Stages of economics activities

1. 4 stages-steps or phases
2. The stage definition or meaning?
3. What is the economic RULE in each stage?
4. What is the problem if we don’t apply the RULE?
Q1) what are the stages of economic activities definitions, Rules and the problems
if we don’t apply the Rules?

A1)

Stage 1:

MONEY:

To start business you need money as Source of finance (not economic resource).

Stage Rule:

Money should be used all in production.

Problems if not applying the rule:

Burden of interest, inflation

Stage 2:

Process of PRODUCTION:

It’s the most important stage, Engine to transfer inputs (LLC) to outputs goods
and services

Stage Rule:

Inputs should be transferred to output and generate Value added + Job

opportunities to increase GDP

Problems if not applying the rule:

Low rate of growth, decreasing the GDP + unemployment.

Stage 3:

INCOME:

Flow of return generated from production.

Stage rule:

Income should be generated from production accordingly a link between salary or

wages and productivity is a must.

And it called money not income if it comes directly from money (‫)تحويالت خارجيه‬

Problems if not applying the rule:

Inflation happens when income comes from money not from production.

Stage 4:

SPENDING:

Using income in consumption or saving and investment.

Stage Rule:

Income should return to the box of production

In normal cases the income should return to the BOX or engine of production to
stimulate the economic activities and increase the rate of growth GDP.

But in case of facing problems to operate the BOX (use of inputs), such as unsafe
business environment or lack of information about investment map or investment
low:

1. The consumption will flow out abroad (imports).

2. The saving and investment will flow out abroad or will shift to non
productive activity. It will cause inflation.
Q2) what are the reasons of inflation?

1- Inflation happens when don’t applying the rule of the income stage that the
income must be generated from the production and what happen is the income
comes from money directly not from production.

2-the salaries increase with the same production level.

3-the money used to pay the salaries or wages directly and not use it all in the
production.

‫الزم الفلوس تكون ناتجه من الزراعه والصناعه واالنتاج المحلي‬

Q3) The low rate of growth happened it the Egyptian economy with decreasing of
GDP and increasing of unemployment. How you explain this statement?

1-Because they didn’t apply the rule of production that Inputs should be
transferred to output and generate Value added + Job opportunities to increase
GDP and the result is low rate of growth, GDP decreased and unemployment.

2- Or facing problems to operate the BOX (use of inputs LLC) to transfer them to
outputs goods and services.

Q4)why burden of interest happen?

Because of not using the money efficiently and all in production and not apply the
rule of money stage to use them all in production
Q5) The Egyptian markets depends on importing more than 80% from external
products. How can you explain this statement?

The rule of spending in normal cases done by the income should return to the
BOX or engine of production to stimulate the economic activities and increase the
rate of growth GDP.

But in case of facing problems to operate the BOX (use of inputs), such as unsafe
business environment or lack of information about investment map or investment
low:

1. The consumption will flow out abroad (imports) and not used to buy local
goods and services.
2. The saving and investment will flow out abroad or will shift to non
productive activity and not invested again as an input in production stage.

Q6) The Egyptian market is trying to reach perfect competition market. How can
you explain this statement?
False. Because the perfect or free competition market cannot be achieved as
there is no many identical product exists with unlimited producers.
But they can reach the ideal or best market (monopolistic competition) they can
achieve it by applying similar products (heterogeneous) with many producers to
achieve price and non price competition.
Q7) Developed countries succeeded to achieve perfect competition
market.
False. Because the perfect or free competition market cannot be achieved as
there is no many identical product exists with unlimited producers.
But they are may reached the ideal or best market (monopolistic competition)
they can achieve it by applying similar products (heterogeneous) with many
producers to achieve price and non price competition.

Q8) Market is a place where buyers & sellers meet to exchange goods &
services.
Or there is a difference between books and reality in market?

(False): because it is old & traditional definition, as the modern way is

market is a mechanism where buyers & sellers Interact to exchange
goods & services.
 Q9) Market is any activity deals with one market.
(False): Market is any activity deals with at least 2 markets backward &
forward markets or more than one (many) backward & more than one
(many) forward.

Goods or Services
Input Market Output Market
Backward Market Activity
Forward Market
Private or Public

Supply Demand Supply Demand

Backward Market: Is the market where I am buying my inputs and looking

for lower price and competitive and should be 1-safe 2-stable 3-cheap.

Forward Market: is the market that I am selling my products goods and

services (Output) and looking for high price and monopolistic market.

Q10) what are the difference between market structures?

 Q11) Is forward market representing the supply side & other people
representing customers?

Or the activity in the forward market is the supplier (playing the role of
supplier) and the demand is the customer (playing the role of the demand)?
Or the activity in the backward market is the demand (playing the role of
demand)?
Backward Market: Is the market where I am buying my inputs and looking
for lower price and competitive and should be 1-safe 2-stable 3-cheap.

Forward Market: is the market that I am selling my products goods and

services (Output) and looking for high price and monopolistic market.

Goods or Services
Input Market Output Market
Backward Market Activity
Forward Market
Private or Public

Supply Demand Supply Demand

 Q12) Successful market is forward market only.
(False): Market is any activity deals with at least 2 markets backward &
forward markets or more than one (many) backward & more than one
(many) forward in the same time by changing the specifications of the
product.

Goods or Services
Input Market Output Market
Backward Market Activity
Forward Market
Private or Public

Backward Market: Is the market where I am buying my inputs and looking

for lower price
Supply
and competitive
Demand and should be 1-safe
Supply
2-stable 3-cheap.
Demand

Forward Market: is the market that I am selling my products goods and

services (Output) and looking for high price and monopolistic market.

Q13) The objective or interest of forward market is different than backward

market?
(True): Because my position is different according to the situation, in
forward market I am supplier so the interests in prices is looking for high
prices and monopolistic role while in backward market I am customer
demand so I am looking for low prices for inputs. And competition role
Q14) Forward market prefers oligopoly & backward market prefer
monopolistic competition.
(False): Forward market prefers Monopolistic market & backward market
prefer perfect competition market.

Q15) Challenge of any activity in forward market is creating new market?

(True): any product in economics has specific characteristics, if any of the
characteristics change so it’s a new product so another supply so another
customer so it’s a new market & the challenge is to create new forward
market that’s mean new market share & new customers.
Example: nestle water bottles (small and large) and KFC shrimps product.

While the challenge in Backward Market: Safe (available any time), Stable
(Regular flow) & cheap.

Examples: car service centers ‫البضاعه مش مضروبه‬

Regular flow means regularity to take your inputs to deliver in right time.
 Q16) what are the challenges of backward & forward markets?
Forward Market: is the market that I am selling my products goods and
services (Output) and looking for high price and monopolistic market
& Backward Market: Is the market where I am buying my inputs and looking
for lower price and competitive and should be 1-safe 2-stable 3-cheap.

Goods or Services
Input Market Output Market
Backward Market Activity
Forward Market
Private or Public

Supply Demand Supply Demand

And the challenges are:

Backward Market: Safe (available any time), Stable (Regular flow) & cheap.

Examples: car service centers ‫البضاعه مش مضروبه‬

Regular flow means regularity to take your inputs to deliver in right time.

Forward Market: Open new market & expand the actual market.

HOW or example? By change the specifications of the product to create

new product to the customer and to expand the existing market (ESLSCA
new product)

Q17) How the challenge in forward market is to open new market?

By change the specifications of the product to create new product to the

customer and to expand the existing market (ESLSCA and KFC new
products)
 Q18) Market study is any activity deal with MANY markets at the same
time.

(True). Forward market is subdivided in too many forward markets &

Backward market is subdivided in too many backward markets.

Goods or Services
Input Market Output Market
Backward Market Activity
Forward Market
Private or Public

Supply Demand Supply Demand

Q19) The activities are playing the same role in both markets.

(False): Market is any activity deals with at least 2 markets backward &
forward markets or more than one (many) backward & more than one
(many) forward in the same time by changing the specifications of the
product.

Goods or Services
Input Market Output Market
Backward Market Activity
Forward Market
Private or Public

Supply Demand Supply Demand

Backward Market: Is the market where I am buying my inputs and looking

for lower price and competitive and should be 1-safe 2-stable 3-cheap.

Forward Market: is the market that I am selling my products goods and

services (Output) and looking for high price and monopolistic market.
 Q20) In the forward market represent the demand and backward market
represent the supply.

(False): Market is any activity deals with at least 2 markets backward &
forward markets or more than one (many) backward & more than one
(many) forward in the same time by changing the specifications of the
product.
Goods or Services
Input Market Output Market
Backward Market Activity
Forward Market
Private or Public

Supply Demand Supply Demand

Backward Market: Is the market where I am buying my inputs and looking

for lower price and competitive and should be 1-safe 2-stable 3-cheap.

Forward Market: is the market that I am selling my products goods and

services (Output) and looking for high price and monopolistic market.

Q21) The interest of any activity is different according to the market in

price and type of market.

(True): In forward market playing the role of supplier so the interests in

prices is looking for high prices, monopolistic role & looking for new
markets share and new customers while in backward market playing the
role of demand so the interest in prices is looking for low prices for inputs &
looking for safe, stable & cheap inputs.
Q22) High prices are better than low prices in market activity?

(False): because it depends on my role as in forward market playing the

role of supplier so the interests in prices is looking for high prices,
monopolistic role & looking for new markets share and new customers
while in backward market playing the role of demand so the interest in
prices is looking for low prices for inputs & looking for safe, stable & cheap
inputs.

Q23) Define Market Price and Official Price?

Official Price (can't Market Price (Can

be changed every day) be change daily)

Puplic
1-Price = Cost
2-Price less cost Supply
3-Free Serv. like edu.
and health

Private
Cost Demand
+
Profit Margin

Q24) What are the characteristics of Official Price?

A:
1. Relatively stable: Takes at least 6 to 12 months to change.

2. Should be operating-effective: when price is affordable, near the market price

and reflects the value of the product
Q25) What are the characteristics of Market Price?

1. Effective price: Results in the reaction between market forces (Supply &
Demand) and not based on the product cost.

2. If you need to sell or to buy you act according to the market price.

Q26) When official price is not operating?

We refer to market price which is usually higher than the official price when there
is a “Market Distortion” comes from (high demand and shortage in supply)
And it based on two main reasons:
1-Normal reason ‫ نقص الماده الخام‬,‫ ثوره‬,‫ازمه تصنيع‬
2-Corruption ‫احتكار لبن االطفال و ازمه البطاطس‬

Q27) What are the reasons for Market Distortion?

1. Economic Reasons (Supply and Demand) or normal accidents (revolution, war)

2. Corruption (like when someone collects a product from the market, so he can
control the price).
Q28) How the government can reduce the GAP between official price and market
price?

There are 3 approaches to reduce the GAP, which are:

1. Fix a ceiling price: (a maximum price set by law) ‫التسعيره الجبريه‬

This is wrong approach because it’s not a real price and it’s less than the
market price, so it’ll not operate, and it can’t stand for long time against the
market price, which will create a (black market). So, it can be used only as a
short-run policy supported with some regulation (like coupons).

2. Raise the official price to the market price:

The official price will lead to inflation and may cause a higher black market

3. Reduce the market price to (or near to) the official price.

This can be done by:

a. Reduce (control) the Demand

(by offering new and many cheaper substitutes).
‫الخرفان السوداني والبرازيلي واللحمه المستورده‬

b. Increase and encourage the local Supply:

1. by offering package of incentives (lower taxes, better credit
facilities, lower land and power cost)
2. By international trading: more imports as a short term solution to
provide the product in the market. And less exports