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CASE STUDY STOCK MARKETS

VVG Reddy is an NRI based in Dubai  and is the vice-president of  AL-SAR traders. He has 2000 shares of the company and the base value of dollar 100 per share and the listed price for the share today in Dubai stock exchange is dollar 175.

Recently he has shifted base to Mumbai and has decided to sell the shares. He approaches a stock broker  Mr.Lakshmi Parayan who gave him some insight into the ways the share could be traded.

The share broker said that there are four ways in which the trading could be done. The broker can buy the share immediately at 20 percentage less than the dollar exchange rates with 22 percent tax on the earnings. The shares could be routed through the New york stock exchange in which case the transaction would take six months to complete where in the dealer commission would be 4 percent and the exchange rate would be 15 percent less than the dollar exchange rates and the tax would be 2 percent in India and 3 percent in New York.. the  third option would be to sell in the Dubai market where only 500 shares can be traded a month at 6 percent less than the dollar exchange rate with 7 percent tax and 6 percent  dealer commission for  every 500 shares. The fourth option would be to sell the shares through local traders who will only deal with 100 shares every month at 15 percent less than dollar exchange rates with 3 percent dealer commission.

Discuss the best option for Reddy that will give him best returns,

Assume dollar exchange rate as Rupees 65 per dollar and interest rates at 15 % per anum.

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THE UTILITY FUNCTION AND CONSUMER ECONOMICS

Consumer Economics is an area of Economics that studies Consumer Buying.There are many other forms of Economics too; like Business Economics ,Managerial Economics, Labour Economics and so on. Consumer Economics is the area of Economics that studies Consumer Consumption.

Business Economics is a subsidiary of Consumer Economics in many ways. Consumer would not buy anything for which he has no Utility. So Utility function is a very important component of  Consumer Economics.

One of the ancillary axioms of Consumer Economics is the Marginal propensity to store. When there is Consumer crisis of any kind there is Marginal Propensity to Store.

The Utility Function is a function of two variables. It is directly proportional to Criticality of need and inversely proportional availability of Substitutes.  Less the availability of substitutes higher is the Utility and higher the  Criticality  of need higher is the Utility.

Factors like Supply and Demand are influenced by the Utility function and hence Inflation and Deflation. Higher the Utility function higher will be the Price in the Price-Demand relation normally discussed in Economics. Increase in price could result in increased Demand a result contrary to conventional trajectories under the influence of higher Utility functions.