Foreign capital or investment has become significant part of sources of funding for various projects in every country. This source of funding has received the attention of both the government as well as the corporate sector that there has been increasing reliance on this source for planning and execution of projects by the government as well as the corporate sector. Foreign capital can come into a country in different forms. Let us first understand these forms of foreign capital before discussing the need for foreign capital. Forms of Foreign Capital Direct Entrepreneurial Investment: In this form of foreign capital, the foreign investors can start a company abroad mainly for the purpose of establishing its branches and subsidiaries in other countries. For instance an American business group may invest in a new project in India directly and start its own affiliate or branch or even a subsidiary. Sometimes, the investors abroad Continue reading
Managerial Economics
Managerial Economics generally refers to the integration of economic theory with business practice. It deals with the use of economic concepts and principles of business decision making. Managerial Economics is thus constituted of that part of economic knowledge or economic theories which is used as a tool of analyzing business problems for rational business decisions. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firms scarce resources.
Duality between Production Function and Cost Function
Production functions and cost functions are the cornerstones of business and managerial economics. A production function is a mathematical relationship that captures the essential features of the technology by means of which an organisation metamorphoses resources such as land, labour and capital into goods or services such as steel or cement. It is the economist’s distillation of the salient information contained in the engineer’s blueprints. Mathematically, let Y denote the quantity of a single output produced by the quantities of inputs denoted (x1,…, xn). Then the production function f(x1,…,xn) describes how a given output can be produced by an infinite combinations of inputs (x1,.., xn), given the technology in use. Several important features of the structure of the technology are captured by the shape of the production function. Relationships among inputs include the degree of substitutability or complementarily among pairs of inputs, as well as the ability to aggregate groups Continue reading
Objectives of Fiscal Policy
By fiscal policy we mean, the government’s tax efforts, public expenditure and public borrowing. Through these the government can effectively encourage consumption, investment and savings habits and also restrict them. For example, suppose there is inflation in a country. Inflation implies that the people have high purchasing power and so they demand goods. To curb this, the government may raise the personal tax and also the corporate tax. Similarly, by altering its expenditure on various public projects, the government would be able to influence the prevailing economic condition. Public borrowing involves government issuing bonds and encouraging common public and other institutions to buy them. By this, the government would be able to bring down the level of purchasing power in the economy and control the inflation. The following are the objectives of fiscal policy: Maximization of the aggregate saving is the first objective. Tins are achieved by encouraging people Continue reading
Schumpeter’s Innovation Theory – Mechanism, Principles, Strengths, and Limitations
Schumpeter’s Innovation Theory provides that the leading role of an entrepreneur in the economic field is the introduction of innovations from which the reward is gaining profits. The model stipulates that entrepreneurship plays a decisive role in fiscal development and that successful creativities are the only way to achieve such goals as financial stability within an organization. It explains that invention could occur in such ways as launching or upgrading a product, introducing new production methods, acquiring advanced supply sources, and bringing unique business structures. The business approach was developed by Joseph Alois Schumpeter, an Austrian political economist and foundational contributor to the topic of development and technological advancements. The idea is based on the more elaborate theory of monetary growth, which focuses on entrepreneurship and its role in industrial empowerment with innovativeness as the linkage. In this regard, Schumpeter worked towards defining and explaining the change in a perspective Continue reading
Types of Demand
Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. generally resulting in market equilibrium where products demanded at a price are equaled by products supplied at that price. Demand depends on the price of the commodity and refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Read: Concept of Demand in Managerial Economics The different types of demand are; i) Direct and Derived Demands Direct demand refers to demand for goods meant for final consumption; it is the demand for consumers’ goods like food items, readymade garments and houses. By contrast, derived demand refers to demand for goods which are needed Continue reading
An overview of Foreign Direct Investment (FDI) in India
About foreign direct investment. Foreign Direct Investment or FDI is the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distribution, and other activities of a firm in another country (the host country). The international monetary fund’s balance of payment manual defines FDI as an investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor. The investors’ purpose being to have an effective voice in the management of the enterprise’. The united nations 1999 world investment report defines FDI as ‘an investment involving a long term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor ( FDI enterprise, affiliate enterprise Continue reading