Know thy meaning

Know thy meaning - 2

gross domestic product (GDP)

   Definition

The value of a country's overall output of goods and services (typically during one fiscal year) at market prices, excluding net income from abroad.

Gross Domestic Product (GDP) can be estimated in three ways which, in theory, should yield identical figures. They are (1) Expenditure basis: how much money was spent, (2) Output basis: how many goods and services were sold, and (3) Income basis: how much income (profit) was earned. These estimates, published quarterly, are constantly revised to approach greater accuracy. The most closely watched data is the period to period change in output and consumption, in real (inflation adjusted) terms. If indirect taxes are deducted from the market prices and subsidies are added, it is called GDP at factor cost or national dividend. If depreciation of the national capital stock is deducted from the GDP, it is called net domestic product. If income from abroad is added, it is called gross national product (GNP). The main criticisms of GDP as a realistic guide to a nation's well-being are that (1) it is preoccupied with indiscriminate production and consumption, and (2) it includes the cost of damage caused by pollution as a positive factor in its calculations, while excluding the lost value of depleted natural resources and unpaid costs of environmental harm.

elasticity of demand 

Definition

The degree to which demand for a good or service varies with its price. Normally, sales increase with drop in prices and decrease with rise in prices. As a general rule, appliances, cars, confectionary and other non-essentials show elasticity of demand whereas most necessities (food, medicine, basic clothing) show inelasticity of demand (do not sell significantly more or less with changes in price). Also called price demand elasticity. See also cross price elasticity of demand.

market penetration pricing  

Definition

A strategy adopted for quickly achieving a high volume of sales and deep market penetration of a new product. Under this approach, a product is widely promoted and its introductory price is kept comparatively low.

This strategy is based on the assumption that (1) the product does not have an identifiable price-market segment, (2) it has elasticity of demand (buyers are price sensitive), (3) the market is large enough to sustain relatively low profit margins, and (4) the competitors too will soon lower their prices.