Knowing Inflation By inflation one generally means rise in prices. To be more correct inflation is persistent rise in the general price level rather than a once-for-all rise in it, while deflation is persistent falling price. A situation is described as inflationary when either the prices or the supply of money are rising, but in practice both will rise together. These days economies of all countries whether underdeveloped, developing as well developed suffers from inflation. Inflation or persistent rising prices are major problem today in world. Because of many reasons, first, the rate of inflation these years are much high than experienced earlier periods. Second, Inflation in these years coexists with high rate of unemployment, which is a new phenomenon and made it difficult to control inflation. An inflationary situation is where there is ‘too much money chasing too few goods’. As products/services are scarce in relation to the money 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.
Demand-Pull and Cost-Push Inflation
The term ‘inflation’ is used in many senses and it is difficult to give a generally accepted, precise and scientific definition of the term. Popularly, inflation refers to a rise in price level. Read More: Definition of Inflation and it’s Types Causes and Effects of Inflation The Stages of Inflation Keynesian View of Inflation Effects of Inflation on Different Groups of Society We can distinguish between two kinds of inflation on the basis of their causes, viz., demand-pull and cost-push inflation. Demand-Pull Inflation The most common cause for inflation is the pressure of ever-rising demand on a stagnant or less rapidly increasing supply of goods and services. The expansion in aggregate demand may be due to rapidly increasing private investment or expanding government expenditure for war or economic development. At a time when demand is expanding and exerting pressure on prices, attempts are made to expand production. However, this may Continue reading
Perfect Competition – Perfectly Competitive Market
Perfect competition is a market situation where large number of buyers and sellers operate freely and commodity sells at a uniform price. In such a situation no seller or buyer has any influence on the market price. In a perfectly competitive market, a firm is the price taker and industry is the price maker. Main Features of Perfect Competition The main features of perfect competition are as follows: There are a large number of buyers and sellers. Each seller must be small and the quantity supplied by any seller must be so insignificant that no increase or decrease in his output can appreciably affect the total supply and the market price. So also, each buyer must be small and the quantity bought by any of the buyers should be so insignificant that no increase or decrease in his purchases can · appreciably affect the total demand and the price. As Continue reading
Commodity Price Stabilization in International Business
Many developing nations exports are concentrated in only one or a few primary products and thus unstable export markets, worsening terms of trade, and limited access to world markets for the products can significantly reduce export revenues and seriously disrupt domestic income and employment level. In addition, many developing nations feel that developed nations tend to insist that developing nations open their markets to industrial products from the developed world, yet refuse to open their markets to agricultural goods from the developing world. For example, United States have used aggressive antidumping and countervailing duties to limit access to their markets. As noted, the export prices and revenues of developing countries can be quite volatile. In an attempt to stabilize export revenues and prices, International Commodity Agreements (ICA) have been formed by producers and consumers of primary products about matters such as commodity price stabilization, assuring adequate supplies to consumers, and Continue reading
Arguments in Favor of Firms Profit Maximization Objective
Profit maximization is the most important assumption, which helps the economists to introduce the price and production theories. The traditional economic theory assumes that the profit maximization is the only objective of business firms. According to this theory, profits must be earned by business to provide for its own survival, coverage of risks, growth and expansion. It is a necessary motivating force and it is in terms of profits that the efficiency of a business is measured. It forms the basis of conventional price theory. Profit maximization is regarded as the most reasonable and analytically the most productive business objective. The profit maximization assumption in this theory helps in predicting the behavior of business firms and also the behavior of price and out pet under different market conditions. No alternative hypothesis or assumption explains and predicts the behavior of firms better than the profit maximization assumption. The traditional theory supports Continue reading
Producer’s Equilibrium
Given the Isoproduct map, the producer would like to ride on the highest possible Isoquant because any point on it would yield maximum possible output. But the producer’s desires are limited by his budgetary constraints. Before he selects a certain combination of inputs he has to take into consideration the size of his investment outlay and the prices of the factors of production. The Isocost Line Let us assume that the investment fund is given and the prices of factors X and Y are also known. On the basis of these assumptions let us suppose that the firm were to spend the entire amount on employing units of only input X. Then it could hireOB units of factor X. On the other hand if the producer wants to allocate his entire investment outlay in employing factor Y then he could hire OA units of Y. We have now obtained the Continue reading