Showing posts with label General. Show all posts
Showing posts with label General. Show all posts

Advantages And Disadvantages Of Horizontal Communication

What Is Horizontal Communication ?

Lateral or horizontal communication is a type of communication which is established between different departments, units or people in the organization with the same rank or hierarchical level. Messages and information are exchanged or transmitted among the people at the same level or position in the organization.


Benefits Or Advantages Of Horizontal Communication


The main advantages if horizontal communication can be expressed as follows:


1. Direct Interaction


Horizontal communication facilitates direct interaction between different departments and people which increases coordination and sense of cooperation in the organization.


2. Decrease Misunderstanding


As we know that horizontal communication facilitates free flow of information and messages between people and departments in the organization. So, it helps to clear doubts and decrease misunderstandings and conflict in the workstation.


3. Better Environment


This communication allows direct interaction and promotes the sense of cooperation and harmony in the organization. Therefore, it helps to make better working environment in the firm


4. Increased Efficiency


Horizontal communication helps to maintain harmonious relation between people, departments and units in the organization. Good relationship between departments and employees helps to improve work efficiency and productivity of the firm.


5. High Morale


Employees can share their feelings and ideas with other members in the workplace. It may helps to increase morale, motivation and job satisfaction.


advantage disadvantage horizontal communication


Drawbacks Or Disadvantages Of Horizontal Communication


The main disadvantages of horizontal communication can be expressed as follows:


1. Possibility Of Conflict


This communication may create conflict and distrust between employees and departments which negatively affects the operational activities in the organization.


2. Less Control


Another disadvantages of horizontal communication is that it will be difficult for the top management to control subordinates because of too much intercommunication. Therefore, it becomes difficult to maintain proper discipline in the organization.

      

      Also Read: 

Advantages And Disadvantages Of Upward Communication

Advantages And Disadvantages Of Downward Communication


3. Waste Of Time


Because of the lack of control, employees may waste their time in gossiping which may hamper their efficiency and performance in the work. It may reduce productivity and profitability of the firm.


Pros And Cons Of Horizontal Communication In short


Pros:

-  It helps to reduce misunderstanding and facilitates coordination

- It increases employees' morale and motivation

- It helps to increase efficiency and performance

- It creates favorable working environment

- It promotes team spirit and group effort


Cons:

- It is difficult to control and maintain discipline in the organization

- There is a possibility of interdepartmental conflict 

- Managers may discourage this type of communication

- It ignores vertical communication

Advantages And Disadvantages Of Downward Communication

What Is Downward Communication ?


It is just opposite of upward communication (where message flows from lower to top level of management). Downward communication is a type of communication process in which information, messages, orders and instructions are flow or transmitted vertically down from top management to bottom by following proper chain of command (From top management to middle level management to lower level management to subordinates) in the organization. This communication is helpful in maintaining better chain of command and discipline in the company.


Benefits Or Advantages Of Downward Communication


The main advantages of downward communication can be highlighted as follows:


1. Easy To Assign Duties And Responsibilities


In downward communication, instructions and messages directly comes from the top authority which is helpful to assign jobs and delegate authority and responsibility to different levels of management.


2. Maintenance Of Better Discipline


Another advantage of downward communication is that it follows strict chain of command in the workstation and all members should follow the instructions and orders received from top management. So, it helps to maintain proper discipline in the organization.


3. Increased Efficiency


Subordinates get clear instructions, suggestions and guidance from higher management. It helps to increase efficiency and performance at work which helps to achieve organizational goals effectively.


4. Avoids By-passing


As we know that upward communication system suffers from the problem of by-passing of hierarchy due to the lack of proper chain of command. But downward communication minimizes this risk because there is formal chain of command in the organization.


5. Effective Process


Management can clearly explain organizational goals, policies and procedures more clearly through downward communication. Instructions and orders can be issued more effectively than other forms of communication methods. Therefore, it is more effective process of communication while comparing to others.


Drawbacks Or Disadvantages Of Downward Communication


The main disadvantages of downward communication can be described as follows:


1. It Lacks Flexibility


Downward communication is a one way process in which information flows from top to bottom only. Employees cannot give suggestions and share their ideas with upper level managers. Therefore, this process lacks flexibility.


2. Time Consuming Process


Another drawback of downward communication is that it is time consuming process. Information, messages, orders and instructions pass through different levels of management before reaching to the subordinates. Therefore, operational activities may be hampered because of the delay in transmission of information. 

       

        Also Read: 

Advantages And Disadvantages Of Horizontal Communication

Advantages And Disadvantages Of Upward Communication


3. Low Morale And Motivation

Because of its directive nature, it discourages employee participation and dos not allow them to provide suggestions and views to the management. It may create frustration, decrease motivation and morale of the subordinates.


advantages and disadvantages of downward communication


Pros And Cons Of Downward Communication In Short


Pros:

- It ensures proper delegation of authority, responsibilities and assignment of jobs

- It improves efficiency and boosts employee performance

- It discourages by-passing of hierarchy in the organization

- It gives clear explanation of plans and procedures of the company

- Management can monitor and control employees' activities

- Better discipline can be maintained because of better supervision and control.


Cons:

- It is a time consuming process

- It does not promote subordinate participation in the decision making process

- There is a chance of employee frustration, decreased morale and motivation

- There is no flexibility in this process of communication

- It lacks employees enthusiasm

- There may be a possibility of distortion of message because of long transmission process

Advantages And Disadvantages Of Upward Communication

What Is Upward Communication ?


It is a type of communication in  which information or message flows vertically from lower level subordinates to upper level management. Upward communication encourages lower level employees to provide suggestions and ideas so the top management can make proper plan and sound decisions. It is most commonly used in modern organizations because it overcomes the limitations of traditional  communication system.


Benefits Or Advantages Of Upward Communication


The main advantages of upward communication process can be described as follows:


1. Better Relations Between Superiors And Subordinates


In upward communication, subordinates are allowed to share their feeling, problems and opinions with superiors. It helps to build trust and sense of harmony between management and employees . So, this communication process helps to make good superior subordinate relations in the organization.


2. High Employee Morale


Another advantages of upward communication is that it helps to increase motivation and morale of subordinates because it encourages the subordinates to give suggestions and views to the management. It  promotes employee participation which makes them feel valued. Therefore, it improves motivation , morale and job satisfaction.


3. Better Decision Making


Top level management get important data and information from lower level management and subordinates through this communication process. So, it helps the management to make sound and perfect decisions.


4. Formulation Of Plans And Policies


As we know that top management collects useful data, information, suggestions and ideas from lower level management and subordinates through upward communication. These information are very helpful to develop future plans and policies of the company.


5. Better Working Environment


Because of two way communication and employee participation and better superior subordinate relation, it creates better working environment in the organization. Good working environment increases efficiency and performance of the employees which helps to increase productivity as well as profitability of the organization.


Drawbacks Or Disadvantages Of Upward Communication


Some of the notable disadvantages of upward communication process can be described as follows:


1. Possibility Of Manipulation Of Data


Subordinates may manipulate data and provide edited information to hide their mistakes. In this situation top management get wrong information which may lead to wrong decisions.


2. Discouragement


Sometimes subordinates may not get positive response from their superiors. It may discourage them and they may loss confidence.


advantages and disadvantages of upward communication

3. Fear Of Negative Reaction


Some autocratic or traditional types of leaders do not want to take suggestions and ideas from their subordinates. In this situation, employees may not want to communicate with their managers because of the fear of negative reaction.

     

        Also Read: 

Advantages And Disadvantages Of Downward Communication

Advantages And Disadvantages Of Horizontal Communication


4. Difficult To Maintain Discipline


Another disadvantage of upward communication is that it is very difficult to maintain better supervision and discipline. Because of the open communication, more freedom to subordinates and friendly behavior of managers, it may be difficult to maintain proper chain of command and discipline in the organization.


5. Slow Movement


In this communication system, information flows slowly from lower level to upper level of management. Therefore, it may not be suitable for the top management to make quick decisions at the time of emergency.


Pros And Cons Of Upward Communication In Short


Pros:

- It provides valuable information and suggestions to the management.

- It helps to make good management-subordinate relationship

- It is useful for the development of plans and policies

- It increases employees' motivation and morale

- It helps to create good working environment

- It facilitates sound decision making

- It promotes sense of cooperation and harmony in the workstation


Cons:

- There is very slow movement of information

- Subordinates may manipulate the actual data and provide false information to the management

- There may be a lack of proper discipline in the organization

- Managers may neglect subordinates' suggestions and opinions

- Employees may hesitate to communicate with their bosses because of the fear of negative response

- Subordinates may by-pass their immediate superiors

Advantages And Disadvantages Of Laissez Faire Leadership

 What Is Laissez Faire Leadership Style ?


It is just opposite of authoritarian leadership style (where authority and power is exercised by the leader only). In laissez faire leadership style, authority is delegated to the employees and they are free to set goals and make decisions. Superiors trust their subordinates and do not interfere in their works. It encourages the employees to explore their knowledge , skills and capabilities in the organization.


Benefits Or Advantages Of Laissez Faire Leadership


The main advantages of laissez faire leadership style can be pointed out as follows:


1. Delegation Of Authority


One of the main benefits of laissez faire leadership is that authority and power is delegated to the members in the organization. Delegation of authority promotes specialization which helps to improve the performance and efficiency in the workplace.


2. Increased Motivation And Job Satisfaction


This leadership style provides opportunity for the subordinates to explore their skills and abilities. It also helps to increase creativity and develop decision making power. Therefore, employees are positively motivated which leads to increase in the job satisfaction.


3. Quick Decisions


As we know that subordinates have the authority to set their goals and make decisions to achieve those goals, it facilitates prompt decisions because they do not need to consult with their leaders to make any decision.


4. Proper Use Of Employees Potential


Another advantage of this leadership is that in ensures maximum utilization employees' potential in the workplace. Potentiality (skills, abilities, capabilities and creativity) of the subordinates are utilized properly which helps to obtain better output.


5. Development And Growth


Due to the limited role of the leader, subordinates have the opportunity to shine their skills, knowledge and performance. It is helpful in personal growth and career development.


6. Promotes Innovation


In this system, subordinates may find out shortcut methods and techniques to solve the problems. So, laissez faire leadership promotes innovations and new ideas in the organization.


7. Lower Employee Turnover


Because of positive motivation, possibility of growth and development, learning opportunity and better working environment, morale of the employees is increased. Increased morale and motivation decreases the rate of staff turnover.


advantages and disadvantages of laissez faire leadership

Drawbacks Or Disadvantages Of Laissez Faire Leadership Style


The main disadvantages of laissez faire leadership can be pointed out as follows:


1. Not Suitable


This management system works properly if there are highly educated, skilled and specialist subordinates in the organization. It is not suitable for unskilled and inexperienced members because they cannot perform their tasks without proper guidance and supervision.

      

         Also Read: 

Advantages And Disadvantages Of Autocratic Leadership

Advantages And Disadvantages Of Democratic Leadership


2. It Lacks Privacy


All the internal matters of the organization are shared with the employees because of the openness of this leadership style. So, confidential matters may be leaked by the subordinates. Therefore, it is almost impossible to maintain secrecy and privacy. 


3. Lacks Supervision And Control


Another notable disadvantages of laissez faire leadership is that it lacks proper supervision, monitoring and controlling because of the freedom given to the employees. Therefore, it is difficult to maintain discipline which may reduce the performance and the output.


4. Lack Of Accountability


Because of the lack of clearly defined roles and responsibilities of superiors and subordinates, it may create confusion and misunderstanding in the organization. It will be difficult for the top level management to decide whom to make responsible and accountable.


5. Weakens  Leader's Role


Laissez faire leadership dilutes the role of leaders. Therefore, leaders cannot guide and instruct his/her subordinates properly. Also employee may ignore their superiors because of their weak position.


Pros And Cons Of Laissez Faire Leadership In Short


Pros:

- It encourages decentralization and specialization

- It increases the morale of the subordinates

- It facilitates personal growth and development opportunity

- It is very suitable for competent employees

- It encourages creativity and innovation

- It facilitates quick decisions


Cons:

- Because of the lack of secrecy, official matters may be leaked

- It dilutes the roles and importance of managers

- This system does not suits for unskilled, incompetent and inexperience subordinates

- There is a possibility of misunderstanding, confusion and conflict if the roles are not defined properly

- It lacks proper discipline in the workplace

- It lacks proper supervision and monitoring

Advantages And Disadvantages Of Teamwork

What Is Team Work ?

When two or more people work together to complete a specific task or to achieve a common goal is called teamwork. It is known as the  collaborative effort of a group of people to perform a task. In simple words, team work can be defined as an activity of working together to obtain certain objective. It helps to simplify the complex tasks and reduces the workload, that helps to minimize errors and mistakes and increases the productivity.


Benefits Or Advantages Of Teamwork


The main advantages of teamwork can be explained as follows:

1. Teamwork Reduces Workload

The main benefit of teamwork is that it simplifies complex and difficult tasks and divides among the members according to their skills and capabilities. So, difficult tasks can be performed easily when there is a team. In this way, teamwork helps to reduce the workload of an individual with the means of division of labor and specialization.

2. Teamwork Increases Productivity

Suppose an individual can complete a task in 10 hours. But if it is performed by 5 people, it can be completed within 2 hours. It means more tasks can be completed if we work in a team. So, it helps to perform more tasks which leads to improve the productivity of the company.

3. Teamwork Provides Learning Opportunity


A team is a combination of different talents, different skills, different experience, different culture and different backgrounds. So, interaction among the members provides opportunity to learn new skills and gain knowledge which is very useful in personal growth and career development.

4. Better Quality Of Output


Another notable advantage of teamwork is that it ensures better quality of output. Because of division of work and specialization, minimization of errors, mistakes and wastage is possible. S, it helps to increase the quality of output. 

5. It Increases Employee Motivation And Morale


Teamwork decreases the workload which reduces the  burden and stress. It also provides learning opportunity that increases the skills and abilities. So, it helps to improve employee morale and motivation which leads to job satisfaction.

6. Teamwork Increases Interpersonal Skill


It promotes coordination and sense of commitment in the organization. Better coordination helps to improve communication and interpersonal skill of the employees.

7. It Encourages Innovation


Because of different minds and abilities, new idea and better solutions can be discovered to overcome the obstacles. So, teamwork promotes innovation.

Drawbacks Or Disadvantages Of Teamwork

The main disadvantages of teamwork can be expressed as follows:

1. Teamwork Lengthens Decision Making Process

One of the main drawbacks of teamwork is that it takes more time to make decisions. It requires the agreement of all members to make any decision. So, quick decision is not possible at the time of emergency.

2. High Chance Of Conflict


There exists a chance of conflict and misunderstanding between the team members. Conflict among the employees decreases the efficiency, disturbs the working environment and hampers the smooth flow of operation.

3. May Create Challenge To The Management


It may become difficult for the management assign tasks properly to the team, to handle conflict effectively and to evaluate employees' performance fairly.

advantages disadvantages teamwork

4. Demoralization Of Team

Possibility of demoralization is another disadvantage of teamwork. Unequal distribution of work, unequal participation in the job, difference in the interests and opinions of members and presence of conflict and misunderstanding may lead to demoralization.

5. Possibility Of Factionalism


Disputes and misunderstanding between the team members leads to factionalism in the workplace. Factionalism creates conflict which negatively affects the performance and productivity of the organization. 

Pros And Cons Of Teamwork In Short

Pros:

- It simplifies large and complex tasks into small pieces of works which helps to decrease the workload and burden of  team members . 

- It helps to improve productivity and quality of output.

- It increases interpersonal skills, motivation, morale and job satisfaction

- It provides learning opportunity to the members which helps to improve their skills and abilities.

- Because of higher motivation and job satisfaction, it helps to lower employee turnover rate.

Cons:

- There is a possibility of conflict and misunderstanding among the members and factionalism in the workstation.

-  It takes long time and effort to make decision

- It may be difficult for the management to maintain better discipline in the workplace.

- There will be a chance of personality clash among the team members. 

Advantages And Disadvantages Of Monopoly

Benefits Or Advantages Of Monopoly

The main advantages of monopoly can be described as follows:

1. Supernormal Profit

In monopoly, there is only one supplier for the entire market. Company can set selling price of goods freely as per wish. Therefore, monopolies can make supernormal profit.

2. Economies Of Large Scale

Only one company sells products to the large number of customers. Because of large volume of production and less cost of production firm enjoys the benefit of economies of large scale.

3. Government Revenue

Companies earns massive amount of profit because of monopoly. So, government can collect more tax from them. So, monopolies are good source of government revenue.

4. Price Discrimination

Price discrimination is another benefit of monopoly. Company may use this policy to benefit economically backward customers. For example, electricity authority may provide discount to poor families.

5. Research And Development

Company makes massive profit because of lack of competition in the market. So, it can invest huge amount of money for research and development activities. It helps to improve product quality and also minimizes the cost of production.

      Also Read: 

6. Promotes Innovation

Because of huge investment in research and development, monopoly promotes innovation also.

7. Face Depression

Because of being single supplier of goods and services, economic crisis like depression does not affect monopolies or company can face depression easily.

Drawbacks Or Disadvantages Of Monopoly

The main disadvantages of monopoly can be described as follows:

1. Customer Exploitation

Single seller has absolute power of setting price and supplying goods in the whole market. It may sell low quality products at higher price. So, there exists a chance of exploitation of customers in monopoly market.

2. Poor Service

Being a single trader, company may focus only on earning more profit rather than providing good service to the customers. Because of no customer sovereignty, consumers may not get quality products and proper service.

3. No Choice

Customers have no choice because there is only one supplier for whole market.

4. Higher Price

Monopoly lacks competition because there is one supplier for all customers. So, company may charge higher price for low quality products. 

5. Unfair Practice

Monopoly restricts others to enter the market. New firms cannot sell their products in this market structure. So, it is an unfair trade practice.
advantages disadvantages of monopoly
Pros And Cons Of Monopoly In Short

Pros:

- Business Firms can earn massive profit
- Companies enjoy economies of scale because of large volume of production
- Requires less marketing and promotion costs
- It encourages innovation, research and development
- Government can collect more tax from monopoly firms

Cons:

- Customers have to pay higher price for inferior products due to the lack of competition
- It lacks customer sovereignty
- Because of single supplier, there is no alternatives for customers
- It may increase customer dissatisfaction

Advantages And Disadvantages Of Monopolistic Competition

Benefits Or Advantages Of Monopolistic Competition

The main advantages of monopolistic competition can be described as follows:

1. Easy To Enter And Exit

The main benefit of monopolistic competition market structure is that new firm can enter the market without any barriers. Traders can exit or leave the market at any time without any restrictions and obstacles.

2. Product Differentiation

In this type of market, products are differentiated or varieties of products are available. So, it provides selection facility for buyers.

3. Advertising

In monopolistic market, products are identical or homogeneous like in perfect competition. So, firms advertise their products through different media which helps to provide information about quality, price and using methods to the customers.

4. More Profit

Companies are free to set price of their products. So, they can set higher price of goods and services which generates more profit.

    Also Read: 

5. Better Quality

Because of the ability to fix price and chance of more revenue, companies try to improve product quality. It helps to retain existing customers and attract potential customers.

6. Innovation

Monopolistic competition encourages innovation. Companies regularly perform research and development activities to add new features to their products which helps to increase quality and value.

Drawbacks Or Disadvantages Of Monopolistic Competition

The main disadvantages of monopolistic competition can be described as follows:

1. Higher Price

In this type of market, product price is higher than perfect competition because of the following reasons:
* Firm can set price itself
* Firm invests huge amount of money in advertisement and other promotional activities
* Wastage of resources such as excess packaging, marketing etc. 

So, customers have to pay more money in monopolistic market.

2. Misleading Customers

Various promotional activities are conducted to provide information about the products and services. Sometimes wrong information can mislead the customers.
advantages disadvantages monopolistic competition
3. No Economies Of Scale

Because of larger number of traders, all companies cannot enjoy the benefit of economies of scale.

Pros And Cons Of Monopolistic Competition In Short

Pros:

- Customers get selection facility because of different alternatives
- Companies can easily enter or exit the market because of less barriers
- Customers get detail information about the products or services
- It promotes innovation
- Because of competition customer get quality products at lower price

Cons:

- Price of the product may become high because of high marketing budget
- There is no economies of scale
- False information about products may mislead customers

Advantages And Disadvantages Of Perfect Competition

Merits Or Advantages Of Perfect Competition

The main benefits or advantages of perfect competition can be described as follows:

1. Easy Entry And Exit

In perfect competition, business firms or traders can enter the market and start business without any restrictions. They can exit or leave the market at any time without any obstacles. So, there is no entry and exit barriers in this type of market structure.

2. Lower Price

In this type of market, price of product or service is fixed by demand and supply mechanism. If any trader charges higher price then customers are free to buy products from another shop. So, consumers can fulfill their requirements at lower price.

3. No Consumer Exploitation

Due to competition, customers can get standardized products at affordable price because sellers cannot influence the market. Therefore, perfect competition discourages consumer exploitation.

4. Less Promotional Cost

As we know that this market structure deals with homogeneous products and price is fixed by the market mechanism, producers do not need to invest huge amount in advertisement, publicity and other promotional activities.

5. Optimum Utilization Of Resources

Because of lower price, firms earn less profit. Therefore they try to increase efficiency and minimize wastage by utilizing resources properly which helps to lower the cost of production.

Demerits Or Disadvantages Of Perfect Competition

The main drawbacks or disadvantages of perfect competition can be described as follows:

1. Less Profit

It is very difficult for small traders to sustain in the market because of the lack of incentive and lower profit margin.

    Also Read: 

2. Limited Choice

This market deals with identical or homogeneous products and services. Therefore there is a limited choice for customers. Because of the lack of variety, customers have no selection facility.

3. No Economies Of Scale

There are various firms trading similar types of products. So, business firms cannot enjoy the benefit of economies of large scale. 
advantages disadvantages of perfect competition
Pros And Cons Of Perfect Competition In Short

pros:
- It discourages customer exploitation
- It creates active business environment
- There are no restrictions to enter or exit the market
- Customers get high quality products at reasonable price
- Producers focus on maximum utilization of resources to improve efficiency
- It requires less advertising and publicity budget

cons:
- It is difficult for small traders to sustain because of high competition
- It lacks product differentiation
- Firms cannot enjoy the benefit of economies of scale
- In this market, profit margin is very low. So producers cannot make sufficient investment for research and development purpose.
- Customers get limited choice

Importance Or Advantages Of Office Management

Importance and advantages of office management can be expressed as follows:

1. Goal Attainment

Office management directs the efforts of all staffs (top level to bottom level) towards the achievement of company's goals and objectives. Planning, organizing, coordinating, directing and controlling are the major functions of management which helps to achieve organizational goals effectively.

2. Smooth Functioning

It maintains proper balance and relationship between staffs, jobs, departments and units. Effective communication is maintained between one person to another person, one department to another department and one job to another job. Proper command, direction, supervision, and instructions are supplied to ensure smooth functioning of office activities.

3. Optimum Utilization Of Resources

Office management always tries to utilize available resources like human resources, physical resources, financial resources and technological resources in proper way that helps to increase productivity and decrease wastage and unnecessary costs.

4. Better Coordination

Better coordination is required to link different office activities, departments and people in the organization. Office management maintains unity of action, proper communication and harmony by using different coordination mechanisms.

5. Cost Minimization

Office management encourages better utilization of resources, effective communication, better coordination and employee motivation in the office. It helps to increase productivity and reduce wastage, leakage that minimizes the cost of production. Reduction in the cost of production helps to increase profitability of the business.
advantages of office management
6. Goodwill And Public Relation

Office works are performed effectively and smoothly because of better management. Motivated employees can deal properly with customers and public. It helps to increase goodwill and maintain public relations.

7. Promotion Of Leadership

Office management provides good working environment in the office. Authority and responsibility are delegated according to the skill, qualification and capability of employees. Top level managers use their skills to motivate others for better performance so employees can develop leadership and managerial qualities.

Advantages And Disadvantages Of Deflation

Positive Impacts, Benefits Or Advantages Of Deflation

The main advantages of deflation can be expressed as follows:

1. Increase In Purchasing Power

Negative inflation or deflation increases the value of money. So, purchasing power increases and price of goods and services decreases.

2. Lower Monthly Budget

As we know that deflation causes fall in the price of commodities, so people can satisfy their needs by spending less amount of money. So, it reduces the monthly budget which benefits middle and lower level consumers.

3. Increase In Saving

Due to fall in price of goods and less spending of money, people's saving will be increased at the period of deflation.

4. Higher Living Standard

Deflation helps to maintain better living standard because of lower expenditure and increase in saving.

5. Beneficial For Creditors

Deflation increases the real value of existing debt. So, creditors are benefited in this situation.

       Also Read: 

6. Lower Business Costs

Deflation lowers the cost of business because of  decrease in the price of raw materials, machinery, technology and fixed assets. So, this period is appropriate for long-term investment.

Negative Impacts, Drawbacks Or Disadvantages Of Deflation

The major disadvantages of deflation can be described as follows:

1. Lower Consumer Spending

People may stop spending on luxurious and expensive products with the expectation of more decrease in price in the future. So deflation may encourage lower consumer spending which is not good for the economy.

2. Loss For Investors

At the time of deflation, investors and producers who hold large quantity of inventory suffer because of the decrease in the value of stock.

3. Increase Value Of Debt

As we know that deflation increases the value of debt, it makes difficult for the existing debtors to repay their loan.
advantages disadvantages of deflation
4. Possibility Of Unemployment

Business profit decreases because of decrease in the price which force the producers to stop production or reduce their production capacity. It may create unemployment problem.

5. Lower Economic Growth

Limited production, less consumer spending, increased value of debt and unemployment lead to lower economic growth and instability in the country.

Pros And Cons Of Deflation In Short

Pros:
- It lowers the monthly budget of because of decrease in the price of goods and services
- It helps to improve living standard of because of improved purchasing power
- It is beneficial for creditors because banks reduce the interest rate
- Suitable period for investment

Cons:
- It may lead to lower consumer spending
- It may create unemployment problem
- It negatively affect economic growth of the country
- It increases the real value of debt

Advantages And Disadvantages Of Inflation

Benefits or Advantages Of Inflation

Positive impacts or advantages of inflation can be expressed as follows:

1. Beneficial For Investors

Price of commodities increases because of inflation. In this situation investors and producers can be benefited because of the increase in the value of stock.

2. Economic Growth

Producers try to increase their production capacity because of increase in the price of goods. It helps to utilize unused resources and labor. Inflation also helps to adjust relative price and wages. So, mild inflation is useful for the economic growth of the country.

3. Devaluation Of Debt

Value of debt will be decreased at the time of inflation because of the decrease in the value of money. So, debtors can repay their loan easily.

4. Easy Borrowing

Financial institutions get more money because of increase in wage and sufficient deposit. It makes easy for the people to borrow money from banks.

     
Also Read: 

5. Better Than Deflation

Deflation causes decease in the price of goods and services which stops the circulation of money. It increases the value of debt and discourages borrowings. So, inflation is far better than deflation.

Drawbacks Or Disadvantages Of Inflation

Negative effects or disadvantages of inflation can be expressed as follows:

1. Discourage Saving

Due to the decrease in the value of money, more money is required to satisfy the daily needs of people. It makes high cost of living. So, inflation discourages saving.

2. Decrease In Investment

Because of more expenditure and less saving, capital formation will be reduced which leads to decrease in investment.

3. Unemployment Problem

Due to inflation, cost of production become high. On the other hand, investment capacity is decreased. So, unemployment problem may arise because of decrease in production.
advantages disadvantages of inflation
4. Business Uncertainty

Inflation discourages foreign investment in the country. It also effects import and export business. So, it creates business uncertainty.

5. Economic Instability

Inflation is responsible for high cost of living, reduction in saving, investment and unemployment which may encourage black marketing, robbery, theft etc. So, it may create economic instability.

Pros And Cons Of Inflation In Short

Pros:
- It increases the value of stock
- It is useful for economic growth
- It becomes easy for debtors to repay loan
- It encourages maximum utilization of factors of production because of increase in the market price of products
-  It becomes easy to borrow money from financial institutions

Cons:
- It lowers saving because of high cost of living
- It discourages investment because of less saving
- It may create unemployment problem
- It brings economic instability in the country