An oligopoly is defined as a market structure wherein industries are dominated or handled by “few” firms. Oligopolistic market structure dominates the market structures available, accounting half of the total outputs in the world. Industries which adapt to these vary from manufacturers of automobiles to breakfast cereal or even television broadcasting to airlines. In the words of Robert Y. Awh, “Oligopoly is that market structure in which a few sellers who clearly recognize their mutual interdependence produce the bulk of the market output”. Oligopoly differs from other market categories in that, under monopoly we have only one seller, under perfect competition we have many sellers, under monopolistic competition we has a sufficiently large group of small monopolists whereas under oligopoly we have a few sellers constituting a small group. In an Oligopolistic market the firms may be producing either homogeneous or differentiated products. Besides, the element of 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.
Introduction to Managerial Economics
Managerial economics is a discipline which deals with the application of economic theory to business management. It deals with the use of economic concepts and principles of business decision making. Formerly it was known as “Business Economics” but the term has now been discarded in favor of Managerial Economics. Managerial Economics may be defined as the study of economic theories, logic and methodology which are generally applied to seek solution to the practical problems of business. 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 is often called as Business Economics or Economic for Firms. Definition of Managerial Economics: “Managerial Economics is economics applied in decision making. It is a special branch of economics bridging the gap between abstract theory and managerial practice.” — Haynes, Mote and Paul. “Business Continue reading
Keynesian Theory of Trade Cycles
John Maynard Keynes, one of the most influential economists of the 20th century, never worked out a pure theory of trade cycles, though he made significant contributions to the trade cycle theory. Keynes states, “The trade cycle can be described and analyzed in terms of the fluctuations of the marginal efficiency of capital relatively to the rate of interest.” According to Keynes, the level of income and employment in a capitalist economy depends upon effective demand, comprising of total consumption and investment expenditure. Changes in total expenditure will imply changes in effective demand and will lead to changes in income and employment in the country. Therefore, in the Keynesian system fluctuations in total expenditure are responsible for fluctuations in business activity. Now, according to Keynes, consumption expenditure is relatively stable, and consequently it is the fluctuations in the volume of investment that are responsible for changes in the level of Continue reading
Factors Affecting / Limiting Consumption
As the demand for a good depends upon its price, similarly consumption of a community depends upon the level of income. In other words, consumption is a function of income. The consumption function relates the amount of consumption to the level of income. When the income of a community rises, consumption also rises. How much consumption rises in response to a given increase in income depends upon the propensity to consume or consumption function. It should be borne in mind that the consumption function or the propensity to consume is the whole schedule which describes the amounts of consumption at various levels of income. Consumption is the sole end and purpose of all production. What restricts consumption? The factors which limit consumption are: The product and its limitations: This is a part of market research which is of great importance to product development and design. Solution may be obtained Continue reading
Fiscal Policy – Definition, Objectives and Techniques
The term fiscal has been derived from the greek word fisc, meaning a basket to symbolize the public purse. Fiscal policy thus means the policy related to the treasury of the government. Fiscal policy is a part of general economic policy of the government which is primarily concerned with the budget receipts and expenditures of the government. All welfare projects are completed under this policy .It also suggests measures to control economic fluctuations which may become violent and create great upheavals in the socio-economic structure of the economy. It also outlines the influence of resource utilization on the level of aggregate demand through affecting the level of aggregate consumption and investment expenditure. Definitions of Fiscal Policy According to U. Hicks “Fiscal policy is concerned with the manner in which all the different elements of public finance, while still primarily concerned with carrying out their own duties, may collectively be geared Continue reading
Four Approaches to the Determination of Exchange Rates
In simple terms, it is the interaction of supply and demand factors for two currencies in the market that determines the rate at which they trade. But what factors influence the many thousands of decisions made each day to buy or sell a currency? How do changes in supply and demand conditions explain the path of an exchange rate over the course of a day, a month, or a year? This complex issue has been extensively studied in economic literature and widely discussed among investors, officials, academicians, traders, and others. Still, there are no definitive answers. Views on exchange rate determination differ and have changed over time. No single approach provides a satisfactory explanation of exchange rate movements, particularly short- and medium-term movements, since the advent of widespread floating in the early 1970s. Some approaches to exchange rate determination: 1. The Purchasing Power Parity Approach Purchasing Power Parity (PPP) theory Continue reading