Besides considering the opportunities that lie before a managerial economist it is necessary to take into account the services that are expected by the management. For this, it is necessary for a managerial economist to thoroughly recognize the responsibilities and obligations. A managerial economist can serve the management best by recognizing that the main objective of the business, is to make a profit on its invested capital. Academic training and the critical comments from people outside the business may lead a managerial economist to adopt an apologetic or defensive attitude towards profits. There should be a strong personal conviction on part of the managerial economist that profits are essential and it is necessary to help enhance the ability of the firm to make profits. Otherwise it is difficult to succeed in serving management. Most management decisions necessarily concern the future, which is rather uncertain. It is, therefore, absolutely essential that 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.
Product Line Pricing
Since almost every firm has several items in its product line, product line pricing becomes an important phase of pricing policy. The problem of product line pricing is to find the proper relationship among the prices of numbers of a product group. Product line pricing may refer to product group. Product line pricing may refer to products physically the same but sold under different conditions. This gives the seller an opportunity to charge different prices. Thus use differentials (e.g. hot coffee versus cold/iced coffee), seasonal differentials (e.g. night fights or night telephone calls), and style cycles differentials are all phases of product line pricing. The rationale for this heterodox approach to pricing is that the essential economic features of the product line is the cross-elasticity of demand that exist among parts of the seller’s output. General Approach to Product Line Pricing The underlying principle in product-line pricing is that demand Continue reading
Economics of the Foreign Exchange Market
In a floating exchange rate regime the price of the dollar, like any other market-determined price, depends on the relevant forces of supply and demand. But what are the relevant forces of supply and demand in the foreign exchange market? To try to answer this question, let us consider, for illustration, the factors that determine the relationship between the Australian dollar and the Japanese yen. The Japanese require dollars to pay for their imports of goods and services from Australia and to fund any investment they may wish to undertake in this country. Assume that they obtain these dollars on the foreign exchange market by supplying (selling) yen in return. So the Japanese demand for dollars (mirrored by the supply of yen) is determined by the exports to Japan and our capital inflow from that country. On the other side of the market, the Australian demand for yen is determined Continue reading
Volume-Profit Analysis
Volume-Profit Analysis is very similar to the break-even analysis and is based on the relationship of profits to sales volume. The profit-volume graph shows the relationship of firm’s profit to its volume. Total profit or loss is measured on the vertical axis above the X-axis and the loss below it. The volume is measured on the X-axis, which is drawn at the point of ‘Zero-Profit’. Volume is usually expressed in tons of percentage of full capacity. The maximum loss, which occurs at zero sales volume, is equal to the fixed cost and is shown on the vertical axis below the X-axis. The maximum profit is earned when the firm works at full capacity. The point of maximum profit is shown on the vertical axis above the X-axis. The two points of maximum loss and the maximum profit are joined by a line, which is known as the profit line. The Continue reading
Sectoral Demand-Shift Theory of Inflation
Under demand-pull inflation, we have shown how expansion in aggregate demand without a proportionate increase in the supply of goods and services leads to an inflationary situation. However, it is not necessary to have a general increase in demand to bring about inflationary pressure. Sometimes, the increase in demand may be confined to some sector of the economy and this increase in demand and the consequent rise in the price in a particular sector may spread to other sectors. Suppose the demand for agricultural goods rises because of inadequate supplies of these goods, there would be a consequent rise in the price of agricultural goods. Thus, the rise in prices spreads to all other sectors in the economy, through rise in the prices of raw materials and wages. The rise in prices in the agricultural sector may push up prices in the industrial sector. Therefore, the inflationary rise in the Continue reading
Important Functions of Money
Money is a critical component of any modern economy, serving as a medium of exchange, a store of value, and a unit of account. It is used by individuals, businesses, and governments to facilitate transactions and to manage financial resources. In this essay, we will explore the functions of money, and how it helps to facilitate economic activity. Medium of Exchange: One of the most important functions of money is its role as a medium of exchange. In a barter system, goods and services are exchanged directly for other goods and services, with no universal medium of exchange. However, money provides a convenient and efficient way to facilitate transactions by allowing buyers and sellers to exchange goods and services for a universally accepted form of payment. This reduces the need for a double coincidence of wants, where a buyer must have something the seller wants in order to complete a Continue reading