PTquality the totality of the attributes of a good or service that meets the requirements of buyers or customers. The materials that make up the product, its design and engineering, product performance and reliability are all important characteristics of the ‘quality package’ that ultimately influences customers to buy a product and repeat-purchase it.
Firms seek to ‘assure’ customers of the quality of their products by offering guarantees/warranties covering the repair or replacement of defective items and also subscribe to quality standards laid down by their trade associations or national/international authorities (e.g. the EUROPEAN UNION’S quality standard ‘C∈’).
Product quality is an important source of PRODUCT DIFFERENTIATION, enabling firms to establish BRAND LOYALTY and COMPETITIVE ADVANTAGE over rival suppliers. See QUALITY CONTROL, ZERO DEFECTS.
quality circle a body of employees who meet periodically, usually under the guidance of a supervisor, to discuss ways in which the QUALITY of the organization’s products or services can be improved. See PRODUCTIVITY.
quality control a discipline concerned with improving the QUALITY of goods and services produced. The object of quality control is to prevent faulty components or finished goods from being produced, and it uses a variety of devices to help achieve this aim. Techniques of statistical sampling and testing can be used to identify faulty materials and products. Statistical variability limits can be used to ensure, for example, that machines are continuing to hold their tolerances in producing goods. QUALITY CIRCLES can be employed to involve work-groups in the task of quality assurance by generating discussion about the cause of quality problems and how workers themselves can deal with such problems. See also PRODUCTIVITY, PRODUCT PERFORMANCE, PRODUCT DIFFERENTIATION.
quantity demanded the amount of a PRODUCT (or FACTOR OF PRODUCTION) that consumers (or firms) buy in a given time period. The quantity demanded of a product depends upon the product’s own price, consumers’ income, price of substitute products, etc. See DEMAND FUNCTION, DEMAND CURVE, DERIVED DEMAND.
quantity of money see MONEY SUPPLY.
quantity supplied the amount of a PRODUCT (or FACTOR OF PRODUCTION) that suppliers offer for sale in a given time period. The quantity supplied of a product depends upon the product’s own price, prices of factor inputs, the state of technology, etc. See SUPPLY FUNCTION, SUPPLY CURVE.
quantity theory of money a theory that posits a direct relationship between the MONEY SUPPLY and the general PRICE LEVEL in an economy.
The basic identity underlying the quantity theory was first developed by Irving Fisher (1867–1947) in 1911. The Fisher equation states that:
MV PT
where M is the money stock, V is the VELOCITY OF CIRCULATION of money (the average number of times each £ or $ changes hands in financing transactions during a year), P is the general price level, and T is the number of transactions or the total amount of goods and services supplied.
The above relationship is true by definition because total money expenditure on goods and services (MV) in a period must equal the money value of goods and services produced (PT), and the four terms are defined in such a way that the identity must hold. However, the identity can be converted into a testable equation by assuming that the velocity of circulation of money is constant or changes slowly.
Economists at Cambridge University reformulated the traditional quantity theory of money to emphasize the relationship between the stock of money in an economy (M) and final income (Y), of the form MV Y. The income velocity of circulation (Cambridge equation) is thus:
where V is the average number of times the money stock of an economy changes hands in the purchase of final goods and services. For example, taking Y as gross national product, if a country has a GNP of £5,000 million and an average money stock (M) over a year of £1,000 million, then V is 5. Velocity cannot be observed directly and is thus determined using Y and M, figures that may be calculated from government statistics.
The term V in the Cambridge equation is not the same as V in Fisher’s traditional quantity theory of money. In Fisher’s equation, MV PT, rearranged to give:
the number of transactions in the period, T, includes all transactions for real goods and services plus financial transactions. In the Cambridge equation, PT (where P = average price level) is replaced by Y, which contains not all transactions but only those generating final income. This formulation allowed the Cambridge economists to emphasize real income (that is, final goods and services).
The classical economists argue that velocity of circulation was constant because consumers have relatively constant spending habits and so turn over money at a steady rate. This argument converts the identity into an equation that leads to the quantity theory that expresses a relationship between the supply of money and the general price level. If V and T are constant, then:
M = P and ΔM = ΔP.
The modern exponents of the quantity theory (see MONETARISM) do not necessarily hold that the velocity of circulation is fixed, but they argue that it will change only slowly over time as a result of financial innovations, like the spread of bank accounts and cheque payments and the growing use of credit cards. They also point out that in a fully employed economy there is a maximum amount of goods and services being produced and which therefore can be exchanged, so the number of transactions, T, is determined by real supply-wide considerations, like productivity trends. With V and T fixed or slowly changing, then the price level is determined by the stock of money, M. Any increase in the money supply feeds directly into an increase in demand for goods and services (AGGREGATE DEMAND). It follows that if the money supply (M), and hence aggregate demand, increase over time faster than the supply capacity of the economy (T), the result will be a rise in the general price level, P (INFLATION). By contrast, Keynesian economists argue that the velocity of circulation is unstable and changes rapidly and may offset changes in the money stock. See also TRANSMISSION MECHANISM, MONEY SUPPLY/SPENDING LINKAGES, MONETARY POLICY.
quantity traded the amount of a PRODUCT (or FACTOR OF PRODUCTION) that is bought or sold. In most markets the quantity traded will depend upon the interaction of DEMAND and SUPPLY in determining the product’s EQUILIBRIUM MARKET PRICE.
quasi-rent see ECONOMIC RENT.
Quesnay, François (1694–1774) a French economist whose writings helped to lay the basis for the physiocratic school of thought (see PHYSIOCRACY). Quesnay suggested that agriculture was the source of wealth, with the productive class (tenant farmers) creating an economic surplus over and above what they need for their own subsistence. This ‘net product’ is then available to meet the needs of landowners and the artisans and merchants. Ques-nay wrote Tableau Économique (1758), a work designed to show how the net product is produced and circulates among farmers, landlords and merchants, which was, in effect, an INPUT-OUTPUT table.
quota an administrative device to limit (a) output or (b) trade.
(a) Under a producer’s CARTEL arrangement, each supplier is given a fixed output to produce. Quotas are used by the cartel to establish monopoly prices by ensuring that the total of the firms’ output quotas is restricted relative to market demand;
(b) Under a trade quota system, the government directly restricts the volume of permissible IMPORTS to a specified maximum level (the import quota) in order to protect domestic industries against foreign competition. As a protectionist device, a quota is much more effective than TARIFFS, especially when import demand is price-inelastic (when import demand is price-inelastic, increasing import price has little effect on the volume of imports). In these cases the only certain way of limiting imports is physical control. See also PROTECTIONISM.
quoted company a public JOINT-STOCK COMPANY the shares of which are traded either on the main STOCK EXCHANGE or related secondary markets such as the UNLISTED-SECURITIES MARKET. See LISTED COMPANY.