-suited for use as an estimating tool where the primary focus is speed of application. MTM-B is offered as a data module of the MTM-LINK Software System. Manual application is not supported.

Functional MTM Systems

MTM Systems applicable to specific work measurement environments.

MTM-HC® (Healthcare)

MTM-HC is a standard database devoted specifically to healthcare activities.

MTM-C® (Clerical Activity)

MTM-C is designed specifically for measuring clerical activity.

MTM-V® (Machine Shop)

MTM-V is a standard data system for measuring difficult-to-time long cycle manual machine shop tasks.

MTM-TE® (Electronic Test)

MTM-TE is a standard data system for measuring mental and manual activity in the electronic test environment.

MTM-M® (Work Under Microscopes)

MTM-M is the only system available which is capable of accurately measuring assembly, wiring, soldering and other work performed under microscopes.

(Source: )

MTM software

The MTM software family of help to industrial engineers consists of:

* TiCon®
* Time Ladders
* PC Graphics®

MTM Association Publications - Books
( )

Books can be ordered through the MTM Association.

MTM - FIRST TIME RIGHT ... A fascinating journey through MTM history, research, and application. By the International MTM Directorate

Basic Motions of MTM ... A clear presentation of MTM-1 motions, their coding, application rules, and TMU values. By William Antis, John Honeycutt and Edward Koch

Standard Data Systems and Their Construction ... The development, verification, maintenance and use of standard data from planning through production. By V. Aulanko, j. Hotanen and A. Salonen


MTM Research reports can be ordered through the MTM Association.

The Research Reports are:

R.R. 101 DISENGAGE ... Preliminary study and theory of disengage.
R.R. 102 READING OPERATIONS ...Synopsis of work done by eleven leading authorities.
R.R.104 MTM ANALYSIS OF PERFORMANCE RATING SYSTEMS ...An analysis of performance rating systems and various rating films from an MTM standpoint.
R.R. 105 A STUDY OF SIMULTANEOUS MOTIONS ... Final report of the Simultaneous Motions project undertaken by the MTM Association. Presents a great deal of new and valuable information which should be of interest to every MTM practitioner.
R.R. 106 SHORT REACHES AND MOVES ... An analysis of the characteristics of Reaches and Moves at very short distances. It develops important conclusions concerning the application of MTM to operations involving short distance elements.
R.R. 107 A RESEARCH METHODS MANUAL ...An effective and comprehensive set of methods for carrying on research in human motions. Major techniques, adequate sources of motion data, film analysis, data recording, and statistical methods of analysis are among the topics discussed.
R.R. 108 A STUDY OF ARM MOVEMENTS INVOLVING WEIGHT ...The effect of weight on the performance times of arm movements is presented, along with a comprehensive discussion of the whole area of weight phenomena.
R.R. 109 A STUDY OF POSITIONING MOVEMENTS ...I. The General Characteristics. II. Appendix - Defines "positioning movements and the inter-relation of component movements". The study is limited to the laboratory analysis.
R.R. 110 A STUDY OF POSITIONING MOVEMENTS III ... Application to Industrial Work Measurement. This report, the second on position, relates the results of the position research to the field of application. This study deals with actual industrial operators, work measurement tools and improving manual activity through better understanding of positioning movements.
R.R. 111 INDUSTRIAL RESEARCH ON THE ELEMENT APPLY PRESSURE ...Examines the element "Apply Pressure" under factory conditions. The report contains a descriptive analysis of the fundamental structure of the element Apply Pressure along with numerical data gathered in the research.
R.R. 112 LEARNING CURVE RESEARCH ON SHORT-CYCLE OPERATION ...A report of the first of a series of experiments which have been performed to determine how people learn the most common MTM motions. This is the preliminary or "laboratory" phase of the project Learning. This phase of the Learning project provided a series of prediction equations for the most frequently used elements.
R.R. 113A LEARNING CURVE RESEARCH ON MANUAL OPERATIONS ...Presents the results of Learning. The report details a method of combining the Learning Curves of R.R. 112 to develop a prediction equation covering an overall learning Curve for a manual operation.
R.R. 114 FACTORS IN MANUAL SKILL TRAINING ...Results of four years' study at the University of Michigan on the various factors involved in the learning process required to attain a manual skill especially the learning that occurs after the person barely knows how to do the operation.
R.R. 115 PREDICTION OF ELEMENTAL MOTION PERFORMANCE USING PERSONNEL SELECTION TESTS ... A general methodology for predicting the level of performance an individual should be able to attain when working on a manual task where a pre-determined time standard is a measure of his performance. The Methods-Time Measurement system is the system used.

Originally posted in

Industrial Engineering Knowledge Revision Plan - One Year Plan

January - February - March - April - May - June

Product Design Efficiency Engineering

Industrial engineers are system efficiency designers. They evaluate the efficiency of various functional system designs proposed by functional designers and managers and wherever inefficiencies are found, will facilitate removal of them.
Product design efficiency engineering is an activity of industrial engineers.

Industrial engineers are system efficiency designers. They evaluate the efficiency of various functional system designs proposed by functional designers and managers and wherever inefficiencies are found, will facilitate removal of them.

Product design efficiency engineering is an activity of industrial engineers. As a part of the method study, the techniques of methods efficiency engineering, industrial engineers examined the efficiency of design. The development of value engineering systematized the product design efficiency engineering process. L.D. Miles started the value engineering process and did an immense service to the society.

Efficiency of the designs is analyzed with respect to its functions, its features, subassembly design, component specifications including tolerances and fits, material specifications, use of standard boughtout parts, and manufacturing processes employed in value engineering. Value engineering practice has given immense savings in the product costs in various industrial sectors.

Knol: Part of Industrial Engineering Course Page -

Introduction to Industrial Engineering - Course at NITIE
Web Page Related to Design Efficiency

Design Efficiency Will Keep Your Product From BOMing Out

Fitting Product Design to Production Efficiency

Shaping Efficiency Using CHiL Semiconductor Digital Algorithms

Palletisation efficiency as a criterion for product design
By Eberhard E. Bischoff
Journal: OR Spectrum, Issue Volume 19, Number 2 / April, 1997, Pages:139-145

Design Efficiency of Market Seeker Strategy and Marker Leader Strategy

Bob Jensen, Technical Support Team Engineer, Sauer-Danfoss
December 14, 2009

Article originally posted in

Industrial Engineering Knowledge Revision Plan - One Year Plan

January - February - March - April - May - June

December 14, 2011

Engineering Economics is an Efficiency Improvement Tool for Industrial Engineers

An Article to Note

The Role of IE in Engineering Economics.

By Riel, Philippe F.
IIE Solutions, April 1998

Industrial engineering (IE) plays a significant role in engineering economics. IE promotes investment justification processes that determine the appropriateness and value of projects. It also supports investment analyses correlated with the overall corporate strategy. Moreover, IE advocates evaluation processes that advance interdisciplinary thinking among company employees who design cost models and evaluation frameworks that are utilized in decision support systems for a variety of technological projects.


The idea that I advocate in this article is that the set of evaluation methods of Engineering Economics is an efficiency improvement tool in the hands of industrial engineer. Industrial engineering is human effort engineering and system efficiency engineering.

The system functional designers come out with an effective system design that produces an output acceptable to the customer and may also be profitable with reference to the rate of return prescribed by the organization. That does not mean that it is the most efficient solution. In the system engineering process, there is a step in which the proposed basic system is evaluated in various dimensions and further optimization is done. Industrial engineers make efficiency evaluation in various dimensions and further improve the efficiency. Engineering economics is one such area. Engineering economics indicates that search for economic efficiency has to take place on either side of currently proposed engineering equipment. Industrial engineers have to consider various engineering alternatives to the one currently proposed by the system synthesizer to evaluate the current efficiency and if needed propose alternatives that improve the system efficiency using engineering economics methods.

A Quote

Engineering Economics is applicable to all the fields of engineering since engineers design and make things that people buy. However, it is especially significant to Industrial Engineering, Systems Engineering, and Management Engineering, since these disciplines often are involved in the cost management of engineering systems.


Engineering Economic Appraisal - A Special Role for Industrial Engineers

Engineering economic analysis is to be carried out by all engineers. These analysis reports must be appraised by IE department engineers. IEs can evaluate whether sufficient technical alternatives were considered in proposing the technical solution now recommended and then check the data and calculations of the economic analysis. From IE department, the proposal can go the project appraisal committee.

Engineering Economics is part of Industrial Engineering Tool Kit

Industrial Engineering Tool Kit



Engineering Economics, John M.Watts, Jr., and Robert E. Chapman


Related Knols

Engineering Economy or Engineering Economics: Economic Decision Making by Engineers
Engineering Economics - Knol Book
ngineering Economy or Engineering Economics - Videos

Article originally posted at 2utb2lsm2k7a/ 2270

Industrial Engineering Knowledge Revision Plan - One Year Plan

January - February - March - April - May - June

Industrial Engineering and Scientific Management in Japan

Japanese scholars and business men embraced scientific management, efficiency movement, and industrial engineering right from the inception and excelled in implementing it and reaped great rewards in economic as well as academic spheres. In the process there were many innovations in the subject on the Japanese soil.

Early Adoption of Scientific Management by Japan

Late nineteenth century Japan was a rational shopper for products, technology and organizational models[1]. Scientific management of F.W. Taylor was quickly spotted by Japanese and was translated into Japanese in 1912, within one year of its publication in USA in 1911 [1]. It is an astonishing fact that one million copies were sold to workers in a special edition for workers. Yoichi Ueno and Araki Toichiro were enthusiastic supporters. Yoichi Ueno was responsible for organizing the Industrial Efficiency Research Institute (Sngyo Noritsu Kenkyujo) in 1921.

Motion analysis techniques were used in Japanese companies in starting in 1913. Firms like Mitsubishi Electric and Nippon Electric took the lead. In the area of textiles, Kannebo and Toyobo took the initiative.

Industrial engineering was organized as a subject that increases the education and skills of workmen in Japan. Improving the education and skill of a workman is a dominant concept in Japanese industrial set up compared to the slogan of deskilling in US systems. Also, the Efficiency Research Institute was an initiative of Harmony and Cooperation Society (Kyochokai) formed in 1919 by the state and leading corporations of Japan. Industrial engineering has a more welcome environment in Japan to deliver its scientific potential.

Zenjiro Imaoka [3]  explained Industrial Engineering as a concept for improving the efficiency of production and is the driving force that brings success in mass production today. OR (Operations Research) is an approach to explore optimization using statistical figures and linear programming. Both of them are included in supply chain flow [2].  IE (industrial engineering) is a concept that was first structured as a concept to enable the improvement of production efficiency. Various scientific approaches started by Taylor were tried out to improve production efficiency by various companies. During the Civil War, the U.S. promoted the standardization of firearms and parts of munitions. As a result, the U.S. succeeded in the mass production of parts by realizing low-cost and short-lead time production. The engine of the further success of mass production was the concept of IE. IE was employed by Henry Ford for producing the Model T Ford and that was a starting point of growth for auto industry.  The base of business administration and management consulting methodology of today started with IE. We can also say that IE is a technology that combines manufacturing techniques and product technologies or it synchronizes management resources. If IT (information technology) can be used together with IE (manufacturing technologies), information and communication will be combined with production systems, leading to the efficient flow in supply chain management which resulted in supply chain innovations such as CALS, BPR, ECR, and QR.

Contribution of JMA in Promoting and Using IE and Scientific Management in Japan

Scientific Management began in 1880s and spread quickly around the world. In Japan, this concept evolved into the pursuit of efficiency, and in 1942 the Japan Management Association (JMA) was established as an organization to promote that concept, based on IE and other management methods.

JMA set three basic principles to govern all its activities.

1. Japan-oriented strategy toward efficiency.
2. Execution than vacuous theory
3. Priority basis than all-round policy

Contribution of Taiichi Ohno and Shigeo Shingo

An interesting point is that Taiichi Ohno did not accept the present method as the best method. He advocated that it can be improved today or tomorrow. It is only a present standard operating procedure subject to improvement today or tomorrow. He wanted every body to believe in progress and improvement of methods.



1. Oxford handbook of work and organization, OUP 2005
3. Zenjiro Imaoka, Understand Supply Chain Management through 100 words,



Manufacturing Ideology: Scientific Management in Twentieth-Century Japan
By William M. Tsutsui, Princeton University Press, 2001

Manufacturing Ideology: Scientific Management in Twentieth-Century Japan - A Review

Related Articles

Industrial Engineering

Industrial Engineering - Articles of Narayana Rao K V S S

Total Industrial Engineering - H. Yamashina

Reviewed 3.3.2011

Originally posted on

Industrial Engineering Knowledge Revision Plan - One Year Plan

January - February - March - April - May - June

Shigeo Shingo - The Japanese Industrial Engineer


Regarded as one of the most important figures in the history of manufacturing of Japan for his contributions to improving manufacturing processes, Shigeo Shingo has been described as an “engineering genius.” He has authored several books including, A Study of the Toyota Production System; A Revolution in Manufacturing: The SMED System; Zero Quality Control: Source Inspection and the Poka-yoke System; The Sayings of Shigeo Shingo: Key Strategies for Plant Improvement; and Non-Stock Production: The Shingo System for Continuous Improvement.

I studied his book The Sayings of Shigeo Shingo: Key Strategies for Plant Improvement first. This book is full of short stories that explain the strategies for plant improvement.


Shigeo Shingo was born in 1909 at Saga City, Japan. He attended the Saga Technical High School and graduated from Yamanashi Technical College. In 1930 he went to work for the Taipei Railway Company.
In 1943 shingo was transferred to the Amano Manufacturing Plant in Yokohama. As Manufacturing Section Chief, he raised productivity 100% [strategosinc].

Shigeo Shingo's Association with JMA

Shigeo Shingo joined the Japan Management Association (JMA) as a management consultant in 1945.

One of his first projects was at Hitachi Ltd.’s vehicle manufacturing plant in Kasado, Japan. Here he clarified that the objective of industrial engineering was to improve the process, not the individual operations in isolation, and that any improvement to the operations must be measured by its contribution to the improvement of the process.

In 1950, while working at Toyo Kogyo, Shingo came out with idea that setup operation is composed of “internal setup” (IED) and “external setup” (OED). Seven years later at Mitsubishi Shipbuilding’s Hiroshima shipyards he further developed exchange of dies process with the concept of shifting IED to OED.

In 1954, Morita Masanobu of Toyota Motor Co. attended one of Shingo’s courses. When he returned to Toyota, he applied some of the concepts he had learned and achieved great results. One year later, Shingo was invited to Toyota and began industrial engineering and factory improvement training at Toyota for both its employees and parts suppliers. At that point, at just short of 10 years with JMA, he had worked with over 300 companies to improve manufacturing process and had taught his innovative concepts to hundreds of manufacturing professionals in Japan.

Shingo began his association with Taichi Ohno of Toyota in 1956, a relationship that would last for over twenty years. Shingo was regarded as a teacher who could solve problems and develop new techniques while Ohno was the passionate visionary. Shingo created and wrote about many aspects of the revolutionary manufacturing practices which became components of the renowned Toyota Production System. When asked whether it was he or Ohno that created the Toyota Production System, Shingo took full credit, saying, "I did, for I was Ohno's teacher." (JMA) Ohno successfully applied many of Shingo’s concepts such as SMED and Poka-yoke which led to great success for Toyota. But Shingo wrote in his book that he was challenged by Taichi Ohno to come out with SMED and Shingo could come out with SMED. Shingo used his expertise with die changing process under the challenge put forward by Ohno to come out with the SMED process.

Shingeo Shingo left the Japan Management Association in 1959 to found the Institute of Management Improvement.

Recognition and Awards

Utah State University recognized Dr. Shingo for his lifetime accomplishments with an Honorary Doctorate in Business in 1988 and began awarding the Shingo Prize for Excellence in Manufacturing to companies that demonstrate excellence in manufacturing practices which translate into excellent customer satisfaction and business results.



JMA, Shingo with Japan Management Association,



Shingo's Contribution to Toyota Production System's%20influence%20on%20TPS.pdf

Shingo with Japan Management Association

Shingo - Some Resources

Originally posted at

Industrial Engineering Knowledge Revision Plan - One Year Plan

January - February - March - April - May - June

Systems Improvement

Productivity Improvement Idea Bank
Resource for Industrial Engineers


March 2011
Transform the way you store and manage data with EqualLogic (Dell)

Information is at the core of business value. Ignited by the need for real-time data access, enterprise mobility and pervasive virtualization, it’s no surprise that storage growth is expected to accelerate past 60% per year through 2020*. On average, essentially doubling every 18 months*. As if managing your organizations data growth isn’t enough, doing it on a flat annual budget makes it even more challenging.

Consider the Dell EqualLogic virtual iSCSI SAN. Its seamlessly scalable architecture and intelligent array software natively integrates with your tier-1 application and virtual environments to help you efficiently manage data without adding complexity. EqualLogic’s automation can help save you 45 days per year on common storage tasks and accelerate VM deployments by over 70%. Learn more about why virtual storage is an ideal solution for efficiently managing your data growth


October 2010 - Air plane
Reinvent Your Hawker
More Speed, Fuel economy (7%)
Avaition Partners Winglets


Design-build model can increase productivity in construction industry compared to design-bid-build model.


T N S Machining, Inc. has found a universal shop-wide coolant that has solved many common operational problems. PICOCOOL 5254, a new generation high technology synthetic coolant, provides excellent lubricity for a variety of machining operations on many different materials especially difficult aluminum alloys. Reduced machine downtime and improve machining.

Industrial Engineering Knowledge Revision Plan - One Year Plan

January - February - March - April - May - June

The Legal Environment of HRM - Review Notes

Human Resource Management Revision Article Series

There are a plethora federal, state, and local laws and regulations related to workers' compensation, unemploymenet compensation, wages, health and safety in workplace,, whistleblower's protection, retirement, employee benefits, right of privacy, and protection against unjust dismissal.

Most Americans work under the employment-at-will doctrine that stiputes that both employer and employee can terminate a working relationship at any time and for any reason other than those characteristics or situations explicitly stipulated by law.

HR managers and persons intending to be HR managers should realize that the practice of human resources is a litigous minefield with more "mines" being planted in the form of new laws or regulations and the judicial acceptance of new legal theories of unfair or injurious employment practice.

Equal Employment Opportunity Law

What is employment discrimination?

Employment discrimination can be broadly decisions or working conditions that are advantageous (disadvantageous) to members of one group compared to members of another group. These advantages or disadvantages can be in the areas of personnel selection, admission to training programs, promotions, work assignments, transfers, compensation, layoffs, punishments, and dismissals.

All claims of discrimination must be filed with EEOC (http:// ). The most frequently used sources for filing discrimination violations are Title VII of the 1964 U.S. Civil Rights Act (CRA), the Age Discrimination in Employment Act of 1967 (ADEA), and the Americans with Disability Act of 1990 (ADA).

Sexual harassment cases are also filed under Title VII. According to guidelines, sexual harassment is defined as "unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when (1) submission to such conduct is made either explicitly or implicitly a term or condition of an individual's employment. (2) submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual , or (3) such conduct has the purpose or effect of unreasonably interfering with an individual's work performance or creating an intimidating, hostile, or offensive working environment.

Presentation slides

Bernardin's HRM book


Chapter Learning Objectives

After reading this chapter, you should be able to

Explain the legal issues affecting HRM activity and the various laws related to equal employment opportunity and employment discrimination.

Identify potential problems in HRM policy and practice as related to equal employment opportunity laws.

Know the importance of judicial interpretation in EEO law.

Understand the implications of EEO law in the international context.

Describe the future trends related to EEO law and their implications for practice.


Related Chapters

Labor Relations and Collective Bargaining

Employee Health and Safety

Video Lectures and Presentations on Employment Law



Training and Development - Bernardin - Review Notes

Human Resource Management Revision Article Series
Training is defined as any attempt to improve employee performance on a currently held job or one related to it.

Development refers to learning opportunities designed to help employees grow to higher responsibility jobs.

Needs Analysis

Needs analysis is three stage process: Organizational analysis, job analysis, person analysis

Organizational Needs

Organizational analysis find out the areas and skills where training emphasis should be placed. Short and long-term goals and objectives of the organization and any trends that may affect these goals determine the areas of importance to the organization. The human resources inventory of the organization can reveal projected employee retirements, promotions, turnover and the resultant new recruitment. Sophisticated personnel inventories can be maintained to indicate teh knowledge and skills inventory of individual employees and they can be compared with the knowledge and skills needed as per the HR plan. Climate and efficiency indexes help in the identification training needed to alleviate the current deficiencies in these dimensions.

More elaborate list of data sources used in organizational needs analysis

Organizational goals and objectives, Human resources inventory, Organizational climate surveys, Job satisfaction survey, Efficiency indexes, Exit interviews, Recently made and likely to be made changes in technology, MBO system outputs and documents, Manager recommendations

Job Analysis

Job analysis should document the tasks or duties involved in the job. It also has to specify knowledge, attitude, behavior and other characteristics required for a person to do the job effectively and efficiently.

Person Analysis

The person analysis identifies specific persons and the specific knowledge or skills in which those specific persons are to be trained or developed.

Special Training Programs

Employee orientation programs

The objectives of the program
1. To assist the new employee in adjusting to the organization and feeling comfortable and positive about the new job.
2. To clarify the job requirements,demands, and performance expectations; and
3. To get the employee understand the organization's culture and quickly adopt the organization's goals, values and behaviors.

After reading this chapter, you should be able to

Define what is meant by training and explain why it is a critical function for corporations today.

Explain how to conduct a needs assessment, including performing organizational, task, and person analyses and deriving instructional objectives for a training program.

Know how to design a training program to facilitate learning.

Identify the critical elements related to transfer of training.

Compare and contrast the various techniques available for training, including their relative advantages and disadvantages, with particular emphasis on e-learning.

Identify criteria to use to evaluate training effectiveness.

Understand different experimental designs that can be used for evaluating training programs.

Understand the components of training programs for employee orientation and onboarding, teamwork, generational issues, diversity awareness, sexual harassment, creativity, and international assignments.

Career Development - Review Notes

Human Resource Management Revision Article Series
Everybody understands that there are hierachies in organizations and normally one has to start at lower levels and move up the hierarchy with demonstrated success at lower levels. But as organizations flattened, the levels in the hierarchy are coming down. But still value contributed by an employee is expected to go up with time and experience.

Hence individuals do career planning. They anticipate things that they would like to do in future. Organization need to career development activities so that employee's value contribution keeps increasing with years.

The business environment is highly turbulent and complex and lifetime employment concept does not hold anymore as more companies are laying off people more frequently and also more companies are getting closed. Therefore individuals have to focus on employability apart from the current job related career. Employees have plan their career and look out for their own best career interests at various points of time. Hence employees must develop new and better skills of self assessment and do career planning.

What Should Organizations Do?

Organizations have to take up career development activities to decrease employee turnover, to avoid shortage manpower at various levels and improve the satisfaction and motivation of employees.

Career Development - Definition

Career development in the present context is development of a set of knowledge, attitudes and behaviors associated with work-related activities and experiences over the span of a person's life.

Career development has two important activities. One by the employees that is career planning. One by the organization which is termed as career management by Bernardin.

Career Development Systems

Activities and Tools

Self-assessment tools
- Career-planning workshops
- Career workbooks
Individual counselling
Information services
Organizational assessment programs
Developmental programs

Career Programs for Special Categories of Employees

Fast-track employees

Organizations often identify stars or individuals with high career potential to take up senior positions early in their careers and provide them with intensive development opportunities.

Outplacement programs

Entrenched employees
Entrenched employee remain in the jobs but do not have adequate commitment to the job. Given an opportunity without loss they are willing to leave the job and look for a different opportunity.

Programs for women, minorities, and employees with diabilities
Diversity initiatives are calling for special efforts to develop various underrepresented groups.

Programs for retiring employees

It is important that employees are aided in their transition to retirement.

When expatriates return to home country, they become repatriates. They have career issues after long stints in foreign countries. Career development issues can be significant for them and HR people have to take care of them.

Objectives of the chapter

After reading this chapter, you should be able to

Describe the new changes taking place in the workplace and what implications these have for individuals and organizations.

Define organizational career development and the reasons for understanding career development.

Understand the importance of integrating career development programs with other organizational systems (e.g., training, selection, recruitment).

Identify the steps in designing career development systems.

Describe the components of career development systems.

Understand how to design career programs for various target groups of employees such as fast-track employees, entrenched employees, supervisors, executives, women, minorities, employed spouses and parents, repatriates, and others.

Bernardin, Human Resource Management,McGraw Hill

Direct and Indirect Compensation - Review Notes

Human Resource Management Revision Article Series
The term compensation refers to all forms of financial returns and tangible benefits that employees receive as part of employee relationship.

The compensation system does influence company's success. The amount of pay can motivate, energize, and direct behavior. The compensation level of an organization attracts high performance talent. It also has effect on the profitability of the company.

Compensation system of a company has to take care of external equity and internal equity.

External equity is comparison between one organization's compensation and other organization's compensation levels for similar jobs.

Internal equity is comparison among various jobs.

Organizations have to maintain both to have a workforce that is satisfied and voluntarily stays with the company.

Job Evaluation for Internal Equity

Job evaluation is defined as the process of assessing the value of each job in relation to other jobs in an organization.

Job evaluation methods

1. Job ranking 2. Job classification 3. Point-factor plans

Current Issues and Trends in Salary Administration

Pay for knowledge, skills or competence
Team pay plans

Government Influence on Compensation Issues

The Fair Labor Standards Act (FLSA) 1938
The minimum wage law is in force in USA. In 1938, the minimum wage was $0.25. In 2002, it was $5.15 per hour.

Effective from July 24, 2009, the minimum wage is $7.25 per hour.
FLSA's overtime provisions establish 40 hours as the standard workweek and employers have to pay workers at least 1.5 times the regular hourly rate for all work in excess of 40 hours in any workweek.

Pay Equity or Comparable Worth Policy

Indirect Compensation: Employee Benefits

Five Categories

1. Government Mandated Programs

Social security
Unemployment insurance
Workers' compensation insurance
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
Family Medical Leave ACt of 1993 (FMLA)
State-mandated diability insurance plans

2. Employee Welfare Programs

Health care plans
Life Insurance

3. Pension Plans

4. Time-off Programs

5. Employee Services

Education programs
Employee assistance programs and mental health care
Employee recognition programs
Child care

International compensation Issues

Base salary
Foreign service premium
Tax issues

Managing the Employee Relationship - Review Notes

Human Resource Management Revision Article Series

Issues related to Organizational Justice

Justice, or fairness is thought to exist when people receive those things they believe they deserve to receive based upon their contribution. (Bernardin)

Distributive justice deals with perceptions of equity in the allocation of rewards and penalties given by the organization.

Procedural justice is a perception of fair rules, laws, or policies that allocate rewards and penalties.

Companies promote ethics programs to ensure honest, fair and responsible actions on the part of employees both managerial and supervisory and others. Ethics programs emphasize

1. Welfare of others as much as feasible.
2. careful evaluation of a situation for decision making to understand the anticipated and unintended consequences of possible alternative actions.
3. Spiritual or social thinking - think of yourself and the organization as a part of the larger society.
4. Respect to the norms of the society.

Human resource professionals as they take various decisions relating to employees have to keep in mind the issue of organizational justice.

Employee Relations - Organizational Entry

Employee relations activities formally start with the time of selection interview and continue till the time payment of last pension to an employee or his or her representatives.

Organizational socialization is the process by which members of the organization transmit their expectations and routines to the new comers. It is also the process through a new comers comes to appreciate the values, abilities, expected behaviors, and other social knowledge essential to be an accepted member of the community of the organization.

Orientation is a term used for the formalized set of activities designed by the organization to socialize a person or induct a person into the organization. Orientation programs include informational training sessions, site tours, interaction with various organization members and mentorships.

Organizations and HR professionals have to give a realistic job preview to potential recruits in the advertisement process, information process and interview process. Employee handbook is a good device to explain the organizations policies and procedures and make employee know various facilities.

Ongoing Employee Relations

Employee handbooks periodically updated inform the policies and procedures of the companies and help in making things clear employees about their role, rights, and responsibilities. Thepurpose of the policies and procedures is to establish the guidelines by which the organization and employee contribute to the mutual relationship.

Employee surveys or feedback programs indication of issues that are troubling the employees and also brings out issues which are causing them delight and satisfaction.  Employee surveys facilitate planned organization change and team building. This will improve employee relationship.

Grievances and Grievance Handling Mechanisms

The simplest way to define grievance may be to say that it is a formal, written complaint about the way in which the employment relationship is being carried out.

In unionized organizations, the grievance procedure is involves stewards and other union leaders representing the worker having grievance. Peer review systems are used by companies to review the decision involved in the grievance.

Employement Relationship at the Time of Exit

Organizational exists can be through retirement, resignation, termination or layoff.

For retirement, private organizations are providing flexible options like part time work for some period and then involving retired employees in social activities of the organization. Retirement training programs are being organized for employees.

Companies want to reduce employee turnover. Exit interviews are recommended to find out the reasons for an employee leaving the company.

Terminations must be done on consistent basis so that they have to support of the employees in general.

Layoff is large scale termination of employment. HR managers have to act in a way to maintain goodwill with those affected by layoffs and also the people retained. The behavior of the management during the troubled period affects the feelings of both layoff victims and survivors.

Human Resource Management by H. John Bernardin

Labor Relations and Collective Bargaining - Review Notes

Human Resource Management Revision Article Series
Why do Workers Join Unions?

Bernardin provided three reasons.

1. Dissatisfaction with the work environment, compensation, and supervision.
2. A desire to have more influence in affecting change in the work environment.
3. Employee beliefs regarding the potential benefit of unions.

In USA, the National Labor Relations Act (Wagner Act) was enacted to protect workers' rights to organize and join unions. Subsequently Taf-Harley Act was passed and it has put some limits on some of the powers of unions.

Knolwedge of labor relations laws and process of collective bargaining is important for HRM specialists and general managers. Collective bargaining has to take views of both business managers and employees. Management representatives can't concede to issue that ultimately would impair to company's ability to stay in business. Similarly unions can't concede a relative fall in the benefits of workers compared to other companies in the area and economy.

The collective bargaining results in a labor contract valid for two to three years and in cases to stretching to five years.

Issues in collective bargaining

1. Wage related issues
2. Supplementary economic benefits
3. Institutional isses
4. Administrative issues.

Types of Bargaining

1. Distributive bargaining
2. Integrative bargaining
3. Concessionary bargaining

Conducting Labor Contract Negotiations - Process for HR Professionals


Reviewing and diagnosing the mistakes and weaknesses from past negotiated agreements and negotiation processes is a continuous activity that helps in future bargaining.  Collecting and reviewing recent agreements in the local area and industry wide databases on labor issues is to be done. Preparation also includes the understanding of current economic conditions, that include productivity and inflation trends and projected performance of the company.

Meetings conduct

There should be provisions in the bargaining terms sheet for negotiations to proceed smoothly. "Take it or leave it" proposals are typically ineffective as negotiation steps.

Resolution of bargaining deadlocks

The bargaining deadlocks can be referred to mediators.

Administration of the Contract

Despite the amount of time spent for coming out with an agreement, there appear problems in the actual implementation of the agreement.

Grievances and grievance procedure

A grievance is a formal complaint regarding an event, action, or practice. In the context of collective bargaining agreements, it is a complaint that says, the contract is violated. The first step of the grievance procedure is a meeting between the supervisor, the person concerned and the union representative. If it is not resolved at this stage, it goes to the manager of the supervisor. If it is not resolved here, it goes to the company level grievance committee.

Arbitration process

Arbitration involves bringing an impartial third party with mutual agreement to provide a ruling in the case of a deadlock that is final and binding on both parties.

Current Issues in U.S. Labor Relations Area (Bernardin)

1. Union membership
2. Mergers and acquisitions
3. Retraining
4. Employee benefits
5. International Labor Relations Issues

Employee Health and Safety - Review Notes

Human Resource Management Revision Article Series
Many laws are designed to higlight the role of employers to protect workers from illness. Prevention activities related to health and safety are made mandatory and fines and penalties are imposed for violating these laws and regulations.

The Occupational Safety and Health Administration Act

The act was created in1970. Since the act was created, US employment increased by more than two times but fatalities and injury rates were cut by more than 40+.

Human resource professionals have to understand the provisions applicable to their organizations and implement the necessary measures in association with safety and health professionals.

Employer Responsibilities under OSHA

Employers have certain responsibilities under the Occupational Safety and Health Act of 1970. The following list is a summary of the most important ones:

- Provide a workplace free from serious recognized hazards and comply with standards, rules and regulations issued under the OSHA Act.

- Examine workplace conditions to make sure they conform to applicable OSHA standards.

- Make sure employees have and use safe tools and equipment and properly maintain this equipment.

- Use color codes, posters, labels or signs to warn employees of potential hazards.

- Establish or update operating procedures and communicate them so that employees follow safety and health requirements.

- Provide medical examinations and training when required by OSHA standards.

- Post, at a prominent location within the workplace, the OSHA poster (or the state-plan equivalent) informing employees of their rights and responsibilities.

- Report to the nearest OSHA office within 8 hours any fatal accident or one that results in the hospitalization of three or more employees.

- Keep records of work-related injuries and illnesses. (Note: Employers with 10 or fewer employees and employers in certain low-hazard industries are exempt from this requirement.)

- Provide employees, former employees and their representatives access to the Log of Work-Related Injuries and Illnesses (OSHA Form 300).

- Provide access to employee medical records and exposure records to employees or their authorized representatives.

- Provide to the OSHA compliance officer the names of authorized employee representatives who may be asked to accompany the compliance officer during an inspection.

- Not discriminate against employees who exercise their rights under the Act.

- Post OSHA citations at or near the work area involved. Each citation must remain posted until the violation has been corrected, or for three working days, whichever is longer. Post abatement verification documents or tags.

- Correct cited violations by the deadline set in the OSHA citation and submit required abatement verification documentation.

Source: OSHA web page

Contemporary Issues Related to Health and Safety in Workplaces

Aids and the workplace
Drugs in the workplace
Smoking in the workplace
Violence in the workplace
Video display terminals
Repetitive strain injuries

Bernardin, Human Resource Management,McGraw Hill

December 12, 2011

Management and Entrepreneurship: Science, Theory and Practice

Definition of Management: Its Nature and Purpose

Management of an organization is the process of establishing objectives and goals of the organization periodically, designing the work system and the organization structure, and maintaining an environment in which individuals, working together in groups, accomplish their aims and objectives and goals of the organization effectively and efficiently (Narayana Rao). (3rd December 2008, Version 1 of this article)

The above definition was a modification of the definition given by Koontz and O'Donnell.

The definition implies the following.

(i) Management is a process.
(ii) Management applies to every kind of organization, government, profit making, or nonprofit making.
(iii) It applies to managers at all levels in the organization.
(iv) Management is concerned with effectiveness and efficiency. Effectiveness is producing the product or service the customer wants in business context with the required functional benefits and product attributes at the price he is willing to pay. Efficiency is minimization of resources to produce the saleable output.

Weirich and Koontz

Weihrich and Koontz defined Management and explained it as follows in the tenth edition of their book Management: A Global Perspective (p.4).

"Management is the process of designing and maintaining an environment in which individuals, working together in groups, efficiently and accomplish selected aims." This definition needs to be expanded:

1. As managers, people carry out the managerial functions of planning, organizing, staffing, leading, and controlling.
2. Management applies to any kind of organization.
3. It applies to managers at all organizational levels.
4. The aim of all managers is the same: to create a surplus.
5. Managing is concerned with productivity; this implies effectiveness and effciency.

Functions of Management

The process of management can be better understood by breaking it down into the five basic functions of a manager – planning, organizing, resourcing, leading and controlling. All the management concepts, principles, theories and techniques can be grouped under these five functions.

Management Functions at Different Organizational Unit Levels

All managers carry out managerial functions. However the proportion of time spent for each function may differ from level to level. The top managers may spend more time on planning in choosing the corporate objectives and business unit objectives and in developing the work system and the organization structure. The first level supervisors may spend more time in leading the staff under them and in doing operational control.

Managerial Skills

Managers require four kinds of skills: technical, human, conceptual and design.

1. Technical skills are knowledge of and proficiency in working with the tools and specific techniques on given processes. For example, mechanics work with tools, and their supervisors should have the ability to train them how to use these tools and periodically evaluate and improve the skills of the staff under them. Similarly accounts use various formats of accounting records like journal, ledger, trial balance, balance sheet and use various procedures like entry, posting, reconciliation and reversing etc. and the supervisor of the accountants has to know these records and procedures to train the staff under him and evaluate their work for accuracy. The first level supervisors have to demonstrate or use their technical skills on a day to day basis as managers.

2. Human skills are the concepts, methods and techniques that facilitate working with people. Managers have to create an environment in which people feel comfortable, motivated, secure, and committed to the objectives and goals of the group or the organizational unit in which they are members.

3. Conceptual skill is the ability to see the “big picture.” It is the ability to recognize significant issues or elements in a situation and to understand the relationships among these key issues.

4. Design skill is the ability to solve problems in ways that benefit the enterprise. To be effective managers in the organization must be capable of doing more than just seeing a problem (If they merely confine their attention to the problem, they become ‘problem watchers’ and they will not fulfill their responsibility). They Must have, in addition to the skill of identifying key problems, the skill of a good design engineer to work out a practical solution to a problem in the light of the realities they face in the situation.

The intensity or frequency with which these groups of skills are applied varies with the managerial level.

First line supervisors use their technical skills on a day to day to basis to observe the working of the staff in the department or section and guide them in carrying out the allotted tasks as per the specification of the customer or the design and in proper use of machines and tools. Quality and quantity control on a continuous becomes the important responsibility of first line supervisors and technical skills play a very important part in this role.

At the top level, conceptual skills and design skills have to be employed to recognize the opportunities and threats that keep on emerging in the environment. Solutions to benefit from the opportunities and contain the ill effects of threats have to be developed.


While thinking of entrepreneurship as starting and managing small businesses is popular, the concept is applicable and extended accordingly to large organizations and to managers carrying out entrepreneurial roles through which they initiate changes to take advantage of opportunities in the business environment. The essence of entrepreneurship is innovation, entry into a new market or introduction of new product. Even employing new technology is innovation and it is also entrepreneurship as it brings a new business entity into existence.

Entrepreneur and Intrapreneur

Gifford Pinchot made a distinction between the two terms. Intrapreneur is a person who undertakes innovative initiatives while operating within the organizations. Entrepreneurs or intrapreneurs have the ability to see an opportunity, and to make efforts obtain the necessary capital, labor and other resources to put together an operating unit. They are willing to take the personal risk of success and failure.

Entrepreneurship, which is the starting of a new business unit is the result of successful execution of number of activities and executives who have the ability to carry on these activities are said to be having entrepreneurial orientation.

Sensing and spotting opportunities, assessing opportunities, selecting opportunities, and executing upon opportunities are described as four important steps in the entrepreneurship process (Tatfi). Managers in the organization who act like self employed persons are termed as entrepreneurial leaders.

Article originally posted at

Tatfi, Seyed Abbas Mousavi,

Planning Function of Management - Global Issues


There is close cooperation between government and business in Japan.


Managers are under pressure for short term results by stockholders who may be temporary holders of stock.

December 11, 2011

Committes and Group Decision Making - Review Notes

Reasons for using committees in decision making

Group deliberation and judgment
Fear of too much authority in a single person
representation of multiple groups
Coordinationof departments, plans and policies
Transmission and sharing of information

Control Techniques and Information Technology

Variable budgets
Zero bed budgeting

Nonbudgetary control devices

Statistical data
Special Reports and Analyses
Operational audit
Personal observation

Critical path methods for control (Crashing decisions to reach the target completion date)

Overall Control and Preventive Control - Review Notes

Budgetary control is one of the overall control devices.

A monthly profit and loss account is also used as over all control device.

ROI is used as control yardstick for overall control

Summary - Principles of Controlling

Related to the purpose of control

Principle of assurance of objective

The task of control is to assure accomplishment of objectives by detecting potential or actual deviation from plans early enough to permit effective corrective action.

Principle of efficiency of controls

The more control approaches and techniques detect and illuminate the causes of potential or actual deviations from plans with the minimum of costs or other unsought consequences, the more efficient these controls will be.

Principle of control responsibility

The primary responsibility for the exercise of control rests in the manager charged with the execution of plans.

Principle of direct control

The higher the quality of managers and their subordinates, the less will be the need for indirect controls.

(The principle may termed as principle of reduced controls. A superior can spend less time in control activities if he has more higher quality managers and their subordinates in his department.)

Principles related to Structure of control

Principle of reflection of plans

The more controls are designed to deal with and reflect the specific nature and strucuture of plans, the more effective they will serve the interests of the enterprises and its managers.

Principle of organizational suitability

The more controls are designed to reflect the place in the organization structure where responsibility for action lies, the more they will facilitate correction of deviation of events from plans.

Principle of individuality of controls

Controls have to be consistent with the position, operational responsibility, competence, and needs of the individuals who have to interpret the control measures and exercise control.

Process of control

Principle of standards

Effective control requires objective, accurate, and suitable controls.

Principle of critical-point control

Effective control requires attention to those factors critical to appraising performance against an individual plan.

The exception Principle

The more a manager concentrates his control on exceptions, the more efficient will be the results of this control.

Principle of flexibility of controls

If controls are to remain effective despite failure or unforeseen changes in plans, flexibility is required in the design of controls.
Principle of action

Principle of Action

Control is justified only if indicated or experienced deviations from plans are corrected through appropriate planning, organizing, staffing and directing.


Harold Koontz and Cyril O’Donnell, Principles of Management: An Analysis of Managerial Functions, 4th Ed., McGraw-Hill, New York, 1968

Harold Koontz and Cyril O’Donnell, Principles of Management: An Analysis of Managerial Functions, 2nd Ed., McGraw-Hill, New York, 1959

Controlling - Global Management Challenges - Review Notes

Global managers have to understand the culture of the place in which they are operating to make their managerial actions successful in getting approval their staff in the place.

In Japanese and Chinese cultures, the individuals are not made to feel shame in public and the effort is always made to save the face of people involved in shortfall of targets. US culture is one of blaming individuals and making them feel their lapse in completing an agreed task.

Introduction to Economics - Basic Economic Concepts and Theories

Three fundamental problems are to be solved by every economy.

1. what kinds and quantities shall be produced of all possible goods and services?

2. How shall resources be used in producing these goods?

3. And for whom shall the goods be produced? Or what shall be the distribution of consumption among different individuals in the economy?

Society solve these problems in different ways - by custom, by commnad and control (central planning) and in mixed economies and free market economies by a system of prices and markets.

Video Lecture - Economics

Prof Kenneth Train
UC Berkeley


Elements of Supply and Demand - Review Notes

Demand Schedule

A demand schedule represents the relation between the quantity of a good or service that people in an economic system want to buy and the price of that good or service.

Law of downward-sloping demand.

Almost all commodities obey the law of downward-sloping demand. The law says quantity demanded increases as price of the good falls or the quantity demanded decreases as the price increases.

Supply schedue

Gives the relationship between the quantity that producers in an economic system are willing to sell at various prices.

Equilibrium in the market for a good

The equilibrium of supply and demand occur at a price where forces of supply and demand are in balance.

Elasticity of demand

The elasticity of demand of a specific good is defined as:

Percentage increase in quantity demanded of the product/Percent decrease in price of the product

Price elastic demand

If a one percent drop in prices leads to more than one percent increase in quantity demanded, we say it is price elastic demand.

If the percentage drop in price and percentage increase in quantity demanded are same, it said to be unit elastic demand.

If percentage drop in price is higher than the percentage change in quantity demanded, we say it is price inelastic demand.

The concepts are useful because measurements can be made and elasticities can be calculated. The results are used for decision making regarding setting supply schedules.

Elasticity of supply

Similar to elasticity of demand, elasticity of supply can also be defined.

Supply elasticiy =

Percentage rise in quantity supplied/Percentage change in price

Elasticity refers to percentage change in one variable with respect to percentage change in another variable.

The supply elasticity helps the Government to decide incentives it wants to offer to industries to increase supply.





Theory of Aggregate Supply and Demand

Classical Theory:

Total output is insensitive to the overall price level. Prices change quickly to erase any excess supply or demand in markets.

Kenesian theory:

The economy can experience long periods of persistent unemployment. Monetary and fiscal policies help in increasing the employment.

In Kenesian theory, investment determines output or investment has a multiplier effect on output.

UC Berkeley Lecture





Business Cycles

Business cycles occur when economic activity speeds up for some period and slows down for some period and then once again speeds up.

A recession is a fall in aggregate output. In USA, a recession is said to occur when real GNP has declined for two successive quarters.

Okun's Law:

For every 2 percent that GNP falls relative to potential GNP, the unemployment rate rises 1 percentage point.

Characteristics of Business Cycles

At slowdowns of the economies, consumer purchases decline sharply while business inventories increase unexpectedly especially that of automobiles and other durable goods.

Business curb production, real GNP falls.

The demand for labor falls leading to layoffs and higher unemployment.

As demand falls, prices of many commodities fall sharply.

Business profits also fall sharply.

Original Knol - 217

Macroeconomic Objectives

The major objectives with which macroeconomic management is attempted include:

1. High level and growth of output and consumption of goods and services.

2. High employment of willing persons.

3. Price level stability from period to period.

4. To have a stable foreing exchange rate

Knol 210

Money and Monetary Policy


Money is anything that serves as a commonly as accepted medium of exchange or means of payment.

We now use paper money and bank money (cheques and drafts).

People value money for what it buys.

Money supply definition at the economy level include M1 and M2. M1 is called transactions money and is equal to currency in the economy plus deposits in checking accounts of banks. M2 is M1 plus highly liquid savings accounts.

Demand for money arises out of need for transactions and precautionary needs. Speculative motive also could be there when people hold money to buy something later instead of buying it now.

Economic theory predicts that demand for money is sensitive to interest rates. Higher interest rates lead to less demand for money.

Effect of money on output

An increase in money will lower interest enough to persuade people to hold all the new money.

Lower interest rate increase investment.

Due to the multiplier effect, increase in investment leads to increase in output.

Even though put in the three steps, the actual monetary mechanism is complex in its effects on output and prices.

A school or thought in economics known as monetarism argued that macroeconomic fluctuations are caused by erratic growth in money supply.

Federal Reserve of USA conducted a full-scale monetarist experiment from 1979 to 1982.

It rejected the monetarist approach after 1982.


Inflation occurs when the general level of prices is rising.

The rate of inflation is measured as the rate of change of the economy wide price levels (say consumer price index, or CPI).

The most widely used measure of inflation in USA is the consumer price index (CPI).

In general unanticipated inflation redistributes wealth from creditors to debtors.

when society takes steps to lower inflation, the real costs of such steps in terms of lower output nad employment can be painful.

Monetary Policy

Monetary policy deals with money supply, interest rates and exchange rates of an economy.

Central banks are given the responsibility for monetary policy in many countries.

In USA Federal Reserve System (or FED) was created in 1913 and it was given the responsibility ofr nation's money and credit.

Fed has the major instruments to implement its policy:

1. Open market operations
2. The discount rate on bank borrowing
3. Reserve requirements on depository institutions.

Fed has the responsibility of backstopping the domestic international financial system in crisis.

That is what now (October 2008) Fed and Secretary of Treasury are doing in USA. To support the financial system as there is a crisis in the system.

Sterilization:if foreigners want more domestic currency, the money supply in an economy will increase. Fed can decrease money supply in the economy by selling bonds. If foreigners take away their currency, money supply will fall. Fed has to buy bonds and increase the domestic money supply. These processes of Fed in response to the behavior of foreigners is called sterilization.

Knol - 218 and 219

UC Berkeley Lecture


Fiscal and Debt Policies of the Government

Governments use budgets to plan, control and record their fiscal affairs.

In a budget the expenditure of the govermment is shown and its revenues from its taxation policy are shown. There can be budget surpluses or budget deficts or balanced budgets.

When the government incurs a budget deficit it can borrow from central bank or borrow from public to pay its bills.

Governments are using fiscal policy to moderate business cycles and maintain economic growth.

if government has surplus budget, private businesses can use all the savings in economy and invest in busineses. If government runs deficit budget, it has to borrow from public and this will reduce the savings available for investment for private businesses. This is the crowding out argument.

Knol - 223



Theory Demand, Supply and Equilibrium in Market

To be posted after posting the initial chapter on demand and supply

Economic Analysis of Different Competitive Conditions in Markets

Under perfect competition there are many small firms producing an identical product. Also there are numerous buyers buying small quantities.

Under these conditions each producer faces a completely horizontal demand curve. There is a market price at which he can sell his entire produce and he cannot sell any of his items at a higher price.

Under such conditions, a profit maximizing firm will set its production at that level where marginal cost equals market price.

Monopolist come from the Greek words mono for 'one' and polist for 'seller'. Hence monopolist is a single seller of a particular product in a market. Monopoly is a market situation in which there is only one seller.

marginal revenue is the increment in total revenue that comes when output increases by one unit.

The maximum-profit comes to a monopolist at a quantity level where its marginal revenue is equal to its marginal cost.


Where as in perfect competition, the rational decision for a producer is MC = P. P does not change with quantity a single producer is offering in a perfect competition.

In a monopoly only one seller is in the market. Hence as he offers to sell more, marginal revenue comes down as price come down with increase in selling quantity.

Between monopoly and perfect competition lies imperfect competition in the market.

Duopoly is situation where two sellers are in the market.

Oligopoly is a market dominated by few firms.

Oligopolies occur due to legal restrictions like quotas, patents which are to be licensed and product differentation.

Some characterization of Oligopoply

Collusive oligopoly
Dominant firm oligopoly

Monopolistics competition

There are many firms but they sell dissimilar products.


Paul Samuelson and William D. Nordhaus, Economics, 13th Edition, McGraw-Hill, 1989