The incremental concept is closely related to the marginal costs and marginal revenues of economic theory. Incremental concept in managerial economics involves two important activities which are as follows: Estimating the impact of decision alternatives on costs and revenues. Emphasizing the changes in total cost and total cost and total revenue resulting from changes in prices, products, procedures, investments or whatever may be at stake in the decision. The two basic components of incremental reasoning are as follows: Incremental cost: Incremental cost may be defined as the change in total cost resulting from a particular decision. Incremental revenue: Incremental revenue means the change in total revenue resulting from a particular decision. The incremental principle in economics may be stated as under: A decision is obviously a profitable one if; It increases revenue more than costs It reduces costs more that revenues. It decreases some costs to a greater extent than 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.
Variants of Perfect Competition Market Structure
In the previous article, we learned about perfect competition and its features. There are some derivatives of perfect competition. The most important variants of perfect competition market structure are: 1. Effective or Workable Competition Competition among the sellers, even though it may not be perfect, can be regarded as effective if it offers real alternatives to consumers that are sufficient to compel sellers to vary quality, service and price substantially with a view to attract buyers. The prerequisites of effective competition are as follows: Ready substitution of one product for another. General availability of essential information about alternatives (its significance lies in that buyers cannot influence the behavior of the sellers unless alternatives are known.) Presence of several sellers, each of them possessing the capacity to survive and grow. Preservation of conditions which keep alive the basis or potential competition from others. Substantial independence of action that is each seller Continue reading
Nationalization of Indian Banks
Nationalization is the main turning point in the history of Indian banks. After nationalization all banks were under the control of central government. Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India’s banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reason of India’s growth process. The government’s regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks Continue reading
Role of Fiscal Policy in Economic Development
Fiscal policy refers to the guiding principles of the financial work which are constituted by the state based on political, economic and social development tasks under a certain period. Its purpose is to regulate aggregate demand through government’s spending and tax policies. On the one hand, an increase in government spending will stimulate aggregate demand and increase the national income. Correspondingly, a decrease will depress aggregate demand and reduce national income. On the other hand, a tax is a kind of contraction strength to national income. Therefore, the aggregate demand and the national income will be restrained though increasing government revenue. And they will be increased due to reducing in government revenue as well. The fiscal policy with a distinct class character is formulated by the state, represents the will and interests of the ruling class, and is subject to a certain level of development of social productive forces and Continue reading
Theoretical Perspectives on Firm Internationalization
After the World War II, there has been rapid growth in international trade in both goods and services, resulting in various transactions across national borders for the purpose of satisfying the needs of individuals and organisations. The result of this global competition has forced organisations to expand their business by finding out new markets at home and foreign countries making them ‘Transnational firms’. Transnational Corporations (TNC) is defined as a firm that has power to co-ordinate and control operations in more than one country, even if it does not own them. The significance of TNC lies mainly in its ability to co-ordinate and control different transactions within transnational production networks, ability to take advantage of distribution factors of production and ability to be flexible in locations. The growing TNCs led to various patterns and trends in international business like rapid growth in world trade and investment, cross border mergers and Continue reading
Interest Rate Concepts
In market economy, there are many economic-financial categories, including credit and credit interest rate which are two of the most important ones. Credit activities are borrowing and lending activities. The capital-using relationship between borrowers and lenders bases on the principles of reimbursement. Lenders who are in excess of capital have opportunities not only to preserve but also capital get profit. Borrowers who are short of capital have chances to get additional capital to meet production, business or living needs. Therefore, owing to the credit activities that a large proportion of capital in the economy are mobilized, concentrated and distributed from temporary capital surplus sections to shortage ones to meet different needs of all entities in the economy. Indispensable leverage and tool in credit activities is interest rate. Interest rate of bank credit is the ratio in percentage between income and amount of loan for a certain period. Thus, interest rate Continue reading