Q&A: economics

The tax is borne not by whoever remits it but by whichever of the two sides of the market is less able to adapt to the change. In economics this is called tax incidence. Who transfers the tax to the budget (the seller or the buyer) does not decide the real distribution of the burden.

Example (compiled by the author, hypothetical market). In the tea market the price is P (thousand soums), the quantity is Q (units): - demand: Qd = 85 − P; - supply: Qs = 10 + 2P.

Equilibrium without tax: 85 − P = 10 + 2P, hence P = 25, Q = 60.

Now sellers are taxed 6 thousand soums per unit. The seller receives 6 thousand less in hand, so the supply curve becomes: Qs = 10 + 2(P − 6) = 2P − 2. New equilibrium: 85 − P = 2P − 2, hence P = 29, Q = 56.

The result: - Of the 6 thousand soums of tax, the buyer bore 4 (2/3) and the seller 2 (1/3), even though the seller paid the tax. - If the tax were set to be paid by the buyer, the result would be the same: the buyer pays 29, the seller receives 23. - The market volume fell from 60 to 56. The 4 lost trades would have benefited both buyer and seller. This is the market's net loss (deadweight loss): 1/2 × 6 × 4 = 12 thousand soums in units.

Why did the buyer bear more? Because demand is less elastic than supply. Demand elasticity at the equilibrium point: |Ed| = 1 × 25 ÷ 60 ≈ 0.42, supply elasticity: Es = 2 × 25 ÷ 60 ≈ 0.83. The burden falls more on the side with lower elasticity: buyer's share = Es ÷ (Es + |Ed|) = 0.83 ÷ 1.25 = 2/3, which matches.

Practical conclusion: for a necessity such as tea, where the buyer cannot switch to something else (demand is inelastic), the tax is mostly passed into the price. For easily substitutable goods (the buyer switches to another good) the seller bears more of the burden and sales fall more. This is why, before changing a tax rate, the sensitivity of demand and supply to price is assessed.

This answer is a general model of economic theory, not about specific taxes and rates.

Source: general economic theory (demand and supply, elasticity, tax incidence). The example was compiled by the author, the calculation was checked with Python.

There is an economic explanation. Apart from the price of the product, the purchasing process itself also involves costs. In economics these are called transaction costs: searching for a new partner, checking their reliability, concluding a contract, quality control and the losses that arise if a promise is not kept. With the old supplier, most of these costs have already been incurred: you know them, and they know you.

So the right comparison is not "price against price" but "price + transaction costs".

Example (prepared by the author, hypothetical figures). The "Issiq somsa" bakery buys 80 million soums worth of flour a month. The new supplier is 3% cheaper: a saving of 2.4 million soums a month. But extra costs arise with the new supplier:

In this case the new supplier gives a benefit of 2.4 − 1.9 = 0.5 million soums a month. But if the probability that the new supplier fails to deliver is 10%, the risk is 2 million, the total cost becomes 2.9 million, and switching causes a loss.

Practical routes:

1. A trial batch: buy part of the monthly requirement from the new supplier. This gathers real information about their reliability and lets you assess the risk.
2. Two suppliers: buy the main volume from the reliable partner and part from the new one. This both creates price competition and reduces dependence on a single supplier.
3. Talk to the old supplier: tell them there is a cheaper offer on the market and ask them to reconsider the price.

The concept of transaction costs also explains why firms do some work themselves and buy other work from outside: if the hidden cost of buying from the market is very high, doing the work in-house is cheaper.

Economists call this phenomenon price "stickiness": even when costs or demand change, prices change not immediately but with a delay and in jumps. There are several reasons for this:

1. Changing prices itself costs money: printing a new menu, replacing price tags, updating the cash register software, training staff. In economics these are called "menu costs".
2. Customers do not like frequent price changes. Each increase may send some customers to a competitor.
3. If competitors do not raise prices, the café that raises them first loses customers.
4. Some prices are fixed by contract: a corporate order or rent.

But not changing prices at all is also expensive: as ingredients get more expensive, the margin keeps shrinking. So the question is not "do we change them?" but "how often?".

Example (prepared by the author, hypothetical figures). The monthly revenue of "Kamalak kafe" is 200 million soums. Ingredients make up 40 percent of the price and get 2% more expensive every month. Each month of delay in raising prices adds a loss of 0.8 percentage points of revenue, that is, 200 × 40% × 2% = 1.6 million soums a month. The full cost of one price change (menu, price tags, staff time) is 3 million soums.

If prices are updated every k months, the losses in one cycle are 0 + 1.6 + 3.2 + ... . Average cost per month:

If only the technical cost is counted, updating prices every 2 months is cheapest. If the revenue lost through customer dissatisfaction is added as well (5 million soums each time), the best interval lengthens to 3 months.

Practical conclusions:

1. Make changing prices cheaper: an electronic menu or screen, replaceable price tags.
2. Do not raise everything at once: start with the dishes whose ingredients have risen most.
3. Changing portion size is also a kind of price change, and customers notice it; openness preserves loyalty.

The same stickiness can be seen at the level of the whole economy: when inflation speeds up, prices rise not all at once but at different times in different sectors.

This is the "bullwhip effect", common in supply chains. Each link in the chain (shop, distributor, factory) sees only the orders of the next link down, not the demand of the end customer. And each one increases its stock "just in case" to match expected future demand. As a result, a small change grows larger as it moves up the chain, just as the tip of a whip makes a large swing from a small movement of the hand.

Example (prepared by the author, hypothetical figures). Each link keeps stock equal to 2 times the last weekly order it saw and places its order accordingly. At the start, weekly demand everywhere is 100 boxes, and stock is 200 boxes. In the first week customer demand rose to 110 boxes and stayed at that level.

In the first week the shop ordered 130 boxes to bring its stock from 200 to 220. The distributor saw 130, decided "demand is now 130", raised its stock to 260 and placed an order for 190. The factory saw 190 and produced 370 boxes. In the second week the shop's order fell back to 110, while excess stock piled up at the distributor and the factory, and the factory stopped for a week. Yet customer demand had risen by only 10% and remained stable.

Ways to reduce this effect:

1. Share end-sales data: if the factory and the distributor see the shops' actual till sales, they will not mistake a wave of orders for genuine demand.
2. Plan stock not on a single week's change but on a moving average of several weeks.
3. Smaller, regular orders instead of large, infrequent ones.
4. Announce promotions and discounts in advance, so that a spike during a promotion is not mistaken for a lasting rise in demand.

The takeaway for a factory or a wholesaler: when you see a sharp rise in orders, first ask — is this end-customer demand or a stock wave in the chain?

Yes, it can. In economics this is called inflation expectations. When people and companies expect prices to rise:

1. Buyers bring purchases forward and stock up, so current demand rises.
2. Sellers raise prices in advance so as not to sell cheaply goods that will become more expensive later.
3. Employees ask for higher wages to allow for the expected rise in the cost of living, and companies add this cost to prices.
4. Contracts are concluded taking the expected price rise into account.

In this way an expectation partly fulfils itself. That is why central banks monitor people's inflation expectations and pay great attention to explaining their policy.

The practical question for a company: is it worth stocking up before an expected price rise? This should be checked with a calculation.

Example (prepared by the author, hypothetical figures). The "Qurilish bozor" shop is thinking of buying 1,000 bags of cement now, at 60,000 soums each, for a total of 60 million soums. They will be sold within 3 months.

If the price really rises by 8%, the gain is only 0.1 million soums. If the price rises by only 4%, the saving is 2.4 million and there is a loss of 2.3 million soums. That is, building up large stocks because "everyone is saying so" often does not bring the expected gain, while the risk stays with the company.

Conclusions:

1. Before stocking up, calculate the cost of money (loan interest or forgone deposit income), storage and the risk of spoilage.
2. When forecasting price rises, rely not on rumours but on official statistics and contracts with suppliers.
3. If customers are buying a lot now, also plan for them buying less in the coming months: demand may have been brought forward rather than increased overall.

Supply and demand work in the labour market just as in other markets. Wages are the price of labour. If demand for people in a certain trade rises (more construction, new factories opening) while supply does not increase quickly (learning the trade takes time, craftsmen may leave to work elsewhere), wages go up.

Is it temporary? That depends on how quickly supply responds. Higher wages attract young people to the trade, but it takes years to become a skilled craftsman. That is why a shortage of qualified staff does not disappear quickly. If demand falls (construction slows down), wage growth may stop.

The company's options:

1. Raise wages and retain its craftsmen.
2. Train young people itself.
3. Replace labour with machinery (automation).
4. Outsource part of the work to an external organisation.

To choose among them, compare the cost of each in the same units.

Example (prepared by the author, hypothetical figures). The "Po'lat qurilish" workshop employs 2 welders, each earning 12 million soums a month. A semi-automatic welding machine costs 180 million soums and makes it possible to do the same volume of work with 1 welder.

If salaries rise further, the machine pays for itself faster. But if servicing, spare parts and additional electricity for the machine are taken into account, the period becomes longer. Include them in the calculation too.

Other factors to watch:

1. Dependence on a single welder increases: if he falls ill or leaves, the workshop stops. So a second employee will need to be trained as well.
2. In a tight labour market, it is not only pay that keeps an employee, but also working conditions, timely payment and opportunities to grow. The cost of finding and training a new craftsman is often higher than raising pay a little.
3. Rising wages are not only your problem but your competitors' too: it means prices in the sector will also gradually rise, and this can be taken into account in pricing policy.

It may not fall and may even rise. This is called bundling (bundle pricing). The reason lies not in the discount but in the fact that customers value each product differently.

One customer is willing to pay a lot for coffee and little for a pastry, another the other way round. With separate prices, you have to fit each product's price to one group, and the other group does not buy that product. In a bundle, however, the valuations of the two products add up and the difference between customers shrinks: one price suits more people. As economists point out, this effect is strongest when customers' valuations are opposite (one values coffee highly, another the pastry).

Example (prepared by the author, hypothetical figures). "Bodom qahva" serves three types of customers a day. The cost of a coffee is 5,000 soums, the cost of a pastry is 4,000 soums. A customer buys if the price is below the amount they are willing to pay.

Daily profit (revenue minus cost) of three pricing policies:

The mixed option gives 160,000 soums more profit a day than selling separately. The reason: group A previously did not buy pastries and group B did not buy coffee; the bundle encouraged them to buy the second product as well, while group C kept buying coffee separately. The bundle price is well below the sum of the separate prices (32,000), but each bundle is above cost.

Practical tips:

1. Bundle products that customers value differently. Bundling products that everyone values the same brings little profit.
2. Keep separate sales too: if only the bundle is left, you lose customers who need a single product, like group C.
3. Be careful if the cost of each product in the bundle is high: even if someone wants only one and the second goes to waste, the cost is still incurred.
4. Track the result in the till data: after the bundle was introduced, did the average receipt amount and daily gross profit change?

In economics this is called the "principal–agent problem". The owner (principal) entrusts the work to another person (the agent), but cannot fully see how much effort that person is making, only the result. If pay does not depend on the result, extra effort gives the manager nothing, while the extra work is their own "cost". That is why pay linked to results is considered the usual solution to this problem.

Example (prepared by the author, hypothetical figures). It was estimated that the "Qumqo'rg'on savdo" branch, before the manager's salary, brings in 30 million soums of profit a month with normal effort and 40 million if the manager makes extra effort. The new offer: a fixed salary of 5 million + 10% of the branch's profit (before the manager's salary).

Under the current system, the manager sees no reason to make extra effort and the branch stays at 30 million: the owner gets 22 million. Under the new system, in a normal month the manager's pay does not change, while extra effort gives the manager 1 million and the owner 9 million more (from 22 to 31). In a bad month the manager also bears part of the risk.

But pay linked to results has its own risks:

1. Factors the manager cannot control. If profit falls because of the season, the rent or decisions by head office, the manager is "punished". If this seems unfair, a good manager may leave. So keep the fixed part sufficient to live on.
2. Short-term "pretty" profit. Postponing repairs, cutting stock too far or worsening customer service raise profit for a few months and then cause losses. To prevent this, measure the result over a quarter or a year and also add the number of customer complaints and shortages found in stocktakes to the conditions.
3. Accuracy of measurement. How "branch profit" is calculated (whether a share of head office costs is included or not) must be agreed in writing in advance, otherwise disputes will arise.
4. Formalisation. Agree with a lawyer and an accountant on how to reflect the bonus procedure in the employment contract and internal documents.

Choose the percentage share by calculation too: if it is too small, extra effort is not worth it for the manager; if it is too large, the profit left for the owner shrinks. Build a table like the one above with your own figures for several shares.

First the difference needs to be clarified. One product becoming cheaper (for example, phones thanks to new technology) is not deflation. Deflation is a prolonged fall in the general level of prices in the economy. The danger lies precisely in this general and sustained fall.

Three main reasons:

1. Postponing purchases. People and companies expecting that "it will be cheaper next month" put off their purchases. Demand falls, companies cut prices again, and this strengthens the waiting.
2. The real burden of debt increases. A debt in soums is fixed, while the company's revenue falls together with prices. To repay the same debt, more output has to be sold.
3. Wages are hard to cut. If revenue falls but salaries are hard to reduce, the company cuts staff numbers. Unemployment rises and demand falls again.

Example (prepared by the author, hypothetical figures). "Qoraqamish mebel" has annual revenue of 500 million soums, a bank debt of 200 million soums and a loan rate of 10% a year. The general price level fell by 5% in a year, the company was also forced to cut its prices by the same amount, and it sold the same volume.

The company took on no new debt, yet the debt burden became heavier. A nominal 10% loan in conditions of falling prices became equal to 15.8% in reality: every soum repaid is now worth more goods.

Practical conclusions for a company:

1. If a general fall in prices is expected, be careful about increasing long-term fixed debt in soums.
2. Do not hold a lot of stock: the value of goods in the warehouse falls over time.
3. If you notice customers postponing purchases, consider competing not on price but with additional services (delivery, warranty).

In economics, knowledge and skills are called human capital. Money spent on them, like money spent on equipment, brings income in the future, except that this "equipment" sits in the employee and can leave with them. So the risk is sensed correctly, but it can be assessed by calculation.

Economists divide skills into two types:

• general skills — needed in any firm (negotiation, communicating with customers). They raise the employee's market value, and the risk of leaving is high;
• firm-specific skills — related only to your product, software and customers. They are valued little elsewhere, so even if the employee leaves they lose little, but they are also less inclined to leave.

Example (prepared by the author, hypothetical figures). At the "Sirdaryo maishiy texnika" shop, after the course each salesperson sells an extra 4 million soums a month, the gross margin is 25%, that is, an extra 1 million soums of profit a month from each.

Even if two salespeople leave, the extra profit is more than three times the course price. The main risk is if most of them leave in the first 2–3 months.

Ways to reduce the risk:

1. Add a firm-specific part to the course: internal training on your product, customer base and sales standards.
2. After the course, introduce an incentive system linked to results: those who sell more get more, and there is less reason to leave.
3. Run the course in stages: first the two or three longest-serving employees, and the rest once the results are seen.
4. Before making any agreement with an employee on reimbursing training costs, check the requirements of labour law with a lawyer.

In the accounts, staff training and retraining costs are recorded on account 9430 "Other operating expenses" (NAS No. 21, paragraph 410). So in the accounts this is a period expense, while in the economic sense it is an investment.

This is the network effect. The value of some products depends on the number of their users: the usefulness of a phone depends on the number of people you can call, and the usefulness of an ordering app depends on the number of cafés and customers on it. In such a market it is not the "better" product but the one "with more users" that prevails.

In apps the effect is two-sided: if there are many cafés, customers come; if there are many customers, cafés come. A new app has no one, so no one comes. This is the "chicken and egg" problem.

The number of possible connections between users grows much faster than the number of users: among n users there are n × (n − 1) : 2 pairs.

That is why the difference between a large and a small network is felt even more than the difference in the number of users.

Example (prepared by the author). The "Mazali yetkaz" app wants to enter a new market. Cutting the commission alone is not enough, because for a café the number of orders matters more than a low commission. The app can choose one of the following strategies:

1. Start in a narrow area. Not the whole city but one district or one student campus: in a small area it is easier to reach the "everyone is here" state quickly.
2. Subsidise one side. For example, in the first months work commission-free for cafés or make delivery free for customers. The cost goes to one side, and the other side comes by itself.
3. A service others do not have. If the app gives cafés not only delivery but also stock accounting, a café has a reason to use it even while the network is small.
4. Allow parallel work on both apps. If a café does not have to leave the old app, joining the new one feels safe.

As a consumer, also keep in mind: markets with strong network effects tend to end up with one or two large players, and competition may decline.

This situation resembles what economics calls the "prisoner's dilemma". When each shop thinks on its own, cutting prices looks profitable to it, but if both do so, both lose.

Example (prepared by the author, hypothetical figures). The monthly profit (million soums) of "Oybek market" and "Nurli market" depending on their pricing policy:

From Oybek's point of view: if Nurli keeps its price, cutting gives 45 (instead of 30); if Nurli cuts, cutting gives 18 (instead of 12). So whatever the rival does, cutting the price is better for Oybek. Nurli reasons in exactly the same way. As a result both get 18 each, whereas by keeping their prices both could have had 30.

Why this trap is hard to escape: neither trusts the other, and each fears that the side that raises its price first will lose customers.

Secretly agreeing on prices with a competitor is not a solution: it restricts competition and harms customers. The honest ways are different:

1. Differentiate not on price but on something else: delivery, opening hours, assortment, speed of service.
2. A loyalty programme for regular customers: a discount not for everyone, only for those who come back.
3. Know your own costs: cutting the price below variable cost brings a loss on every sale; it is better not to enter such a "war" at all.

When the game is played not once but for years, participants often arrive at a stable price on their own: each understands that a price cut will immediately be met with a response.

Yes, this is called "moral hazard". When a cost or risk passes to the other party, a person becomes less careful and uses more of the resource, because he no longer pays the consequences himself. The term is often explained with the example of insurance: an insured person may take less care of his property. That is why insurers set a deductible — if part of the loss stays with the policyholder, he is more careful.

The term is not an accusation that the courier is cheating: often a person does not do it consciously but simply stops looking for the shortest route, runs personal errands along the way or leaves the engine idling.

Example (prepared by the author, hypothetical figures). The "Tezkor yetkazish" service has 10 couriers. When fuel was at their own expense, each drove an average of 1,200 km a month; after it switched to the company's account, 1,500 km. The car uses 8 litres per 100 km, and 1 litre costs 12,000 soums.

The solutions economists propose are based on tying part of the cost back to the employee:

1. Pay compensation not on actual consumption but by a standard: distance calculated from the order addresses × the consumption standard per 100 km.
2. A monthly limit and a requirement to justify anything above it.
3. Monitoring: a GPS route sheet and a monthly comparison of the "km per 1 delivery" indicator across couriers.
4. Incentives: returning part of the fuel saved against the standard to the courier as a bonus.

Each of these solutions also costs something (monitoring software, time spent on calculations). So they should be weighed against the loss from moral hazard: in this example 2.88 million soums a month.

No, that would be double (actually triple) counting. The value of the wheat went into the price of the flour, and the value of the flour into the price of the bread. That is why, when gross domestic product is calculated by the production method, it is not sales that are added up but the value added at each stage:

Value added = sales at the stage − value of raw materials and services obtained from other companies

Example (prepared by the author, hypothetical figures). For simplicity we assume the farmer bought nothing from others.

Total sales are 205 million, but the final product that reached the consumer is 100 million soums' worth of bread. The sum of the values added (40 + 25 + 35 = 100) is exactly equal to the value of the final product. This is no coincidence: the intermediate purchases in the chain cancel each other out.

Where value added goes: at each stage it is distributed among employees' wages, depreciation of fixed assets, taxes and the owner's profit.

Practical conclusion for a company: large revenue does not mean the business creates a lot of value. A trading firm's revenue may be larger than a manufacturer's, while its value added is small. When assessing profitability it is useful to calculate the indicator "revenue − purchased raw materials and services" separately: it shows how much value the business itself adds.

In behavioural economics this is called the "decoy effect". People often judge a price not in absolute terms but by comparing it with the options next to it. Once a medium size appears that is a little cheaper than the large coffee but much smaller, the large coffee starts to look like "a great deal".

Example (prepared by the author, hypothetical figures). The "Kofe burchagi" coffee shop sells 500 cups a day.

Every millilitre of the medium coffee is the most expensive. In the customer's mind a comparison appears: "if I add just 2,000 soums, I get 100 ml more".

With prices unchanged, daily revenue rose by 700,000 soums.

Practical conclusions:

1. This is not deceiving the customer but making the choice easy to compare. At the same time, all prices and volumes must be clearly stated on the menu, otherwise you will lose customers' trust.
2. Measure the result: compare the sales mix before and after the change for at least 2–3 weeks; do not rely on the impression of a single day.
3. Calculate profit as well as revenue: the cost of a large coffee is also higher, so check separately how the change in mix has affected profit.

In a sense, yes. In economics this is called the money multiplier. Banks do not keep all deposits in the vault: they keep part as required reserves and lend out the rest. The company that took the loan spends the money, it lands in another company's bank account, and that bank in turn lends part of it out again. In this way, on the basis of the initial deposit, the total amount of deposits in the economy increases several times over.

The theoretical maximum:

Maximum total deposits = initial deposit : required reserve ratio

The required reserve ratio is set by the central bank. The 10% in the example below is a hypothetical figure used only for the calculation.

Example (prepared by the author, hypothetical figures). We assume a required reserve of 10% and that banks lend out all the remaining money.

In the first five stages, total deposits reached 409.51 million soums. If the process continued indefinitely, the theoretical limit would be 100 : 0.10 = 1,000 million soums.

In practice the multiplier is much smaller, because:

• people and companies hold part of their money in cash, and it does not return to the bank;
• besides required reserves, banks also voluntarily hold additional reserves;
• the number of people wanting to borrow, or of creditworthy borrowers, is limited.

An important distinction: money increased, but wealth did not increase by itself. Your deposit is the bank's debt to you, and the company's loan is its debt to the bank. Real wealth is created only if the loan is actually used for productive work (equipment is bought and products are made).

No, the money paid for the mould should not affect this decision. In economics such a cost is called a "sunk cost": it has already been incurred and will not come back whichever path you choose. The decision is made only by comparing future revenues and costs.

People often think: "we spent so much money, if we stop now it will be a waste". This thinking leads to mistakes: the money is gone anyway, and now you can only choose the most profitable of the remaining options.

Example (compiled by the author, hypothetical figures). The "Shirin Lahza" cake workshop bakes a limited number of cakes a month in one oven. The oven's free time can be given to one of two cakes:

The ordinary cake brings in 800,000 soum more every month. The 12 mln soum spent on the mould is not in the table, because in both cases it has already been paid.

What affects the decision is the mould's future benefit. If it can be sold to another workshop, the proceeds from the sale are a real opportunity: they are taken into account in the decision. Or you can keep using the mould by baking the new cake only to order, for holidays.

In the accounts, however, the mould still stays on the books as an asset and its cost is transferred to expenses in the appropriate manner — that is an accounting matter, while the management decision is made only on the basis of future cash flows.

Selling the same service to different groups of buyers at different prices is called price discrimination (price differentiation) in economics. Cheaper morning showings at cinemas are an everyday example of this idea. For this the seller must be able to set the price itself (have some advantage in the market). After that, it pays off when three conditions are met:

1. The groups must differ in price sensitivity: a student has little money and comes more often if the price falls; a working person looks at a convenient time rather than the price.
2. It must be possible to separate the groups: a student card and a daytime restriction.
3. It must be impossible to resell the cheap service: a daytime pass cannot be used in the evening.

Example (compiled by the author, hypothetical figures). The "Kuch" gym sells one daytime visit for 50,000 soum and has 20 visits a day. The cost of one extra visit (water, towel laundry, electricity) is 5,000 soum. At a price of 30,000 soum, an extra 30 students will come, and the existing 20 customers will come anyway.

The two-price option is the most profitable: the gym does not lose income from existing customers and fills empty places with students. Lowering the price for everyone means giving the existing 20 customers an unnecessary discount: 20 × 20,000 = 400,000 soum is lost every day.

Risk: if working customers start using the student price by deception (condition 2 is broken), the profit quickly shrinks. So tie the discount to a clear rule — a document and a time window.

This is called an external effect (externality): one business's activity causes harm or benefit to another party, but this is not reflected in the price or in the first business's accounts. Your case is a negative externality: for the car wash the "price" of dirty water is zero, while in reality the cafe is paying for it. There are positive externalities too: a beekeeper's bees next to an orchard increase the orchard's harvest, but the orchard owner does not pay him.

Why does the market not solve this by itself? Because the car wash owner sees only his own costs when making decisions. As a result, the total cost to society is greater than the private cost, and there is "too much" of the harmful activity.

Example (compiled by the author, hypothetical figures). Because of the dirty water, the "Gulnoz" cafe loses about 1,500,000 soum every month (washing the pavement, fewer customers). Installing a drainage channel at the car wash costs a one-off 4,000,000 soum.

Drainage is cheaper for both sides: it pays for itself in less than 3 months (4,000,000 : 1,500,000 ≈ 2.7 months). That is why economists propose negotiation first. If the cost is split equally (2,000,000 soum each), the cafe saves 16,000,000 soum a year and the car wash gets rid of the dispute with its neighbour. This idea is known in economics as the Coase theorem: if it is clearly defined who has which right and negotiation is cheap, the parties reach an agreement between themselves and find an efficient solution.

When negotiation is difficult (there are many affected parties or the harm is hard to measure), society relies on rules and legal instruments set by the state. Their specific procedure is set by legislation; only the economic logic is shown here.

Tip: before going into negotiations, write the harm down in figures (extra cleaning costs, comparison of daily revenue with previous months). Numerical evidence turns a negotiation from an emotional argument into a practical agreement.

A street light is an example of a public good in economics. It has two features:

1. Non-excludable: once the light is on, a neighbour who did not pay also uses the light.
2. Non-rival: one person's use does not reduce the light that reaches others.

That is why each family starts thinking: "if others pay, the light will be on even if I don't pay". This is called the "free rider problem". If everyone thinks this way, a project that benefits everyone does not happen.

Example (compiled by the author, hypothetical figures). There are 40 households on the street. Installing the lights costs 12,000,000 soum. In a survey, each family said it was willing to pay up to 500,000 soum for a lit street.

The project is clearly beneficial for the mahalla (value 20 mln, cost 12 mln), but voluntary collection raised only 6 mln.

In economics this problem is usually solved in three ways:

• A conditional agreement "it goes ahead only if everyone pays": everyone pledges their share, and the money is used only if a sufficient amount is raised; otherwise it is returned. This removes the worry "if others don't pay, my money will be wasted".
• Taking a joint decision at a meeting, setting an equal share for everyone and keeping the list of those who have paid open.
• Financing through the local or state budget: for this reason many public goods are provided out of taxes.

Tip: before collecting money, announce in writing the exact amount each family pays and what will happen to the money if a sufficient amount is not raised — trust grows and more payments come in.

In economics this is called asymmetric information: the seller knows the condition of the item well, while the buyer does not. Because the buyer cannot tell a good item from a faulty one, they offer the price they would pay for an "average" item. This is explained by economist George Akerlof's famous example of the used car market — the "market for lemons".

In such a market the process develops as follows:

1. The buyer offers an average price.
2. Owners of good items consider this price too low and leave the market.
3. The share of faulty items in the market rises; buyers notice this and lower the price again.

Example (compiled by the author, hypothetical figures). There are 100 used laptops on the market: 50 working, 50 faulty.

If the buyer cannot tell them apart, the price offered is: 0.5 × 6,000,000 + 0.5 × 3,000,000 = 4,500,000 soum. The owner of a working laptop will not sell for less than 5,000,000 soum and leaves the market. Only faulty laptops remain, and now the buyer will give no more than 3,000,000 soum. As a result, the deal in which a working item could have been sold and bought for 5–6 mln soum does not happen at all.

The solution for you is to reduce the information gap, i.e. to prove the item is good:

• get a diagnostic report from an independent repair shop and attach it to the listing;
• show the purchase receipt, warranty card and original box;
• give the buyer time to test it, or promise a short personal guarantee (if a fault appears within a week, you take it back);
• sell on a marketplace with reviews and ratings.

If such a signal gives the buyer confidence, they will start offering not the "average" price but the price of a working item. A one-week guarantee costs you almost nothing (if the item really works), but it can raise the price from 4.5 mln to 5–6 mln soum.

If there is spare capacity, probably yes. The decision is made not by the average cost but by the marginal cost: how much additional cost is incurred for exactly these extra 200 chairs. The average cost includes a share of fixed costs such as rent and management salaries, which do not change with an additional order.

Example (prepared by the author, hypothetical figures). At the "Chust mebel" workshop the cost of 400 thousand soums consists of two parts: variable cost (wood, fabric, piece-rate wages) of 280 thousand soums and a share of fixed cost of 120 thousand soums (120 million soums a month in total). The workshop can produce 1,200 chairs a month.

Additional revenue: 200 × 330 = 66 million soums. Additional cost: 56 million soums. Profit rises by 10 million soums. Each additional chair adds 330 − 280 = 50 thousand soums.

Before agreeing, check:

• whether the capacity is really spare: if an extra shift or overtime pay is needed, the marginal cost will exceed 280 thousand soums;
• if regular customers learn about the low price, they may also ask for a discount;
• such a price should not become permanent: in the long run the price must also cover fixed costs.

This is the law of diminishing marginal returns. If one factor stays fixed (here, the tandoor), then as more of another factor (workers) is added to it, the contribution of each additional unit begins to fall from a certain point: the workers wait in line at the tandoor and get in each other's way.

Example (prepared by the author, hypothetical figures). The "Qo'qon tandir non" bakery:

Let us calculate in money how many bakers are needed. After deducting the cost of flour, yeast and firewood from the price of one loaf, 1,500 soums remains; a baker's daily wage is 150,000 soums. For an additional baker to pay for himself, he must produce at least 150,000 : 1,500 = 100 additional loaves.

• 3rd baker: 140 × 1,500 = 210,000 soums, more than the wage — profitable.
• 4th baker: 80 × 1,500 = 120,000 soums, less than the wage — a loss of 30,000 soums a day.

So 3 bakers is optimal for one tandoor. If demand grows and more bread is needed, you should think not about a fourth baker but about a second tandoor: when the fixed factor is expanded, additional workers again give high output.

Usually it rises by less. The exchange rate affects only the part of the price paid in dollars. Domestic costs (freight, warehouse rent, sales staff salaries) are in soums and do not change immediately when the rate changes. So the final price increase depends on the import share.

Example (prepared by the author; the rate and amounts are hypothetical, not the actual rate). "Andijon aksessuar" sells phone cases at 2 dollars each:

Since the import share is 62.5%, the price rose by 10 × 62.5% = 6.25%. If domestic costs also become more expensive over time, the price may rise further.

In the accounts, the effect of the exchange rate shows up in two places:

• the cost of imported goods received into the warehouse stays at the Central Bank rate on the date of receipt (NAS No. 22, paragraph 7) and is not revalued afterwards, because goods are a non-monetary item (paragraph 10);
• if you owe the supplier in dollars, that is a monetary item: it is revalued at the end of each month (paragraph 8), and the exchange difference goes to the financial result (paragraph 11). For example, if a debt of 10,000 dollars rises from 125 million soums to 137.5 million soums, the loss of 12.5 million soums is recorded with Dt 9620 – Ct the relevant foreign-currency liability account (NAS No. 21, paragraph 427, line 3).

In economics, the working-age population is divided into three groups:

• the employed — those working in paid employment or in their own business;
• the unemployed — those who have no job, are actively looking for work and are ready to start work;
• the economically inactive population — those who do not work and are not looking for work (a student not seeking work, a housewife, a pensioner).

The employed and the unemployed together make up the labour force. The unemployment rate is calculated not relative to the whole population but relative to the labour force.

Example (prepared by the author, hypothetical figures):

Labour force: 690 + 60 = 750 people. Unemployment rate: 60 : 750 = 8%. Employment rate (relative to the working-age population): 690 : 1,200 = 57.5%.

A subtle point: if someone gives up hope of finding a job and stops looking, he moves from the unemployed to the inactive. For example, if 15 of the 60 people stop looking, the unemployment rate falls to 45 : 735 ≈ 6.1%, even though not a single new job has been created. So monitor the unemployment rate together with the employment rate.

The benefit for an entrepreneur: knowing how many unemployed and inactive people there are in an area helps to estimate the chances of finding workers for a new branch.

This is called indexation: each year the rent is multiplied by the consumer price index published by official statistics. This preserves the purchasing power of the rent, i.e. its real value. The alternative is raising it every year by a fixed percentage: this is known in advance, but if inflation is higher than expected, the lessor loses out.

Example (prepared by the author; the indices are hypothetical, not actual statistics). "Mirzo savdo" LLC started the monthly rent at 10 million soums. Let us assume the index was 1.09 at the end of year 1 and 1.07 at the end of year 2.

Total over 3 years: with indexation (10,000,000 + 10,900,000 + 11,663,000) × 12 = 390,756,000 soums; with a fixed 5% (10,000,000 + 10,500,000 + 11,025,000) × 12 = 378,300,000 soums. The difference is 12,456,000 soums — in years of high inflation, indexation protected the lessor.

State clearly in the agreement: which index, for which period and from which date it applies.

In the accounts, every month the lessor records Dt 4820 – Ct 9350 "Operating lease income" (NAS No. 21, paragraph 216, line 2), and the lessee reflects its expense with Dt expense account – Ct 6910 "Operating lease payable" (paragraph 309, line 1). From the month in which the indexation takes effect, journal entries are made at the new amount.

Yes. In economics this is explained by the difference between absolute and comparative advantage. A person who does both jobs faster has an absolute advantage. But when dividing work, a different question is decisive: who gives up less when spending time on which job? A person has a comparative advantage in the job where this opportunity cost is small, and it pays for each person to do exactly that job.

Example (compiled by the author, hypothetical figures). Output per hour at the "Ko'k gumbaz" café:

The owner is faster at both jobs, but at documents he is 4 times faster than the assistant, while at samsa he is only 1.5 times faster. One document costs the owner 15 samsa and the assistant 40 samsa. So it is cheaper for the owner to do the documents.

Each works 8 hours a day, and the café needs 8 documents a day. Three different allocations:

In all three options 8 documents get done, but option C produces 680 − 480 = 200 more samsa than option A. Even though the assistant is slower than the owner, his "loss" is smallest at samsa.

Practical conclusion: divide work not by asking "who does it faster?" but by asking "how much would this person's hour produce in another job?". By the same logic, a manager does not try to do everything himself but devotes time to the work where his advantage is greatest.

In a market, the price settles at the point where demand and supply are equal. If a price ceiling is set below this point, buyers want to buy more at the cheap price, while sellers bring less. Demand exceeds supply — this gap is called a shortage.

Example (compiled by the author, hypothetical market). Egg trading in one day at a market on the outskirts of a city:

Calculation: 10,000 − 6,000 = 4,000 pieces are lacking. Even though the price became cheaper, buyers who need 4,000 eggs cannot get any eggs at all.

In such a situation, queues usually get longer, the product runs out early, and sometimes "informal" trade appears at prices above the official one. That is why, when assessing a price cap, economists look not only at the price but also at how many people the product actually reaches.

This is shown by labour productivity: output produced is divided by the labour spent on it (number of staff or hours worked). Growth in output does not in itself mean productivity has increased — it may grow simply because there are more people.

Example (compiled by the author, hypothetical figures). The "Ipakchi" sewing workshop:

Calculation: 2,880 : 12 = 240; 3,300 : 15 = 220. Output increased 3,300 : 2,880 = 1.1458 times, i.e. by about 14.6%, but the work per seamstress changed 220 : 240 = 0.9167 times, i.e. fell by about 8.3%.

The reason may be that new staff are still learning, a shortage of machines, or interruptions in how work is organised. For a more accurate picture, also calculate productivity per hour worked: in a month with many days off and sick days, a calculation based on headcount understates productivity.

The interest received is nominal income. To find the actual, i.e. real, income, the year-end amount needs to be "cleaned" of price growth: the final amount is divided by the price index and compared with the initial amount.

Example (compiled by the author, hypothetical figures). Dilshod deposited 10,000,000 soums and received 11,340,000 soums at year-end. The food basket he always buys rose in price this year from 1,000,000 soums to 1,050,000 soums (price index 1.05).

Check with the basket: at the beginning of the year the money bought 10,000,000 : 1,000,000 = 10 baskets, at year-end 11,340,000 : 1,050,000 = 10.8 baskets. That is, purchasing power rose by 8%.

The commonly used subtraction "13.4 − 5 = 8.4%" is an approximate method; it slightly overstates real growth; the exact result comes from division.

A note for companies: in the accounts, deposit interest is reflected in 9530 "Interest income" at the nominal amount accrued by the bank. Real income is calculated separately for analysis.

When income changes, demand for different goods changes differently. Goods whose demand rises as income rises are called normal goods, and those whose demand falls are called inferior goods: people bought them because they were cheap, and once they can afford it, they switch to a more expensive substitute.

To measure this, the income elasticity of demand is calculated: the percentage change in quantity demanded is divided by the percentage change in income. A positive result means a normal good, a negative result an inferior good.

Example (compiled by the author, hypothetical figures). The family's monthly income rose from 8,000,000 soums to 10,000,000 soums: (10 − 8) : 8 = +25%.

Practical conclusion for a shop: if incomes in the neighbourhood are rising, it pays to reduce stocks of inferior goods and widen the range of normal goods. Conversely, in hard times you should plan in advance for growing demand for cheap goods.

The answer depends on two questions: what is your total income for the calendar year, and who are the founders (participants) of your company — individuals or legal entities. Under Presidential Decree PF-21 of 10 February 2023, business entities are divided into three categories: small, medium and large. The small category itself consists of three types.

Short table (category — who belongs — total income for the calendar year):

1. Small business entity: individual entrepreneur — an entrepreneur registered as an individual — no income threshold is set for this type.

1. Small business entity: micro-firm — an entity whose founders (participants) are individuals — up to 1 billion soums.

1. Small business entity: small enterprise — an entity whose founders (participants) are legal entities — from 1 billion to 10 billion soums.

1. Medium business entity — the definition does not mention the type of founders — from 10 billion to 100 billion soums.

1. Large business entity — the definition does not mention the type of founders — 100 billion soums or more.

Example (prepared by the author, hypothetical figures). Three entrepreneurs work in one neighbourhood. The first is seamstress Nodira, registered as an individual entrepreneur. The Decree's list names individual entrepreneurs among small business entities.

The second is "Shirin Kulcha" LLC, opened by two brothers (individuals); its total income last year was 800 million soums. The founders are individuals and income did not exceed 1 billion soums, so it is a micro-firm, i.e. a small business entity.

The third is "Oydin Qadoq" LLC, whose sole founder is another company (a legal entity); its annual total income is 4 billion soums. Income falls within the 1 to 10 billion soum range and the founder is a legal entity, so it is a small enterprise — also a small business entity.

Practical tip: when determining the category, look not at one month's revenue but at total income for the whole calendar year, and check in your founding documents who the participants are. If income exceeds 10 billion soums in later years, the company will fit the definition of a medium business entity.

Demand is the whole relationship showing how much buyers are willing to buy at each price. Quantity demanded, by contrast, is a single number at a specific price. When the price changes, we move along this relationship: the quantity demanded changes, while demand itself stays the same.

Demand itself changes under the influence of factors other than price. Economics textbooks divide them into five groups: buyers' income; prices of related goods (substitutes and complements); tastes and preferences; expectations about future prices and income; and the number of buyers. In that case more or less is bought even at the same price.

Example (prepared by the author, hypothetical figures): at the neighbourhood bakery, 300 loaves a day are sold when bread costs 4 000 soum, and 250 when it costs 5 000 soum: this is a change in quantity demanded. Recently a large building was completed, new families moved in, and now 380 loaves are sold even at 4 000 soum: this is an increase in demand itself.

This is the result of a change in supply. Supply is how much sellers are willing to sell at each price. In summer the harvest is plentiful and growing is cheap, so even at the same price many tomatoes come to market: supply increases and the price falls.

In winter tomatoes are grown in greenhouses or brought from far away: heating and transport costs are added, and fewer come to market. Supply decreases while demand stays at almost the same level, and as a result the price rises.

Example (prepared by the author, hypothetical figures): in August, 10 tonnes of tomatoes arrive at the market every day, and sellers sell them at 3 000 soum per kilo to sell quickly. In January only 2 tonnes arrive, and buyers compete for the smaller quantity: the price per kilo goes up to 15 000 soum. The tomatoes themselves did not change; what changed was the volume of supply.

In a competitive market, the price settles where demand and supply meet. The equilibrium price is the price at which the quantity buyers want to buy equals the quantity sellers want to sell. If the price is higher, goods are left over and sellers cut the price; if it is lower, goods run short and the price rises.

In this way the price moves towards equilibrium on its own. If demand or supply changes, the equilibrium also moves to a new point.

Example (prepared by the author, hypothetical figures): bread at a neighbourhood market. At 3 000 soum buyers take 500 loaves, and bakers bake 300: a shortage of 200. At 4 000 soum buyers take 300, and bakers bake 500: a surplus of 200. At 3 500 soum both are 400: this is the equilibrium price.

Not necessarily. Everything depends on the price elasticity of demand: by what percentage sales change when the price changes by 1%. If sales fall by a larger percentage than the price rises (elastic demand), revenue decreases when the price rises. If they fall by a smaller percentage (inelastic demand), revenue increases.

If there are many substitutes nearby, demand is usually elastic: the buyer goes to the shop next door. For everyday necessities with few substitutes, demand is less elastic.

Example (prepared by the author, hypothetical figures): "Somsaxona Ikrom" sells 100 samsas a day at 5 000 soum and earns revenue of 500 000 soum. The price was raised to 5 500 soum (10%), while there is a new samsa shop across the street, and sales fell to 75 (25%). Revenue: 75 × 5 500 = 412 500 soum. Elasticity 25% / 10% = 2.5, that is, demand is elastic and raising the price caused a loss.

To answer, you also need to calculate the opportunity cost. Opportunity cost is the benefit from the best alternative opportunity given up when choosing a particular path. Accounting profit does not show it, but it is very important in decision-making.

In one's own business, two things are often forgotten: the salary the owner could earn elsewhere, and the income that the money invested in the business could earn elsewhere. Economic profit is accounting profit minus these opportunity costs.

Example (prepared by the author, hypothetical figures): Jamshid, a craftsman, expects a profit of 9 mln soum a month from the workshop. At his current job he earns 7 mln a month, and the savings he would invest in the workshop could earn about 1 mln a month elsewhere. Economic profit: 9 − 7 − 1 = 1 mln soum. That is, the workshop is positive, but it does not give as big an advantage as he thought.

No, these are two different kinds of relationship. Substitute goods replace each other: if one becomes more expensive, demand for the other increases. Coffee and tea are such a pair. Complementary goods, on the other hand, are consumed together: if one becomes more expensive, demand for the other also falls; if more of one is sold, more of the other is sold too. Tea and sugar are such a pair.

For a shop this gives a practical conclusion: when the price of one product changes, you should watch not only that product but also the products related to it, and adjust stock in advance.

Example (prepared by the author, hypothetical figures): after the price of coffee rose at "Barakat do'koni", monthly sales were: coffee fell from 60 packs to 40, tea rose from 100 packs to 125, and sugar increased from 80 kilograms to 95 kilograms. The next month the seller ordered more tea and sugar and avoided the problem of empty shelves.

Yes, this is the law of diminishing marginal utility. Marginal utility is the additional satisfaction obtained from each additional unit of a good. As consumption increases, each subsequent unit gives less satisfaction than the previous one.

That is why a person does not spend unlimited money on one good: when the utility of an additional unit starts to seem lower than its price, the person spends the money on something else. Sellers come up with promotions such as "the second one at half price" for the same reason.

Example (prepared by the author, hypothetical scores): Aziz, a hungry student, rated his satisfaction from samsas on a 10-point scale: 1st samsa 10, 2nd 7, 3rd 4, 4th 1. Total utility keeps rising (10, 17, 21, 22), but the utility of each additional samsa is falling. Aziz stopped after the third and bought tea with the rest of his money.

Inflation is a sustained rise in the general level of prices. The nominal amount of money does not change, but its purchasing power, that is, the quantity of goods that money can buy, decreases.

When prices rise by a certain percentage, purchasing power falls not by the same percentage but by slightly less: new purchasing power = 1 / (1 + price increase). That is why, when saving, you need to take into account that if money just "sits", its real value is gradually eroded.

Example (prepared by the author, hypothetical figures): when bread costs 4 000 soum, 100 000 soum buys 25 loaves. Prices rose by 25%, and bread now costs 5 000 soum: now 20 loaves. Purchasing power is 1 / 1.25 = 0.8, that is, it fell by 20%, while the price had risen by 25%.

This is the effect of competition. When a seller is alone (a situation close to monopoly), the buyer has no other choice, and the seller can set the price well above its costs. When a second seller appears, the buyer can switch to the cheaper place, so both shops are forced to cut prices and improve service to keep their customers.

Alongside price, competition also affects quality, product range and service. In a market with many sellers, the price usually approaches cost plus an average profit.

Example (prepared by the author, hypothetical figures): the only shop, "Oydin", sold 1 kilogram of rice for 18 000 soum, with a wholesale price of 14 000 soum. The new "Saodat" shop began selling it for 16 000 soum. A month later "Oydin" also went down to 16 000 and added a delivery service. The buyer won on both counts.

People are skilled at different jobs to different degrees. If each person specialises in the work they do relatively well and then exchanges their output, more is produced in total. This is the main benefit of the division of labour and exchange.

In economics this is linked to the idea of comparative advantage: what matters is not who does what faster, but who loses less by giving up a particular job.

Example (prepared by the author, hypothetical figures): Akmal, a baker, can make 20 loaves of bread or 2 shirts an hour, and Bobur, a tailor, 10 loaves or 4 shirts an hour. If each splits 8 hours equally: Akmal makes 80 loaves and 8 shirts, Bobur 40 loaves and 16 shirts; in total 120 loaves and 24 shirts. If they specialise: Akmal makes 160 loaves, Bobur 32 shirts. Both totals are higher, and then they exchange with each other. The cost of what is given up: for Akmal 1 shirt = 10 loaves, for Bobur 1 shirt = 2.5 loaves; that is why it is cheaper for Bobur to sew the shirts and for Akmal to bake the bread. The power of the idea of comparative advantage is that even if one person is faster at both jobs, specialisation still pays off as long as the cost of what is given up differs.